Pre gst

Pre GST

1. Goods and Services Tax (“GST”) CONCEPT AND DESIGN BDO India LLP

2. PRE GST Indian INDIRECT TAX HORIZON Before the introduction of GST, the Centre entertained the power to levy tax called CENVAT, on the act of ‘manufacture’ of goods (except alcoholic liquor, opium, narcotics etc.), while the States were empowered to levy tax called VAT on ‘sale’ of goods. Tax on ‘Service’ was under the exclusive domain of Central Government, causing differentiated treatment for goods (manufactured, non-manufactured, etc.) and Services. In case of inter-State sales, the Centre had power to levy a tax called Central Sales Tax, but the tax was administered, collected and retained entirely by the originating States. The States were also not empowered to levy any tax on cross-border transactions namely import and exports and the Centre levied and collected Customs duty viz. Basic Customs duty and Additional duty of customs (commonly known as CVD and SAD) to counter- balance CENVAT, VAT/CST, etc., on like domestic products. The principal deficiencies of the system were tax cascading, lack of transparency, complexity, inflationary prices, etc

3. Import Goods Factory Production of finished goods Sales to customers Inter State Intra State R & D Cess Service Providers Service tax on services VAT – To be paid on sale of goods within a state Excise Duty Customs Duty Entry Tax / Octroi Outside India India To be paid on import of goods To be paid on entry of goods into State/ Local Area To be paid on import of technology To be paid on manufacture of goods At time of clearance from factory Depots CST - To be paid on inter-state sale of goods Entry Tax / Octroi PRE GST INDIRECT TAX HORIZON Manufacturers Excise on goods VAT/CST

4. Why multiple indirect taxes Pre- gst ? Type Tax Taxable event Constitutional mandate Central Excise Mfr. or Production of excisable goods Entry 84 of Union List Service Tax Provision of Service Entry-97 of Union List (Residual) Central Sales Tax Inter-State Sales/movement of goods Entry 92A of Union List Entry Tax Entry of goods into local area Entry 52 of State List Sales Tax/VAT Sale or purchase of goods Entry-54 of State List Luxury Tax Entertainment tax Luxury Entertainment Entry-62 of State List Constitution bars Union and States from encroaching upon the legislative domain of each other.

5. PRE GST Indirect Tax Horizon –Challenges Multiple taxable events and tax authorities Tax Cascading – Tax on Tax Existence of Inter-State Sales Tax (CST) Sub-national tax collected by originating State (CST/VAT). Treatment of composite bundle – WCT, Food & Beverages Complex compliances and overlapping jurisdiction

6. PRE GST Indirect Tax Horizon –Challenges Numerous exemptions – Principle of VAT diluted Complicated valuation rules Lack of transparency Goods Vs. Service controversies Litigious – Tax Event, Classifications, Exemption, Valuation, etc.