1. GOODS & SERVICE TAX Unleashing of the new era in the Indirect Taxation Arena Date : 21st May 2015 Venue: Hotel ADR Residency

2. SectionParticulars Details 1 EMERGENCE OF GOODS & SERVICE TAX 1.Current Indirect Tax Structure 2.Issues with Current Indirect Taxation 2 GOODS & SERVICE TAX DEMYSTIFIED 1.What is GST? 2.Transaction Flow Analysis under GST 3.GST- Key Features 4.Subsumation of Taxes in GST 5.IGST Model 6.Understanding the Impact of GST 3 GOODS & SERVICE TAX WAY FORWARD 1.Way Forward for Introduction of GST 2.GST Open Issues Flow of Presentation

3. Section 1 EMERGENCE OF GOODS & SERVICE TAX CGA

4. Indirect Tax – Current Structure in India Present Indirect Tax Structure (Four Major Constituents ) Excise Duty (CENVAT ) Service TaxSales Tax/VAT Customs Duty Entry No. 84, List I, Schedule VII of the Constitution of India (COI) Residuary Entry No. 97, List I, Schedule VII, of COI Entry No. 54 of List II (State VAT) and 92A of List I (Central Sales Tax), Schedule VII of COI Entry No. 83, List I, Schedule VII, (COI) Taxable Event is Manufacture Taxable Event is Provision of Service Taxable Event is Sale Taxable Event is Import & Export Median Rate- 12.50% Single Rate- 12%(Plus cess) – Proposed @14% in Budget 2015 Rates- 0%, 4%, 12.5% & 20% Median Rate- 24% (plus cess) Tax Relevant Entry in Constitution Taxable Event Rate of Taxation Central Government State GovernmentCentral Government Levied By CGA

5. Indirect Tax – Issues in Current Structure  Multiplicity of Duties/ Taxes  Lack of Uniformity of Provisions in State Vat Statutes - Definition of goods, capital goods, thresholds, classification, exemptions, procedures etc.  Sale of Goods Vs Provision of Services - Composite Contracts, Works Contracts, Housekeeping contracts, software development contracts, software upgrades etc.  Inability of State to levy Tax on Services  Distortion of Tax Base with Multitude of Exemptions

6. CGA Indirect Tax – Issues in Current Structure  Cascading Effect of Taxes - Due to Vat/ CST on Excise, CST, various Exemptions etc.  Complexities in Tax Administration - Multiple Acts/levies leading to various procedures, returns, assessments,date of payment of taxes, dispute resolution etc. - Problem of Multi-locational corporates

7. Section 2 CGA GOODS & SERVICE TAX DEMYSTIFIED

8. Road Map to GST in India TIMEEVENTS 2004Dr. Kelkar II Task force recommended need for National GST Jan, 2007First GST report by Dr. Shome Feb, 2007FM announced implementation of GST by April, 2010 and Set up EC April, 2007Phasing out process of CST Started May, 2007Joint Working Group (JWG) Constituted by Empowered Committee Nov,2007Report of JWG discussed by Empowered Committee Nov,200713 th Finance commission constituted by President April, 2008Recommendations report is sent by EC to Govt. Dec, 2008The Govt. submitted its comments on EC report Nov, 2009Release of First Discussion paper by EC Dec, 200913 th Finance Commission submitted its report April 1, 2010Introduction of GST missed its first deadline March 22, 2011 The Constitution (One hundred and fifteenth Amendment) Bill, 2011 introduced (this lapsed due to dissolution of Lok Sabha) August 2013Submission of report by Standing committee on Constitution (115th Amendment) Bill, 2011 December 19, 2014The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014 introduced February 24, 2015Fourteenth Finance Commission Report tabled before Parliament May 6,2015Constitution (122 nd Amendment) Bill, 2014 passed in Lok Sabha May 12,2015Constitution (122 nd Amendment) Bill, 2014 referred to Select Committee of Rajya Sabha April 1, 2016Implementation of GST [target date as per Budget 2015]

9. What is GST ?  Goods and Service Tax is - a comprehensive value added tax on supply of goods or services or both - levied at every stage of production –distribution chain - Ensures seamless input tax credit throughout the supply chain - At all stages of production and distribution, taxes are a pass through and tax is borne by the final consumer  No differentiation between Goods and Services as GST is levied at each stage in the supply chain  Internationally, comprehensive Goods & Services tax has already been introduced in more than 100 countries across the world.

10. Models of GST- An International Experience GST at Union Govt Only Australia Best Model creates a Common market Requires a Change in Federal Structure GST at State Government Only United States Each state enjoys complete autonomy Requires Constitutional Amendment GST at Both Levels Union & State Canada, Brazil Aligned to the Federal structure of India Inter- governmental co-ordination is an essential India has opted for Concurrent Dual GST

11. Transaction Flow ( Present Regime) Input Manufacturer Output Manufacturer Dealer Consumer Excise = INR 10 Excise = INR 11 ITC = INR 10 INR 1 Tax Invoice (A) Value = INR 100 Excise= INR 10 VAT= INR 11 Total = INR 121 Tax Invoice (B) Cost = INR 100 Value = INR 110 Excise= INR 11 VAT= INR 12.10 Total = INR 133.10 Tax Invoice (C) Cost = INR 121 Value = INR 133.10 VAT= INR 13.31 Total = INR 146.41 VAT = INR 11 VAT = INR 12.10 ITC = INR 11 INR 1.1 VAT = INR 13.31 ITC = INR 12.10 INR 1.21 State Tax (11+1.1+1. 1.21)= 13.31 Central Tax (10+1)= 11 No Credit of Excise Available to Dealer

12. Transaction Flow ( GST Regime) CGST = INR 10 CGST = INR 11 Input CGST= INR 10 INR 1 Tax Invoice (A) Value = INR 100 CGST= INR 10 SGST= INR 10 Total = INR 120 Tax Invoice (B) Cost = INR 100 Value = INR 110 CGST = INR 11 SGST= INR 11 Total = INR 132 Tax Invoice (C) Cost = INR 110 Value = INR 121 CGST = INR 12.10 SGST= INR 12.10 Total = INR 145.20 SGST = INR 10 SGST = INR 11 Input SGST = INR 10 INR 1 SGST = INR 12.10 Input SGST = INR 11 INR 1.10 State Tax (10+1+1.1. 10)= 12.10 Central Tax (10+1+1.10) = 12.10 CGST = INR 12.10 Input CGST = INR 11 INR 1.10 Input Manufacturer Output Manufacturer Dealer Consumer

13. Destination based Multipoint levy Applicability of GST to all transactions except o Exempted goods and Services o Goods which are outside the preview of GST and o Transactions which ate below the prescribed thresholds Taxable Event o Will be supply of goods or services or both Dual GST o Central GST will be levied and collected by the Centre o State GST will be levied and collected by the States Common & Identical Tax base GST- Key Features

14. Payment of GST o CGST and SGST are to be paid to the accounts of the Centre and the States separately Intra-State supplies of goods or services o Liable to CGST & SGST on identical tax base Inter-State supplies of goods or services o Liable to Integrated Goods & Service Tax (IGST) by the Centre IGST on Imports into India Stock transfers outside State will also liable to IGST Additional Tax of 1% on Inter State Taxable supply of Goods by State of Origin and non CENVATABLE GST- Key Features

15. Input Tax Credit Set off Cross Utilization of ITC o No Cross Set off of ITC between CGST & SGST Special Industrial Area Schemes o Will be converted into cash refund schemes, if at all needed so that continuous chain of set off is not disturbed. Registration & Tax Payer Registration Number o PAN Linked GST Registration Zero rating of Exports Maintenance of Books of Accounts o Taxpayer to maintain separate details in books of account for availment, utilization or refund of Input Tax credit of CGST, SGST and IGST GST- Key Features

16. Periodic Return Administration & Assessment of GST o CBEC responsible for Administration & Assessment of CGST o State VAT Administrations are responsible for Administration & Assessment of SGST Threshold Limit under GST GST- Key Features

17. Establishment of Goods & Service Tax Council: – GST council shall make recommendations on matters relating to GST to both Union and States to ensure harmonization. – The GST Council shall make recommendations on the following: (a) taxes to be subsumed in GST; (b) the goods and services that may be subjected to GST; (c) the goods and services that may be exempted from GST; (d) model Goods and Services Tax Laws; (e) the threshold limit; (f) the rates including floor rates with bands of goods and services tax; (g) any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster; (h) special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur; Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand and (i) any other matter relating to the goods and services tax, as the Council may decide. Key Features of GST –GST Council

18. Every decision of the Goods and Services Tax Council shall be taken at a meeting, by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles, namely: (a) the vote of the Central Government shall have a weightage of one-third of the total votes cast, and (b) the votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast, in that meeting. Key Features of GST –GST Council

19. RNR : Ideally GST Rates should be such rates which would yield the same revenue as collected from various taxes which will be subsumed. Empowered Committee – GST rates to be based on RNR – Four rates o Merit rate for essential goods and goods of basic importance o Standard rate for goods in general o Special rate for precious metals o Exempted List - Single GST Rate for Services both for CGST and SGST Sub Penal of Empowered Committee : 26.70% (SGST 13.91% and CGST 12.77%) National Institute of Public Finance & Policy (NIPFP) : 20% ~ 23% (source : Business Standard) GST Council o the rates including floor rates with bands of goods and services tax Key Features of GST- GST Rates

20. Taxes to be Subsumed in GST Central Levies Subsumed under GST Central Excise Duty Additional Excise Duties The Excise Duty levied under the Medicinal and Toiletries Preparations (Excise Duties) Act 1955 Service Tax Additional Customs Duty, commonly known as Countervailing Duty (CVD) Special Additional Duty of Customs - 4% (SAD) Surcharges and Cesses levied by Centre are also likely to be subsumed wherever they are in the nature of taxes on goods or services. Central Sales Tax to be phased out. State Levies Subsumed under GST  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  Octroi and Entry Tax  Purchase Tax

21. TAX ON SUPPLY OF THE ALCOHOLIC LIQUOR FOR HUMAN CONSUMPTION The supply of the alcoholic liquor for human consumption will be out of the GST. Alcohol products for human consumption would continue to be exclusively taxed by the States. CST on inter-state sales of alcohol would also continue. Since the Bill specifically excludes alcohol products from the ambit of GST, bringing it within GST at a future date would require another constitutional amendment. TAX ON TOBACCO PRODUCTS Tobacco and tobacco products would be subjected to GST. However, it can be subjected to a separate excise duty by the Centre. Taxes to be Subsumed in GST – Specific Goods

22. TAX ON PETROLEUM CRUDE/ HIGH SPEED DIESEL/ MOTOR SPIRIT/ NATURAL GAS/ AVIATION TURBINE FUEL The States would continue as per the current laws to impose Value Added Tax (VAT) on these products. These products would be transitioned into the GST regime from a future date to be notified by the GST Council. The Constitution Bill also states that these products can be subjected to an excise duty imposed by the Centre; this levy would be imposed now and even after GST comes into force. Such duty can be in addition to the applicable VAT or GST imposed. Taxes to be Subsumed in GST – Specific Goods

23. Taxes NOT to be Subsumed in GST Taxes not to be Subsumed  Basic Customs Duty: These are protective duties levied at the time of Import of goods into India.  Exports Duty: This duty is imposed at the time of export of certain goods which are not available in India in abundance.  Road & Passenger Tax: These are in the nature of fees and not in the nature of taxes on goods and services.  Toll Tax: These are in the nature of user fees and not in the nature of taxes on goods and services.  Property Tax  Stamp Duty  Electricity Dut y.

24.  IGST will be levied on the Inter-state Supply of goods or services or both.  Tax revenues accrues to the destination/importing State based on Place of Supply Rules.  IGST will roughly be CGST+SGST  Inter-state seller will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases in sequence.  Additional Tax : An Additional non creditable 1% Tax on the value of Inter-state supply of goods will also be levied and will accrue to the Originating state. Inter-state Transactions –Treatment under GST

25. Working of IGST- Cross levy Set Off Adjusted Against Input CGST Output CGST Output IGST Input SGST Output SGST Output IGST Input IGST Output IGST Output CGST Output SGST 1% Addl Tax No Set Off Avaliable Adjusted Against Taxpayer to track the input credits separately for IGST, CGST and SGST and the utilization of such credits IGST credit adjustment is to be in order of IGST, followed by CGST, followed by SGST

26. Understanding the Impact of GST Current scenario (DTA) Outside India India – state A India – state B Customer Import of goods/ services Customs Duties -BCD – cost -CVD – available as credit -SAD – available as credit Service tax – available as credit Local sale of goods  Credit eligibility of Excise duty and VAT dependent on operations of customer Inter-state sale / supply of goods  CST – cost / VAT retention  Credit of excise may be available to some customers Vendor Customer Export of goods  No tax/ possible refunds Customer * Inter-state stock transfer attracts VAT retention; sale in transit as well as imports exempt from VAT/ CST Local purchase of goods/ services Excise duty – available as credit VAT – available as credit Service tax – available as credit Vendor Inter-state purchase of goods / services Excise duty – available as credit CST – cost Service tax – available as credit Factory (dutiable goods) Factory (dutiable goods)

27. Understanding the Impact of GST Likely Scenario GST (DTA) Outside India India – state A India – state B Customer Local sale of goods CGST + SGST – Should be available as credit Inter-state sale / supply of goods  IGST A/c state B – Should be available as credit  1% non creditable additional tax Vendor Customer Export of goods  Input CGST / SGST / IGST should be available as refund Customer Local purchase of goods/ services CGST + SGST – Should be available as credit Vendor Inter-state purchase of goods / services IGST A/c State A – Should be available as credit 1% Additional Tax on Supply of goods -Cost Factory (dutiable goods) Factory (dutiable goods) Import of Goods/ Services -BCD – cost -IGST A/c State A – Should be available as credit -1% Additional Tax on import of goods -Cost * Inter-state stock transfer, imports, sales in transit expected to attract IGST which is creditable

28. ProcurementOutput Provision of taxable services within India (intrastate) CGST + SGST Industry Customer Export of taxable services Zero rated Customer Service provider Local Purchases/ Intra- state purchases of goods/ services CGST + SGST Inter-state procurement of Services IGST Import of services IGST Provision of taxable services within India (interstate) IGST Non-Creditable input taxes Creditable taxes input taxes Customer Creditability of output taxes to depend upon status of customer Understanding the Impact of GST on Services Inter-state procurement of Goods IGST 1% Addl Duty Import of Goods BCD IGST 1% Addl Duty

29. Section 3 CGA GOODS & SERVICE TAX WAY FORWARD

30. Way Forward for Introduction of GST April 2016 GST Constitution Bill Setting up of IT Network by GSTN Constitution Bill tabled at the Parliament Approval by both houses of Parliament Ratification by more than 50% of State Legislatures GST Council set up – within 60 days of presidential assent Bill sent for Presidential assent Bill receives assent and becomes Act Draft legislations of CGST / IGST Model SGST legislations Final GST legislations (Centre, States and IGST) GST legislations

31. Questions & Suggestions

32. For Any Further Query on the Subject, Kindly contact us at: FCA Chitresh Gupta Mob no : 09910367918 Email Id: gupta_Chitresh@yahoo.comgupta_Chitresh@yahoo.com Office Address: M/s Chitresh Gupta & Associates LG-CS-24B, Ansal Plaza, Vaishali Ghaziabad 201001

33. GST OPEN ISSUES Tedious process of Constitutional Amendment One CGST, 29 SGSTs, IGST- Multitude of laws Uniformity of Provisions Taxable Event- Definitive Place of Supply Rules GST Rates Threshold Limit Determination ITC Credit Availment & Utilization Refund of Taxes to Exporters/EOU/SE Z

34. GST OPEN ISSUES Stock Transfers within and Outside State Inter State Supply of Services Treatment of High Sea EI/EII Sales Requirement of Training Assessment & Dispute Resolution under Dual GST IT Infrastructure

35. GST OPEN ISSUES Data Migration Issues Status on Unutilized ITC Pending Disputes and their Disposal Compensation Package to States

36. Disclaimer Purpose of this presentation is to give a highlights of the proposed GST regime in India. It does not render any definitive opinion on any of the activities of Industry Our comments in relation to GST are based on the GST framework outlined in the First Discussion Paper on GST (2009) and the draft Constitution Amendment Bill, 2014 Some of the features highlighted including the IGST model for interstate supplies are understood to be under reconsideration It is likely that the final model would differ from our understanding and the implications discussed herein would accordingly vary and the contents of this presentation would need to be updated basis the revised GST frame-work in the offing Prior professional advice is recommended before implementation of the aspects covered under this presentation The instant presentation is for sole benefit of Mahangar Tax Bar Association CA. Chitresh Gupta & M/s Chitresh Gupta & Associates are under no obligation to update this presentation for future changes