Module 1

MODULE 1
INTRODUCTION OF GST TO INDIA

1.1. INTRODUCTION

On the 1st of July, 2017, India introduced a new tax reform which is recognized as one
of the most significant and profound tax reforms of recent times. This entailed the
introduction of a new tax regime and the levy of a uniform indirect tax called the Goods
and Services Tax (hereinafter referred to as ‘GST’) across various sectors and industries
within the economy.

1.2. WHAT IS GST?

“GST is a consumption tax based on the credit invoice method where only the value
addition at each stage is taxed, with seamless flow of credit along the supply chain. It
subsumed in its ambit a large number of consumption taxes that previously existed in
India, administered separately by the Centre and the States, resulting in a greatly
rationalized taxation structure.”1

In simple words, GST is primarily a single comprehensive tax that is levied on the goods
and services produced by various industries in India and also upon those that are
imported from other countries. It is a destination-based tax whereupon tax is levied only
on the value-added at each stage (from production to consumption) and the final
consumer is only required to pay the tax levied by the last dealer in the supply chain.
This tax would set off the benefits accrued at the previous stages of supply.

1.3. GLOBAL PERSPECTIVE ON GST

The concept of GST, which is often used interchangeably with the term ‘Value Added
Tax’ (hereinafter referred to as ‘VAT’), was first introduced by the French Tax Officials

1 GST Council, The GST Saga, Ministry of Finance, Government of India, Page 1, 2017.
http://gstcouncil.gov.in/sites/default/files/The-gst-saga.pdf

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during the early 1950s. Since then, GST has gained immense global popularity and has
been implemented by over 160 countries across the world.

Although differing in some technical aspects such as ‘definition of supply’, ‘extent of
applicability’, etc. the general principle commonly found across these countries is that
GST is essentially a consumption-based tax system as opposed to other forms of
taxation. For instance, GST is considered to be superior to sales tax as unlike the latter,
GST taxes value addition and thus results in a neutral allocation of resources.
Furthermore, it results in a more comprehensive, anti-inflationary and transparent
system of taxation.

Upon analyzing the various GST/VAT structures implemented in different countries, it
is observed that two types of tax structures are essentially prevalent in these countries.
Many countries, such as Germany and Switzerland, implement a centralized VAT/GST
model, while other countries such as Canada, Brazil and Russia, implement a dual
system of taxation. Both models have their own merits as a centralized structure would
reduce fiscal autonomy at the provincial/state level while a decentralized/ dual-tax
system would enable compliance of the tax-payers. Furthermore, even the tax rates vary
across countries with the lowest being Malaysia (6%) and one of the highest being
Hungary (27%). Many countries such as Canada have implemented a system of levying
taxes at multiple tax slabs for various goods and services. India too has adopted a
multiple tax rate slab approach in introducing GST.

1.4. NEED FOR GST IN INDIA

The history of the Indian taxation system is long and has undergone significant
evolution over the years. Many landmark reforms have been made to the existing tax
structure. Despite this, the indirect tax system was found to be lacking. In order to
understand the limitations of the then existing tax structure, it is first necessary to
understand the evolution of the indirect tax system of India over the years.

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1.4.1. Evolution of the system of indirect taxation in India

● Post-independence, up until the early 1950s, although India had levied a central
excise duty on a few commodities such as raw materials and intermediate goods, it
had refrained from taxing consumer goods. It was only in the year 1953-54 that the
first set of indirect tax reforms were recommended by the Taxation Enquiry
Commission (1953-54), wherein it suggested that a sales tax should be levied by
state governments on goods, allowing the levy of a maximum tax of 1% by the
central government in the case of inter-state sales.

● Subsequent to this, the Parliament enacted the Constitution (Sixth Amendment) Act,
1956, empowering the Union to levy a tax on the sale and purchase of goods in the
course of inter-state trade and commerce. This central excise duty was classified into
specific duty (levied on per unit of the good) and ad valorem duty (levied on the
value of the good). However, this resulted in a situation wherein too many taxes at
different rates were being levied which did not adequately offset the taxes paid on
the inputs. As a result of this, many disputes relating to the classification of goods
and the cascading of taxes arose.

● To address these issues, in the year 1986, the union government, partially
implemented the recommendation of the Indirect Taxation Enquiry Committee
(1976), and introduced a tax called ‘Modified Value Added Tax’ (hereinafter
‘MODVAT’). MODVAT was essentially a system that allowed manufacturers of
excisable goods to avail credit on the duty paid on the inputs and to then utilize this
credit towards the duty payable on the final goods. By the late 1960s, MODVAT
was applicable to almost all inputs and manufactured goods.

● In the year 1991, a new set of indirect tax reforms were introduced in the form of
the New Economic Policy. Not only did the Tax Reforms Committee (1991) make
recommendations with respect to matters such as broadening the tax base by taxing
services and pruning exemptions, consolidating and lowering tax rates, extending
the application of MODVAT to include capital goods, etc., it also recommended that
these reforms must be accompanied by a reform in the tax administration itself in

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order to maximize the benefits derived from these reforms. Most of these
recommendations were accepted by the government, and in the year 1999-2000, the
existing tax rates were merged into three main tax rates, although additional rates
were applicable to a few luxury goods. Subsequent to this, in the year 2000-01, the
three rates were further merged into a single tax rate called Central Value Added
Tax (hereinafter ‘CENVAT’). However, a special excise duty was still levied on a
few commodities.

● The year 1994 saw a major reform in the tax policy of India as taxes were introduced
for three services: (i) General Insurance, (ii) Telecommunication, and (iii) Stock
Broking. Over the years, many other services were added to this list of taxable
services, to the extent that, in the year 2012, India moved from a ‘positive list’
approach- wherein only those services that were listed were taxable- and adopted a
‘negative list’ approach wherein all those services that were not included in the list
were considered to be taxable. A notable reform at this time was that in the year
2004, the government, in order to facilitate the cross utilization of input tax credit
across taxes, merged the input tax credit scheme for CENVAT and Service Tax.

● Introduction of VAT at the state level: Prior to the year 2005, a sales tax was being
levied on the goods transacted within the state. Even services such as
advertisements, luxuries, entertainments, amusements, betting and gambling, were
being taxed by the states since the very beginning. However, the taxes imposed by
the various states were uncoordinated, and the rate of tax differed from commodity
to commodity and from state-to-state. Thus, in the absence of any uniformity,
problems relating to exportation of taxes and the cascading effect of taxes arose at
the state level.

● In order to resolve these issues, the National Institute of Public Finance and Policy,
in 1994, in a report titled “Reform of Domestic Trade Taxes in India”, made a
number of recommendations such as the replacement of sales tax with VAT by
adopting a multistage system of taxation, allowing input tax credits for all inputs,
harmonizing and rationalizing tax rates across states with two or three rates within

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specified bands, pruning exemptions and concessions, zero-rating of exports, inter-
state sales and consignment transfers to registered dealers, taxing inter-state sales to
non-registered dealers as local sales, modernizing the tax administration,
computerizing operations and simplifying forms and procedures.

● Subsequent to this, in 1995, the Union Minister of Finance convened a meeting of
the Chief Ministers of various states wherein they engaged in the first preliminary
discussion on the transition from a sales tax regime to a VAT regime. In furtherance
of this, a Standing Committee of State Finance Ministers (later renamed as the
‘Empowered Committee of State Finance Ministers’ (EC)) was constituted in the
year 1999 and was tasked to deliberate on the design of VAT. VAT was first
implemented by the state of Haryana in the year 2003, and the last state to implement
VAT was Uttar Pradesh in the year 2008. Most other states implemented VAT in
the year 2005.

1.4.2. Drawbacks in the previous system that GST overcomes

Although CENVAT and State VAT had to a large extent resolved the issue of the
cascading of taxes, they were however not without flaws. First, they did not extend to
distributive trade beyond the stage of production; secondly, a cascading effect to some
still existed owing to the load of CENVAT on goods that were already being taxed at
the state level.

Furthermore, certain taxes such as Luxury Tax, etc. were yet to be subsumed by State
VAT. Even the separate taxation of services at the state level rather than its integration
with the State VAT resulted in a cascading effect as very often goods and services were
provided as a combination in trade and commerce.

With respect to CST, it was observed that not only did CST contribute to the cascading
nature of taxes, but it was also against the principles of consumption taxation which
stated that tax should accrue to the jurisdiction of the place of consumption.

In addition to the above, it must be noted that the Constitution of India permitted the
central government to levy taxes only up to a certain stage in the manufacture or

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production of goods whereas the states could levy taxes on the purchase and sale of
goods. It also empowered the union and the states to levy taxes on services. This created
a complex grey area for the application of taxes by the Union and the State on the sale
of various goods and services and resulted in many disputes relating to the jurisdiction
for the levy of taxes at various stages.

It is these above mentioned drawbacks that GST is expected to overcome. Under the
dual GST module, not only is the issue with respect to union-state levy of taxes on
goods resolved, it has resulted in the integration of the tax structure for the taxation of
goods and services which are often offered as a combination. It is for these reasons that
the implementation of GST is considered to be one of the most profound tax reforms in
recent times.

1.5. BRIEF TIMELINE/ EVOLUTION OF GST

● The concept of GST was first introduced in India when the government of India,
then headed by Mr. Atal Bihari Vajpayee, in the year 2000 constituted the EC which
was to engage in discussions of GST and its implementation in India. Subsequent to
this, the Central Government further set up a task force on Fiscal Responsibility and
Budget Management (hereinafter ‘FRMB’) that, under the leadership of Dr. Vijay
Kelkar, was to suggest various tax reforms for India.

● Following this, in the year 2004, the FRMB recommended that a new,
comprehensive tax be levied on all goods and services, that would essentially replace
the VATs levied at the union and the state level. It further recommended that all
forms of indirect taxes must be replaced by this comprehensive tax, with customs
duty being the only exception to this replacement. It further allowed for the complete
set off of these taxes during all the stages of production.

● In light of the recommendations made by the FRMB, the then Union Minister of
Finance, Shri P. Chidambaram, in the year 2006, announced that GST would be
introduced in India with effect from 1st April, 2010. He further announced that the
EC would prepare a roadmap for the implementation of GST in India. The EC then

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set up a Joint Working Group in May, 2007 that, after engaging in intensive research,
dialogue with experts and representatives of various chambers of commerce, various
discussions internally and with the various states, submitted a report in the year
2008, on the model and roadmap for the introduction of GST in India.

● On the 12th of December 2008, the EC received the comments of the Government
of India on the report submitted by it, and upon duly considering them, decided to
set up a committee consisting of the Principal Secretaries/Secretaries of
Finance/Taxation and Commissioners of Trade Taxes of the States that was to
consider these comments, and submit their views to the EC, and the same was done
on 21st January, 2009.

● Subsequent to this, the EC, based on various internal discussions, and discussions
with the Central Government, in the month of November of 2009, released its First
Discussion Paper on GST and its proposed features, and invited debate over the
same.

● In the year 2010, the Finance Ministry undertook the mission-mode computerization
of the commercial taxes across states, owing to which the implementation of GST
was postponed to the 11th of April, 2011.

● On the 11th of March 2011, the then Manmohan Singh Government introduced The
Constitution (115th Amendment) Bill, 2011 in the Lok Sabha. The Bill was then
referred to the Standing Committee on Finance on 29th March, 2011. The Standing
Committee submitted its report on the Bill in August, 2013. However, the
Constitution (115th Amendment) Bill, 2011, which was still pending before the
house, lapsed with the dissolution of the 15th Lok Sabha of India.

● Upon the constitution of the 16th Lok Sabha in the year 2014, the newly elected
Minister of Finance, Mr. Arun Jaitley, on the 19th of December, 2014, introduced
the Constitution (122nd Amendment) Bill, 2014 in the house, which was then passed
by the house in May, 2015.

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● Upon receiving the Bill passed by the Lok Sabha, the Rajya Sabha referred the Bill
to the Select Committee of the Rajya Sabha on 12th May, 2015. This Committee
submitted its report to the house on the 22nd of July, 2015, following which,
subsequent to a few amendments, the Bill was passed by the Rajya Sabha, and then
by the Lok Sabha, in August, 2015.

● Subsequent to the clearance of the Bill in the two houses, the Bill was ratified by the
requisite number of states and received the assent of the President of India on the 8th
of September, 2016. The Bill was then enacted as the Constitution (101st
Amendment) Act, 2016 w.e.f. 16th of September, 2016.

● Four other bills with respect to GST, namely: (i) The Central Goods and Services
Tax Bill, 2017; (ii) The Integrated Goods and Services Tax Bill, 2017; (iii) The
Union Territory Goods and Services Tax Bill, 2017; and (iv) The Goods and
Services (Compensation to States) Bill, 2017, were passed by the Lok Sabha and the
Rajya Sabha on 29th March, 2017 and 5th April, 2017 respectively.

● On the 1st of July, 2017, GST was implemented across India.

1.6. CONSTITUTIONAL AMENDMENTS MADE BY CONSTITUTION
(101ST AMENDMENT) ACT, 2016.

i. Article 246A: This Article was inserted to enable the Union and States to legislate
with respect to GST. It granted the Parliament the exclusive power to legislate on
matters of inter-state supply.

ii. Article 268A: This Article permitting the Union Government to levy taxes on
services was omitted from the Constitution as taxation on services has been brought
within the ambit of GST and there is no longer a need for this provision.

iii. Article 269A: This Article enables the Government of India to levy and collect GST
on supplies in the course of inter-state trade and commerce and further states that
these taxes shall be apportioned between the Union and the States in a manner that
has been decided by the Parliament on the recommendation of the Goods and

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Services Tax Council (hereinafter ‘GSTC’). The Parliament is further empowered
to legislate on matters relating to the principles to determine the when and where of
supply of goods, or of services, or both, in the course of inter-state trade and
commerce.

iv. Article 270: This Article was amended in order to enable the distribution of GST
collected by the Union government, between the Union and the State governments.

v. Article 271: This Article has been amended in order to restrict the Parliament from
levying a surcharge on goods and services that have been taxed under Article 246A.

vi. Article 279A: This Article has been inserted in order to enable the Government of
India to constitute the GSTC.

vii. Article 366: This Article has been amended in order to exclude alcoholic liquor
meant for human consumption from the scope of GST. This Article further defines
the term ‘services’ in the context of GST.

viii. Article 368: This Article has been amended in order to incorporate a special
procedure that requisites the ratification of the Bill by the Legislatures of not less
than half the States of India. This however, is a procedure that is in addition to, and
not in place of, the existing procedure to amend the Constitution. Furthermore, this
procedure shall apply to any changes or modifications in the constitution and the
mandate of the GSTC too.

ix. Entries in List I and List II: Various entries in List I and List II, with respect to
taxation, have either been substituted, or omitted, in order to restrict the Union and
States from levying taxes on goods and services that have been subsumed in GST.

x. Compensation to States: The Act further provides that the Parliament, acting on the
recommendation of the GSTC, shall for the next 5 years, compensate the States with
respect to the loss of revenue that shall arise owing to the initial implementation of
GST in India.

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xi. Petroleum and Petroleum Products: The Act further provides that petroleum and
petroleum products shall be exempt from the levy of GST till a date notified on the
recommendations of the GSTC.

1.7. SALIENT FEATURES OF GST

A close analysis of the new GST system of taxation brings to light the following
characteristics or features that are unique to the GST system of taxation. These are:

i. Concept of “Supply”: Taxes under GST are levied on the supply of goods and
services as opposed to the previously existing concept of levying taxes on the
manufacture of goods, or the sale of goods, or the provision of services.

ii. Destination-based consumption tax: GST is a destination-based tax as opposed to an
origin-based tax. This means that the taxes collected would be credited to the
destination state rather than the state where the transaction originates.

iii. Dual-system of taxation: Under the system of GST, taxes are simultaneously levied
by the Union and the States, on the same subject matter.

iv. Integrated Tax: One of the unique features of GST is that under this system, an
integrated tax would be levied by the Union on inter-state transactions, and the
revenue generated from all such transactions is shared by the Union and the States
in a ratio that is determined by the Parliament of India, on the advice of the GSTC.

v. GST on import of goods and services: In addition to the customs duty levied on the
import of goods and services, all such imports are now subject to the Integrated GST.

vi. Common Threshold Exemption: A threshold exemption allows certain categories of
taxpayers to be exempted from the levy of GST either partially or entirely. Under
GST, this threshold exemption is common to both the Central and the State
governments.

vii. Zero-rated supply: Under GST, goods and services that are being exported would be
taxed at 0%, i.e., no input taxes or taxes on the finished product would be levied on
goods that are being exported.

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viii. Input Tax Credit: Under this system of taxation, credit could be availed on the taxes
paid on the supply of goods and services and could be used towards the payment of
taxes at the final stage.

ix. GST Identification Number: Every person registered under GST is allotted a TIN
number based on their PAN, which is used for all transactions relating to intra-state
and inter-state trade and commerce.

x. E-Way Bill: An e-Way bill is an electronic document that is generated by the dealers
while transporting goods of a value greater than INR 50,000 in any vehicle. No
registered dealer is legally allowed to transport goods of a value greater than INR
50,000 if he or she has not generated an e-Way bill.

xi. Compensation to States: The Constitutional Amendment provides that the Union is
to compensate the state for any loss of revenue that is caused by the implementation
of GST for a period of 5 years.

xii. GST Council: Under the new system of GST, a quasi-judicial body called the
‘Goods and Services Tax Council’ has been established that has the supreme power
to make recommendations with respect to the provisions of GST and its
implementation at the state and central level.

1.8. COMPONENTS OF GST

A key feature of GST is that it is a system of dual taxation, i.e., for each transaction,
two taxes are being levied on the consumers. These taxes that are levied by the Union
and the States respectively are the components of GST. At present, GST consists of 2
main components: (i) tax levied by the Union Government, (ii) tax levied by the state
government. Based on the nature of the transaction and the place of supply, one or two
of the following four taxes are levied by the relevant government(s).

i. Central Goods and Services Tax (hereinafter ‘CGST’): CGST refers to the taxes
levied by the Union government on the transactions relating to the supply of goods
and services in intra-state trade and commerce.

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ii. State Goods and Services Tax (hereinafter ‘SGST’): SGST refers to the taxes levied
by the State government on the transactions relating to the supply of goods and
services in intra-state trade and commerce.

iii. Integrated Goods and Services Tax (hereinafter ‘IGST’): CGST refers to the taxes
levied by the Union government on the transactions relating to the supply of goods
and services in inter-state trade and commerce.

iv. Union Territory Goods and Services Tax (hereinafter ‘UTGST’): CGST refers to
the taxes levied by the Union Territory on the transactions relating to the supply of
goods and services in intra-state trade and commerce.

Furthermore, it must be noted that while under the previous system of taxation, taxes
were imposed by the Union and the State governments at different stages of the supply
chain, under GST, these taxes are levied by the Union and the State respectively, at the
same stage of supply which provides for a more efficient system of taxation.

1.9. TAXES SUBSUMED BY GST

As it has been stated before, one of the primary objects of the government for
implementing GST in India, was to establish a more comprehensive system of taxation
wherein multiple taxes and tax rates were not levied on the transaction of goods and
services at various stages of production and distribution. This object was achieved by
the government in the sense that the implementation of GST has resulted in a more
uniform system of taxation as GST has subsumed various indirect taxes levied by both
the Central, and the State governments.

1.9.1. Central Taxes subsumed by GST

The taxes that have been subsumed by GST at the Central level are as follows:

i. Central Excise Duty
ii. Duties of Excise (Medicinal and Toilet Preparations)
iii. Additional Duties of Excise (Goods of Special Importance)

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iv. Additional Duties of Excise (Textiles and Textile Products)
v. Countervailing Duties of Customs
vi. Special Additional Duty of Customs
vii. Service Tax
viii. Central surcharges and cesses so far as they relate to supply of goods and services.

1.9.2. State Taxes subsumed by GST

The taxes that have been subsumed by GST at the Central level are as follows:

i. State VAT
ii. Central Sales Tax
iii. Luxury Tax
iv. Entry Tax (of all forms)
v. Entertainment and Amusement Tax (except when levied by the local bodies)
vi. Taxes on advertisements
vii. Purchase Tax
viii. Taxes on lotteries, betting and gambling
ix. State Surcharges and Cesses so far as they relate to supply of goods and services.

1.10. BENEFITS OF IMPLEMENTING GST

The implementation of GST has been highly beneficial to the various sectors, industries
and entities present in India. The following are the benefits that have been accrued by
the various groups in the economy as a result of the implementation of GST in India.

1.10.1. Benefits to Exporters

Not only has GST subsumed various Central and State taxes, it has also provided for a
complete and highly comprehensive setoff of the taxes levied on the production/
manufacture of goods and services. Moreover, under the GST regime, a separate service
tax is no longer to be levied on the export of services. All these measures, combined
with the uniformity in the rate of taxation and the procedures applicable nation-wide,

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not only reduce the actual cost of production and the compliance cost for the exporters
but would also increase the competitiveness of the Indian goods in the global market
and thus would result in a boost in exports from India.

1.10.2. Benefits to Small Traders and Entrepreneurs

Under the new GST regime, the threshold for the registration of small businesses has
been increased. Moreover, businesses have to no longer register themselves under
various taxation regimes as a single registration is uniformly applicable for all tax
systems. Furthermore, under GST, traders are entitled to various fringe benefits and
benefits such as the composition scheme, etc. Even the cascading effect of taxes has
been removed to a large extent. This, combined with the benefits of standardized
procedures and uniform tax rates across sectors and geographical boundaries, has
significantly enhanced the ease of conducting business in India and has been highly
beneficial to the small traders and entrepreneurs.

1.10.3. Benefits to Agriculture and Industry

The GST regime is expected to bring great relief to the agricultural and industrial sectors
not only due to the removal of the levy of multiple taxes or the cascading effects of the
previous system of taxation, but also because the new system provides and more
comprehensive and expansive coverage for the setoff of input tax and the service tax
paid in the initial stages of supply. These transparent and complete chain of set-offs, in
addition to the removal of CST, and in the increase in tax compliance, would reduce the
tax burden on the industry/ agricultural dealer and would thus benefit the industrial and
agricultural sectors.

1.10.4.Benefits to Consumers/ Citizens

i. Transparency: The most important benefits of GST for the common consumers, i.e.,
the citizens of the country is that while the previous system of taxation lacked
transparency and was highly complex, the ‘one-nation one-tax’ policy under GST
simplifies the tax policy in a manner that it can be comprehended by a ordinary

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person. In addition to this, the removal of human intervention to a large extent makes
the system more efficient and reliable for the taxpayers. It is these qualities of GST
that benefit the common citizens.

ii. Overall tax relief and reduced cost: Under the present system of taxation, there has
been a significant reduction in the cost of production and supply for the producers
and the dealers of goods and services. A direct consequence of this is that goods and
services are now available at lower prices as the tax burden previously borne by the
consumers has been reduced under the GST system. This will be highly beneficial
to the consumers.

1.10.5.Benefits to Union and State governments

i. Ease of Administration: An important benefit of the new regime for the government
would be that in the absence of multiple taxes being levied at each stage by both,
the Central and the State governments, by virtue of which taxes can be more
efficiently administered which is further enabled by the advanced IT system used by
the GST regime.

ii. Improved tax compliance: Provisions such as the input tax credit system, removal
of the cascading effect of taxes, and the online nature of GST are such that they
incentivize the dealers and other taxpayers to comply with the government for the
payment of taxes.

iii. Increased Revenue for the Union and the State Governments: In the previous system
of taxation, the Central and the State governments were levying taxes at multiple
stages in the supply chain that were independent of each other. Due to this, the cost
of collecting these taxes was significantly high for each of the governments. Under
GST, since taxes are levied by the Centre and State together for each subject matter,
and the rate of tax collected is uniform, the cost of collecting taxes is reduced to a
large extent and results in a higher revenue efficiency for each of the governments.

iv. Increase in Investment in India: Due to the increased ease of doing business under
the GST regime, the simplification of taxes and elimination of multiple taxes and

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their cascading effects, it is expected that investment in India, by domestic and
foreign entities alike, will significantly increase in the following years.

1.10.6.Benefits for the Economy

i. Growth of Gross Domestic Product (GDP): The removal of multi-stage taxation, the
cascading of taxation, introduction of a uniform system of taxation, and the increase
of revenue across the various sectors of the economy, will accelerate the economic
growth of the economy and significantly boost the GDP of the country.

ii. Reduction in Corruption and Tax Evasion: The improved IT infrastructure under the
GST regime, the simplification of payment and returns system, and the reduction in
the human intervention required for the processes under the GST system of taxation,
combined with the increased tax compliance of tax-payers, would significantly
reduce the rate of corruption and of tax evasion in the country.

1.11. CHALLENGES AND DRAWBACKS

Although GST is said to have many benefits as have been listed in the previous section
of this module, it is not without flaws. These flaws or drawbacks are in both- the
procedure of implementing GST and in the very tax structure itself. Some of these
drawbacks are as follows:

i. High level of compliance required: Under the GST system of taxation, the taxpayers
have to adhere to a number of rules and regulations in the filing of tax returns, in
claiming input tax credit, and in complying with the various procedures to
implement GST in their daily businesses. Due to this high level of compliance that
is required under GST, individuals and businesses alike are obstructed by the
taxation system under GST.

ii. Challenging for small businesses to adapt to the online system of GST: As it has
been stated before, under the GST regime, most procedures have been incorporated
in the online system and it has been made mandatory for the businesses and traders
to adapt to this system of online taxation. However, the drawback in the

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implementation of such a system lies in the social and economic situation of India
where limitations still exist with respect to literacy and the geographical coverage
of services such as the internet. This is a major drawback of the GST tax system.

iii. Increased cost for businesses: In addition to being difficult to adapt, the adaptation
of GST is also a financial burden for businesses. This is because the online process
is difficult for many laypeople to understand, filing of returns is now a monthly
mandate, multiple forms need to be filled, etc. Since most ordinary businesspersons
do not understand all these requirements, they are compelled to hire professionals
and hiring professionals takes a significant financial toll on the businessmen.

iv. Hurried Implementation of GST: Another important drawback of the present GST
system is that it was hurriedly implemented in a very haphazard manner which
caused widespread confusion amongst all groups in the economy, be it consumers,
businessmen, traders or manufacturers.

v. Multiple Rates of Taxation: Finally, another important drawback of GST is that the
purpose of implementing GST was to ensure uniformity of taxes. However, the
present system of GST allows for taxation under many tax slabs/rates rather than a
single or dual tax rate that would be uniformly and easily applied across sectors.
This thus makes it difficult to levy taxes due to the varying rates for goods and
services of various categories.

1.12. GOODS AND SERVICES TAX COUNCIL

Provisioned under article 279-A of the Constitution of India, the Goods and Services
Tax Council (hereinafter ‘GSTC’) was established on the 16th of September, 2016. It is
the most important decision-making authority in respect of the GST system of taxation
and was incorporated for the purpose of making recommendations to the Union and the
States for the better implementation of GST and other such indirect taxes in India. The
Secretariat of the GSTC is situated in New Delhi. And its membership consists of the
following members: (i) The Union Minister of Finance; (ii) The Union Minister of State,
in-charge of revenue, Ministry of Finance; and (iii) Minister In-charge of Finance or

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Taxation or any other Minister nominated by each State Government. Its objective is to
enable the establishment of a harmonized structure of GST and to enable the
development of a harmonized national market for goods and services.

1.12.1. Recommendations by the GSTC
The GSTC is empowered to make recommendations with respect to the following
matters:
i. With respect to the levy of taxes, cesses and surcharges, by the Union or the State

governments or the local bodies, that may be subsumed by GST;
ii. The goods and services which are either subject to, or exempted from, the levy of

GST;
iii. In relation to the framing and implantation of Model GST Laws, principles of levy,

apportionment of IGST and the principles that govern the place of supply;
iv. The threshold limit of turnover, in relation to which, certain goods and services may

be exempted from the levy of GST;
v. The various rates/slabs of taxation, including floor rates with bands of GST;
vi. Levy or imposition of any special rate(s), for a specified period of time, in order to

raise additional resources to assist during any natural calamity or disaster;
vii. With respect to special provisions for the States of Arunachal Pradesh, Assam,

Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura,
Himachal Pradesh and Uttarakhand; and
viii. With respect to the date on which the levy of GST would be made applicable for
petroleum crude, high speed diesel, motor spirit (petrol), natural gas and aviation
turbine fuel,
ix. On all other matters, relating to GST, as may be decided by the GSTC.

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1.12.2.Quorum and Decision-Making in the GSTC
It has been laid down by the Constitution (101st Amendment) Act, 2016 that the quorum
for any meeting of the GSTC is 50% of the total membership of the Council.
Furthermore, it has been stated in the Act that every decision made by the Council
during its meetings, must be supported by a majority of not less than the 3/4th of the
weighted votes of the members present and voting. It further provides that the vote of
the Central Government shall have the weightage of 1/3rd of the votes cast, and that of
the State Governments would collectively have the weightage of 2/3rd of the votes cast.

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