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GST And Recent Development In Exemption Under GST

Goods & Services Tax is a form of Indirect tax which is mainly levied by the government on goods and services being provided and not on the income, profit or revenue of a person. Under GST several central-level taxes such as Central Excise Duty, Sales tax, Service tax, Special Additional Duty of Customs; and state-level tax taxes such as State VAT, Luxury tax, Entertainment and Amusement tax, Purchase tax, Entry tax, Transfer tax etc. are combined under one regime. Through GST the country is making one nation, one tax, one market a reality.

Background: India as a nation has implemented various direct and indirect taxes on its citizens after independence. It was former Prime Minister Atal Bihari Vajpayee, who formed a committee back in the year 1999 headed by then Finance Minister of West Bengal, Asim Dasgupta to implement GST in a nationwide manner which was actualized by present Prime Minister Narendra Modi in the year of 2017.

In the year 2003, Jaswant Singh, then finance minister, initiated an amendment in the service tax provision to include GST in a few parts.[1] The report prepared by Jaswant Singh suggested implementing 5 per cent and 7 per cent as GST by the centre and states respectively.

Indian Dual GST model: As the name suggests, the GST structure in India has dual taxation components and those are: the Central Goods and Services Tax (CGST) and the State Goods and Services Tax (SGST) or Union Territories Goods and Services Tax (UTGST) in case of Union Territories without legislatures, the former is levied by the Central government while the latter is collected by the State government.

The reasoning behind this Dual GST Model is to build a nation with transparent and straightforward tax collection methods along with a pre-defined set of CGST and SGST rates.[2] The Central Government also collect taxes under Integrated Goods and Services Tax (IGST) which is applied to the interstate (between two different states or a state and a union territory) supply of goods and/or services as well as imports and exports. The model specifically for IGST contributes particularly to the field of VAT.

According to this model, the IGST will be levied on the interstate suppliers on value addition after adjusting the credits of CGST, IGST and SGST on purchase and the credit of SGST used in payment of IGST is transferred by the exporting state to the centre. In a further step, the receiver from the importing state will claim this credit while discharging his output tax liability in his state and then the Centre will transfer this credit to the importing state.[3]

Benefits of GST:

  • One of the biggest benefits of GST is the elimination or removal of the 'cascading effect of tax' or popularly known as 'tax on tax'. Cascading tax is generally imposed on every step of the product supply chain like the compounding effect, resulting in a high tax rate compared to the official rate which ultimately increases the price of the product.[4] This increased rate of tax is levied on the end-consumer who is using that goods or services but through GST, the consumers are exempted from this cascading effect as this tax is levied only upon the values that the latest seller has added to the goods and services unlike in a compound manner.
     
  • Another addition to the list of advantages of GST is, that with the establishment of GST there is the ease of doing business at domestic and international levels. The difficulties faced by the companies regarding the filing of indirect taxes have been reduced.[5]
     
  • Every process under the GST regime is done by online portals through a single gateway. Due to this, the process to complete tax administration is done in an efficient and hassle-free manner and without any delay.
     
  • GST is backed by the Goods and Services Tax Network (GSTN), a fully integrated tax platform to deal with all relevant aspects of it.
     
  • The consumption rate among the consumers will increase at a faster rate as prices will come down which in turn will help companies.


GST rate structure and Exemption list: The rate structure under GST is adopted keeping in mind the unique socio-economic procurement and these rates are namely 5%, 12%, 18% and 28%. Among all these abovementioned rates the proportion of CGST and SGST is in an equal manner.

There is a list of goods and services which does not attract GST and these exemptions are termed as exempted supply under section 2(47) of CGST Act of 2017 as exempt supply means the supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes the non-taxable supply.

Another kind of supplies that is exempted under Section 2(78) of the Act as non-taxable supply means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act. For example alcohol for human consumption.

Lastly, there are supplies which are taxable at 0% tax or at nil tax rate, for example, Salt. The exemption may be in three different forms namely Absolute Exemption, Conditional Exemption and Partial Exemption. Under Absolute exemption, the supply is exempted without taking the note of the supplier or receiver and without considering the territory to which it is being supplied but Conditional exemption express that the supply is exempted subject to the terms and conditions mentioned under the GST Act or any notification or amendment in its regard.[6] Under Partial exemption, unregistered persons supplying goods from a state to a registered person of another state can be exempted if the aggregate value of a supply does not exceed Rs. 5000 per day.

Some of these exempted goods include live animals, meat, live trees, vegetables, water, fossil fuel, drugs and pharmaceuticals, fabrics, fruits and dry fruits, non-edible animal products, tea/coffee/spices, milling industry products, gums/resins, sugar/jaggery, fertilizers, cotton materials etc.

Similarly, some of the services exempted under GST are:

  • Healthcare services provided by clinical establishments or individual medical practitioners
  • legal services provided by any arbitral tribunal to any person other than a business entity or by a partnership firm or any individual advocates.
  • Services provided by an entity registered under Section 12AA OF Income Tax Act.
  • Services provided by any educational institute to its student in regard to transportation, catering, security, admission or conduct of examination etc.[7]
  • Services provided by the Central Government, State Government, Union Territory or local authority in relation to the functioning of Panchayat.
  • Goods and Services imported by a developer in the Special Economic Zone under Section 3(7) of the Customs Tariff Act.
  • Services provided by the Biotechnology Industry Research Assistance Council, Public Libraries or by way of public conveniences in the form of urinal or bathroom provided for public use.

Furthermore, any business having a turnover of less than Rs.40 lakhs is also exempted from GST. Similarly, businesses having an annual turnover of more than Rs.1.5 crores have the option to avail of a composition scheme under GST through which the individuals will pay taxes subject to the turnover amount at a fixed rate between 1-6%. These exemptions are generally decided by the government on the recommendation of the GST council but under any unforeseen situation like Covid-19, the government may grant exemption by special order.

Developments under 47th GST Council Meeting:

The meeting was held on 28-29 June 2022 under the chairmanship of Finance Minister Nirmala Sitharaman for the purpose of revising the existing GST rates and making changes in the same. Many items which were earlier enlisted under the exemption list were revoked and rates of several items were increased. These changes were made effective from 18th July 2022.

The key highlights of this meeting were:

  • Transportation from railways, metro, roads, bridges, effluent treatment plants, crematoriums, etc. which were earlier exempted, will now be considered under 12% GST rates.
  • Agricultural services and agricultural produce by way of fumigation in a warehouse is no longer on the exemption list.
  • Services provided by Reserve Bank of India (RBI), Insurance Regulatory and Development Authority (IRDA), Securities and Exchange Board of India (SEBI), Food Safety and Standards Authority of India (FSSAI) and Goods and Services Tax Network (GSTN)[8] will now also attract GST.
  • Maps and hydrographic or similar charts attracting NIL rate of GST will now be made available at 12% of GST rate.
  • Exemptions were also withdrawn from pre-packaged and pre-labelled retail packs of grains, including pre-packaged and pre-labelled curd, lassi and butter milk.
  • Services provided by cord-blood bank by way of preserving the stem cells will also attract GST according to the revised GST rates.
  • Marking out and drawing instruments will be made available at 12% GST rates.

Conclusion:
Through the GST regime, India was able to make 'One Nation, One Tax, One Market' a complete reality as it waved out all the various existing taxes applicable at the Central and State level. It also eradicated the long practice of 'tax on tax. With GST, the consumer became more profitable as goods and services were made available at a particular rate throughout the country.

The recent developments after this 47th GST council meeting made certain changes which proved to be unfavourable to the consumers as GST rates are increased by a greater margin but there are also some goods and services where GST has been slashed.

It is also being predicted that GST will give a significant boost to the 'Make in India' project mainly initiated by the Government making goods and services produced and provided in India ready for competition in international markets. Therefore, GST will be a boon for Indian as well as international markets.

End-Notes:
  1. Subodh Kumawat, Mr Atal Bihari Vajpayee: The Man Behind GST in India, SAG Infotech blog, (July 26,2022, 4:22 PM), https://blog.saginfotech.com/mr-vajpayee-man-behind-gst-india.
  2. Dual GST: What is Dual GST Model in India, Features & Benefits, (July 26,2022, 5:51 PM) https://www.canarahsbclife.com/faqs/tax-saving/what-is-dual-gst-in-india.html.
  3. Model of INDIAN GST, (July 27,2022, 10:29 AM), https://howtoexportimport.com/Model-of-INDIAN-GST-20657.aspx.
  4. Julia Kagan, Cascade Tax, Investopedia, (July 27,2022, 10:42 AM) https://www.investopedia.com/terms/c/cascade-tax.asp.
  5. GST in India: About GST, Its Advantages and Disadvantages, (July 29, 2022, 1:32 PM) https://www.neogrowth.in/gst-in-india-about-gst-its-advantages-disadvantages/.
  6. Id.
  7. GST Exemption: List of Items and Services exempted under GST (July 30,2022, 10:46 PM), https://www.sbsc.in/pdf/resources/1586326621_GST_Exemption_List_of_Items_and_Services_exempted_under_GST-converted.pdf.
  8. Naina Bhardwaj, What Are the Outcomes of India's 47th GST Council Meeting? Rate Revisions, Withdrawal of Exemptions, Easing Compliance, India Briefing, (July 31,2022, 4:56 PM), https://www.india-briefing.com/news/indias-47th-gst-council-meeting-outcomes-rate-revisions-streamlining-compliance-25447.html/.

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