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V J Shroff & Co

Chartered Accountants
303, Prayushi Apts, Plot No. 42B, Next to Asha Parekh Hospital,
Behind Dena Bank, S.V. Road, Santacruz (West), Mumbai 400 054.
Telephone No.: 2648 4870; Telefax No.:2661 1923, E-mail: vijay.shroff@vjshroff.com

Circular No. 16/2009-10
Dated: 16.11.2009
Dear All,

Sub : First Discussion Paper on Goods and Serviec Tax

We bring to your kind notice that the First Discussion Paper on GST in India (hereinafter referred to
as the Paper) was released by the Empowered Committee, led by Mr. Asim Dasgupta, on
10.11.2009. The paper is a starter for the approaching GST regime. The paper provides clarity on
many aspects of proposed Goods and Service Tax (GST) which have been reproduced hereunder.

Dual GST Structure:
The GST shall have two components:
One levied by the Centre - Central GST
The other levied by the States - State GST

This dual GST model would be implemented through multiple statutes (one for CGST and SGST
statute for every State). However, the basic features of law such as chargeability, definition of taxable
event and taxable person, measure of levy including valuation provisions, basis of classification etc.
would be uniform across these statutes as far as practicable.

Applicability of GST
The Central GST and the State GST would be applicable to all transactions of goods and services
made for a consideration except
the exempted goods and services,
goods which are outside the purview of GST
and the transactions which are below the prescribed threshold limits.

The coverage of the products which have special treatment under the current model of taxation of
goods and services, under the dual GST would be as under:

Sr. No. Goods Treatment under GST
1. Products containing Alcohol Outside the purview of GST - Sales
Tax/VAT can be continued to be levied on alcoholic
beverages as per the existing practice
2. Tobacco Products Subject to GST with Input Tax Credit. However,
Centre may levy excise duty on tobacco products
over and above GST.
3. Petroleum Products Crude Oil, Motor Spirit (including Aviation Turbine
Fuel) and High Speed Diesel Oil would be kept
outside GST
Decision regarding the inclusion or otherwise of the
Natural Gas in GST will be taken after further
deliberations.


Input Tax Credit (ITC)
Taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the
Central GST and could be utilized only against the payment of Central GST.
The same principle will be applicable for the State GST.
Cross utilization of ITC between the Central GST and the State GST would not be allowed
except in the case of inter-State supply of goods and services


Refund of accumulated GST credit in a time bound manner is allowed in specific cases such as
o Transactions involving exports
o Accumulated GST as a result of purchase of capital goods
o Input tax at a rate higher than output tax


Administration
The administration of the Central GST to the Centre and for State GST to the States would be given.

Threshold Limits
SGST GTO Rs. 10 Lakhs both for goods and services
CGST GTO Rs. 1.5 Crore for goods and GTO of services is not specified but higher threshold
limit may be considered for CGST on services
Composition / Compounding Scheme - cut-off at Rs. 50 lakh of GTO and a floor rate of 0.5%
across the States

Returns
The taxpayer would need to submit periodical returns, in common format as far as possible, to both
the Central GST authority and to the concerned State GST authorities.

PAN Linked TIN
Fresh registrations of existing VAT and Service Tax dealers
Each taxpayer would be allotted a PAN-linked taxpayer identification number with a total of
13/15 digits.
This would bring the GST PAN-linked system in line with the prevailing PAN-based system for
Income tax, facilitating data exchange and taxpayer compliance.

Taxes to be subsumed
The following Central Taxes would be subsumed under CGST:
i) Central Excise Duty
ii) Additional Excise Duties
iii) The Excise Duty levied under the Medicinal and Toiletries Preparation Act
iv) Service Tax
v) Additional Customs Duty, commonly known as Countervailing Duty (CVD)
vi) Special Additional Duty of Customs - 4% (SAD)
vii) Surcharges and Cesses

Following State taxes and levies would be subsumed under SGST:
i) VAT / Sales tax
ii) Entertainment tax (unless it is levied by the local bodies).
iii) Luxury tax
iv) Taxes on lottery, betting and gambling.
v) State Cesses and Surcharges in so far as they relate to supply of goods and services.
vi) Entry tax not in lieu of Octroi.

Integrated GST (IGST)
For inter-State transactions an innovative model of Integrated GST will be adopted
Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of
taxable goods and services with appropriate provision for consignment or stock transfer of goods
and services.
The inter-State seller will pay IGST on value addition after adjusting available credit of IGST,
CGST, and SGST on his purchases.
The inter-State purchaser may use the credit of the IGST paid on his purchases to discharge the
output tax liability in his own State.
All this will be done smoothly with the help of Clearing House (an authority to be created for this
purpose)
All interstate dealers to be e registered




GST Rate Structure
The Rate structure is still to be notified but certain clarity is given as below:
Necessities: Lower Rate
General Goods: Standard Rate
Precious Metals: Special Rate
Exempted Items: NIL
However services to be taxed at a single rate for both Centre and State

Exports and Imports
Exports
Exports would be zero-rated. Similar benefits may be given to Special Economic Zones (SEZs).
However, such benefits will only be allowed to the processing zones of the SEZs.
No benefit to the sales from an SEZ to Domestic Tariff Area (DTA) will be allowed.

Imports
Both CGST and SGST will be levied on import of goods and services into the country.
The incidence of tax will follow the destination principle and the tax revenue in case of SGST
will accrue to the State where the imported goods and services are consumed.
Full and complete set-off will be available on the GST paid on import on goods and services.

Special Industrial Area Scheme
After the introduction of GST, the tax exemptions, remissions etc. related to industrial incentives
should be converted, if at all needed, into cash refund schemes after collection of tax. it is clarified
that such exemptions, remissions etc. would continue up to legitimate expiry time both for the Centre
and the States. Any new exemption, remission etc. or continuation of earlier exemption, remission etc.
would not be allowed.

Constitution, Amendments and Legislation
Constitutional Amendments will be carried out in due course for empowering the Centre to levy tax
on sale of goods and States for levy of service tax and tax on imports and other consequential issues.

The paper gives clarification on many issues and gives a basic idea of GST, but still there are many
issues which need to be resolved and clarified such as Rate of Tax, Effective date of implementation,
Carry forward of refund from MVAT to GST, ITC on stock transfer, sales tax and duty exemption
scheme. At many forums the date the authorities have announced effective date of implementation as
1
st
April 2010 however there is no reaffirmation of the same in this paper.

There are many more areas which require clarifications. However, businesses will have to be geared
up to realign their businesses considering the tax efficiencies of the supply chain and /or distribution
network in the GST era. Of course, the IT infrastructures of the businesses will also to be suitably
modified to meet the compliances under the GST Act.

We shall update you once more clarity is received on the subject.

For any further clarification, please feel free to contact us.

For V J Shroff & Co
Chartered Accountants



Vijay H. Shroff
(Partner)