ALLOCATION OF TAXES AS PER GOODS AND SERVICES TAX

Submitted By-

DIVYA BASAN- 16010324322

MEHAK AGARWAL- 16010324343

BBA LLB

Section- D

Symbiosis Law School, Hyderabad

Symbiosis International University, PUNE

In

SEPTEMBER 2019

Under the Guidance of

Prof. A CHANDRASEKHAR

PRINCIPLES OF TAXATION LAW

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 CERTIFICATE

The Project entitled “ALLOCATION OF TAXES AS PER GOODS AND SERVICES

TAX” is submitted to the Symbiosis Law School, Hyderabad for concept of Taxation as part
of internal assessment is based on my original work carried out under the guidance of
PROF.A CHANDRASEKHAR. The research work has not been submitted elsewhere for
award of any degree.
The material borrowed from other sources and incorporated in the thesis has been duly
acknowledged. We understand that we could be held responsible and accountable for
plagiarism, if any, detected later on.

DIVYA BASAN

MEHAK AGARWAL

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 ACKNOWLEDGEMENT

This research was supported by Prof. A. Chandrasekhar. We would also like to thank all
our colleagues from Symbiosis Law School Hyderabad who provided insight and expertise
that greatly assisted the research, although they may not agree with all of the
interpretations/conclusions of this paper.

We thank sir for his assistance with technique and methodology for comments that greatly
improved the current research project. We would also like to show our gratitude to our
parents and other members of our life for sharing their pearls of wisdom with us during the
course of this research, although any errors are my own and should not tarnish the reputations
of these esteemed persons.

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 INDEX

SL NO TOPIC PAGE NO

1 ABSTRACT 5

2 INTRODUCTION 6

3 OBJECTIVES 8

4 RESEARCH QUESTIONS 8

5 LITERATURE REVIEW 8

6 ANALYSIS 9

7 CONCLUSION 15

8 BIBLIOGRAPAHY 16

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 ABSTRACT

The Goods and Services Tax (GST), implemented on July 1,2017, is regarded as a major
taxation reform till date implemented in India since independence in 1947. GST was planned
to be implemented in April 2010, but was postponed due to political issues and conflicting
interest of stakeholders. The primary objective behind development of GST is to subsume all
sorts of indirect taxes in India like Central Excise Tax, VAT/Sales Tax, Service tax, etc. and
implement one taxation system in India. The GST based taxation system brings more
transparency in taxation system and increases GDP rate from 1% to 2% and reduces tax
theft and corruption in country. The paper highlights the background of the taxation system,
and as allocation of taxes is a broad topic it has been narrowed down to the concept of GST
along with its implications under various sectors, and also presented in-depth coverage
regarding advantages to various sectors of the Indian economy after imposition of GST and
outlined some challenges of GST implementation.

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 INTRODUCTION

Taxation is defined as a means of imposing charges on individuals or entities owned by the

government respectively. The objective remains to raise such a revenue generated in order to
account for public purposed couples with government expenditures respectively.
Furthermore, the crux of any economy relies on its governmental revenue. The major point of
difference of taxes from other sources is the fact that they are mandatory levied upon the
individuals or the government entities.

Purpose of Taxation

The primary purpose of imposing any form of taxation is to finance the government of the
respective nation. The second reason is the redistribution of income which is meant to reduce
the inequalities in the distribution of income as well as wealth. The purpose is to implement
tax policies through stabilization.

Classification of taxes

Taxes are commonly classified into Direct and Indirect taxes respectively. The former is
taxed on an individual or a natural person and is dependant upon income and consumption.
Examples of Direct tax includes income tax, corporation tax etc.

Indirect taxes are levied on the production or consumption of goods and services or on
transactions primarily consisting of imports and exports. Examples include general and
selective sales taxes, value added taxes (VAT), taxes levied on any aspect of manufacturing
or production, customs, import duties etc

In India, the taxation system is controlled, imposed and updated by the Central and State
government. Such an authority to impose taxes stems from the Constitution of India which
allocates such power to state and central government respectively. This system complicated
the taxation process and therefore, the government of India introduced a uniform tax in the
form of GST.

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 TAXATION SYSTEM (PRE- GST)

The comprehensive system of GST entailed the Central and the State government imposed
and collecting taxes on goods and services separately. Such a tax collected was as per article
246 of the Constitution of India. The state government had power to levy taxes on the sales of
goods whereas the central government had the power to levy and collect Service Tax.

Furthermore, Central Excise, Customs and Service Tax were the main components of indirect
taxes for the central government whereas, VAT and Central Sales Tac (CST) were the major
taxes for the State government. Such an instance led to imposition of taxes by different
authorities on the same subject. These taxes paid on input goods could not be set off against
the output tax payable on services. This ultimately led to cascading of taxes that increased the
cost of goods.

TAXATION SYSTEM (POST- GST)

GST is a value added tax levied on most goods and services sold for domestic consumption.
Its main objective is to consolidate multiple indirect tax into a single tax which improves the
efficiency in the administration of tax. Thus, it entails a host of taxes and overcomes the
limitation of the complex indirect structure.

Furthermore, the concept of GST entails two major principles i.e.;

(1) The Destination Principle.

(2) Value Added Principle.

Destination Principle

Goods and services are to taxed at the point of consumption. Therefore, the source-based tax
system is replaced.

Value Added Principle

This principle entails that tax shall be collected on value-added to goods or services at each
stage of the supply chain. Therefore, GST shall be collected from the original producer or
service provider to the ultimate consumer. Also, the GST paid on the purchase of goods and
services are set off against the output tax payable on the supply of goods and services. Thus,

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such a system provides for a comprehensive and continuous tax throughout the supply chain
and eliminates the cascading effect of taxes respectively.

‘OBJECTIVES

The general objective of this particular research is to get the practical insights of the goods
and services tax. The other objectives are as follows:-

A. To understand the concept of the present day taxation system introduced – Goods &
services tax (GST) in India.
B. To understand the three major important concepts of GST
C. To analyse the prospects of taxation position of various goods and services in India

RESEARCH QUESTIONS

1) What are the aspects an implications of GST model?

2) To ascertain the impact of GST on various sectors like IT, telecom, Automobiles,
finance etc.
3) To evaluate the advantages and challenges surrounding GST

LITERATURE REVIEW

The implementation of GST in India piloted various new concepts of indirect taxation. The
cause for the levy of indirect taxes shifted from the concept of manufacturing, service and
sales to the concept of ‘supply’. The indirect tax system itself transitioned from an origin-
based taxation to a largely destination / consumption-based taxation system. An important
change under the GST regime is the treatment of inter-unit cross-charges. The service tax
regime had the provision of centralized registration and even in cases where separate or
decentralized registrations were obtained, all the registrations were part of the same person or
entity and no deemed transaction arose between the registrations. The course of this research
paper will examine the model and its implications on various sectors subsequently.

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 ANALYSIS

RESEARCH QUESTION (1)- WHATARE THE ASPECTS AND IMPLICATIONS OF

GST MODEL?

(A)Goods and Services Tax (GST) was proposed in 2014 to be implemented with effect from
June 2016. The GST implementation is “dual” in nature- one component is implemented by
Centre (CGST) and another component by state (SGST). The base of tax would in 2014 to be
implemented with effect from June 2016. The GST implementation is “dual” in nature – one
component is implemented by Centre (CGST) and another component by State (SGST). The
base of tax would be the same by Centre and State governments. GST came into effect in
India on July 1, 2017. With some major modifications, the GST would now have three prime
models:
1) CENTRE GST : GST to be levied by the centre
2) STATE GST : GST to be be levied by the States
3) DUAL GST : GST to be levied by the Centre and the States concurrently
The same has been depicted in the following chart respectively.

As GST is a single tax on the supply of goods and services, right from the manufacturer to
the consumer. The final consumer will thus bear only the GST charged by the last dealer in
the supply chain; GST has been envisaged as a more efficient tax system, neutral in its
application and distributionally attractive. GST has helped in a simpler tax system as all the

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different types of taxes are subsumed under various heads which further makes it easier to
differentiate the several taxes.
The subsumed taxes are mentioned as follows:-

CENTRAL GOODS AND SERVICE TAX1

CGST is one of the three prime models as mentioned above. Taxes collected under central
goods and service tax will be the revenue for central Government. Present Central taxes like
Central excise duty, Additional Excise duty, Special excise duty, central sales tax, service tax
etc. will be subsumed under Central Goods and Service tax.

STATE GOODS AND SERVICE TAX

A collection of SGST will be the revenue for State Government. After the introduction of
SGST all the state taxes like Value Added Tax, Entertainment Tax, Luxury Tax, Entry Tax
etc. will be merged under SGST for example, if goods are sold or services are provided
within the State then SGST will be levied on such transaction.

INTEGRATED GOODS AND SERVICE TAX

Revenue collected from IGST will be divided between Central Government and State
Government as per the rates specified by the government. IGST will be charged on transfer of
goods and services from one state to another state. Import of Goods and Services will also be
deemed to be covered under Inter-state transactions so IGST will be levied on such
transactions. For example, if Goods or services are transferred from Rajasthan to Maharashtra
then the transactions will attract IGST

PROPOSED GST RATE

The rate of the proposed Goods and Services Tax for the certain goods and services are laid
down by the government which is as follows.

1. For Goods the Total GST rate is 20 % in which 12% of the tax is levied by Central while
remaining 8% will be levied by the state.

2. For Services the Total GST is 16% out of which 8% is for the Central and 8% is for the
state.

1
https://www.gstindia.com/gst-models-and-cgst/, viewed on 24/09/19 at 13:00 pm

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3. For the essential Goods the GST is levied at 12% in which is divided equally that is 6% for
Centre and 6% for state.

Currently, it is collected in the form of VAT which is 26.5% that is Central Value Added Tax
is 14% and State VAT is 12.5%.

The above-mentioned percentage of Goods and Service Tax is just a proposed value it may
subject to change as per the revisions make up by the Executive Committee and the
government.

THE SIGNIFICANT FEATURES OF DUAL GST ARE AS UNDER:

1) There will be Central GST to be administered by the Central Government and there
will be State GST administered by the State Governments.
2) Central GST will replace existing CENVAT and Service tax and the State GST will
replace State VAT.
3) The proposed GST will have two components – Central GST and State GST – the
rates of which will be prescribed separately keeping in view the revenue
considerations, total tax burden and the acceptability of the tax.
4) Certain components of petroleum, liquor and tobacco are likely to be outside GST
structure. Further, State Excise on liquor may also be kept outside the GST.

As per the proposed GST regime, the input of Central GST can be utilized only for the
payment of CGST and the input of State GST can be utilized only for payment of SGST.

(B) - IMPLICATIONS OF THE GST MODEL2

1) The tax structure will be made lean and simple.

2) In the long run, the lower tax burden could translate into lower prices on goods for
consumers.
3) The Suppliers, manufacturers, wholesalers and retailers are able to recover GST
incurred on input costs as tax credits. This reduces the cost of doing business, thus
enabling fairer prices for consumers.
4) It can bring more transparency and better compliance.

2
GST: Impact and implications in Indian economy, Journal of Internet Banking and commerce, Sankar R

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 5) Number of departments (tax departments) will reduce which in turn may lead to less
corruption.
6) Companies which are under unorganized sector will come under tax regime

RESEARCH QUESTION (2)- WHAT IS THE IMPACT OF GST ON VARIOUS

SECTORS AS PER THE TAX ALLOCATION?3

The present research paper will deal with allocation of taxes, i.e. impact of GST on 6 primary
sectors respectively. These are;

(A) IT

GST on IT sector attracts 18 % on software services provided by software companies. Earlier,

sale of software packaged software attracted both VAT and Service tax wherein the VAT rate
was around 5 % and service tax rate was 15 % with the applicability of Excise duty in
instances of manufacturing IT products.

(B) TELECOM

GST rate on telecom sector is 18% respectively. Even though such a sector is higher than
15% that consumers paid on their phone bills and cess, the telecom operators get the benefit
of input tax credit, bringing the overall effective rates lower for the consumers.

(C) AUTOMOBILES

The respective GST rate pertaining to the automobile sector is deemed to range between 20-
22 % post its implementation. Furthermore, prior to the commencement of GST, its rate
ranged between 30-47%. The overall cost cutting is around a value of 10 %. The
implementation of GST has been beneficial in the automobile sector since the transportation
time is deemed to be less as well.

(D) CEMENT

Pertaining to cement, the GST rate is presenting 20-25% of its share in the tax authority. Prior
to the commencement of GST, this rate was edging between 27-32% respectively. This

3
GST and its Impact on various sectors, Ms N.Ramya & Ms.D.Sivasakthi

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implementation has improved the growth of the sector in terms of its warehouse scheme.
Furthermore, the transportation cost has been reduced as well.

(E) PHARMACY

The pharmacy sector shares only 6 % of its share to the tax authority. This sector avails the
incentives in tax benefits. Furthermore, various other concessional benefits and exemptions
are retained in this sector. The implication of GST is deemed to reduce the logistics cost.

(F) BANKING AND FINANCIAL INSTITUTIONS

The GST rate in the Banking and Financial institutions is deemed to be 18-20%. Prior to
commencement of GST, the tax rates were 14%. The input expense of operations post GST is
likely to increase and hike in the transactions that are financial in nature. These transactions
include, loan processing fees, debit/credit charges, insurance premium etc.

(G) FMCG INDUSTRIES

The implementation of GST shows a rate of return as 17-19% leading to a strong impact in its
production and consumption. However, certain food items ranging from cereals, candies,
vegetables etc have been exempted

RESEARCH QUESTION (3)- WHAT ARE THE ADVANTAGES AND

CHALLENGES SURROUNDING GST?

The introduction of GST and its allocation of taxes in various sectors has impacted the entire
taxation system in the Indian economy. The GDP ratio and control in inflation has been
affected by the introduction of GST. Through the course of this research project, evident data
as per the analysis in the research question 2 reflect that the introduction of such a tax has
prone to be advantageous to the manufacturing industry and posed various challenges in the
service sector industry respectively.

The growth rate of India as per the implementation of GST was expected to grow from a
margin of 1-2 %. Furthermore, the GST rates implemented in various other slabs like 5%,
12%, 18%, 28% provide tax increment to the government and manufacturing sector that

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entail immense growth with reduction in tax rate. Furthermore, various other unorganised
sector such as Hardware, Electronics etc come under the purview of a tax slab4.

Thus, the advantage of GST5 are enlisted as follows;

(1) The implementation of GST has brought a number of indirect tax and consolidated
under one head. Thus, this process has simplified the taxation method for providing
service and commodity business.
(2) It is inferred that cost of products and services are reduced with the advent of GST
since the cascading effect of a series of VATs and taxes have been eliminated.
(3) Companies who range as service providers have a low turnover of around 20 lakhs are
exempted from paying GST. In instances wherein such companies are in North
Eastern states, the threshold is at Rs 10 lakhs respectively.
(4) Companies whose turnover is up to 75 lakhs under the GST taxation process are given
the benefit from composition scheme and pay 1% tax on their turnover respectively.
(5) The introduction of GST exempts small companies to comply with excise, service tax
and VAT respectively.
(6) The tax allocation as per GST is distributed across the entire country, providing funds
for development.
(7) A uniformity in the taxation process prevails due to centralised registration.
(8) Logistics cost are reduced by eliminating border taxes and resolving check -post
discrepancies.
(9) Possibility of tax evasion is minimised.

Apart from such advantages, it is imperative to know that there are certain challenges that
GST poses as well. These are;

GST is still in its early stages. Hence, tax reforms may occur from time to time via GST
council meetings regarding finalization of tax rates and even imposition of various other new
rates. After the implementation of GST, a requirement for modern technology for successful
monitoring of taxation council exists.Furthermore, by virtue of GST, under the Disability tax,
articles such as braille paper, wheelchairs and hearing aid are also taxed. Another criticism

4
GST- Benefits and challenges of implementation in India, International journal of economics and business
management, T.Venkataramana & T. mahvdeva Reddy
5
GST in India: Benefits, Challenges & Way forward, Gurmeet Singh

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that GST has attracted is that its increased costs of software purchases that assist GST in its
filling process has in turn lead to a higher operational cost for various other businesses.

CONCLUSION
Implementation of GST was strongly supported by the government of India due to its
different positive implications. All the sectors, as mentioned above, like manufacturing,
service, telecom, automobile and small SMEs in India will bear the GST impact. GST, being
a major tax reform will make the entire nation follow a unique and single taxation system
rate. According to the study, proper follow up of the GST will lead to improvised tax
collections and boost up the economic development of India and break all the tax barriers
between central and state government. GST with providing a clear and transparent taxation
system in India also has certain loopholes to be looked into by the government of India.

The major benefit of the GST is that it affects the indirect taxation system and helps the tax
payers with burden. GST also helps to reduce the burden of record and hence the burden on
the tax payers. Approximately, around 10-12 taxes are covered under GST (VAT, excise duty
etc.). GST works by the method of reducing the price of various goods and increasing the sale
thereby. This efficient formulation of GST will lead to resource and revenue gain for both
centre and states mainly through certain improvement in tax compliance and widening of tax
base. It can thus be concluded that GST have a positive impact on various sectors and
industry.
As no reform can be accurately perfect, likewise GST implementation might also lead to
some difficulty, especially in relation to services taxation by the states. But, this problem can
be solved to a certain extent by the implementation of the GST Model. Further, transparent,
fair, and credible compensation will create the conditions for effective implementation by the
states and for engender trust between the centre and states. Certain steps towards the
achieving a success in the implementation was taken by the GST system by eliminating al
taxes on inter-State trade (including the 1 percent additional duty) and replacing them by ne
GST will be critical to achieving this objective.

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 BIBLIOGRAPHY

WEBSITES
1. https://www.researchgate.net/publication/320892175_GST_AND_ITS_IMPACT_ON_VARI
OUS_SECTOR
2. http://www.iosrjournals.org/iosr-jbm/papers/Conf.18010-2018/Volume%202/4.%2008-10.pdf
3. http://www.icommercecentral.com/open-access/gst-impact-and-implications-on-various-
industries-in-indian-economy.pdf
4. http://iaard.net/images/IAARD%20Journals-IJBEM-2017-3(1)-23-25.pdf

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