Basics of GST – Implementation In India

Indirect Tax Structure in India

India currently has a dual system of taxation of goods and services, which is quite different from dual GST. Taxes on goods are described as “VAT” at both Central and State level. It has adopted value added tax principle with input tax credit mechanism for taxation of goods and services, respectively, with limited cross-levy set-off.

SHORTCOMINGS IN THE PRESENT STRUCTURE AND NEED OF GST:

1. Tax Cascading: The most significant contributing factor to tax cascading is the partial coverage by Central and State taxes. The exempt sectors are not allowed to claim any credit for the Cenvat or the Service Tax paid on their inputs.

2. Levy of Excise Duty on manufacturing point : The CENVAT is levied on goods manufactured or produced in India. Limiting the tax to the point of manufacturing is a severe impediment to an efficient and neutral application of tax. Taxable event at manufacturing point itself forms a narrow base.

 For example, valuation as per excise valuation rules of a product, whose consumer price is Rs. 100/-, is, say, Rs. 70/-. In such a case, excise duty as per the present provisions is payable only on Rs.70/-, and not on Rs.100/-.

3. Complexity in determining the nature of transaction – Sale vs. Service

4. Inability of States to levy tax on services : With no powers to levy tax on incomes or the fastest growing components of consumer expenditures, the States have to rely almost exclusively on compliance improvements or rate increases for any buoyancy in their own-source revenues.

5. Lack of Uniformity in Provisions and Rates

6. Fixation of situs – Local Sale vs. Central Sale

7. Interpretational Issues: whether an activity is sale or works contract; sale or service, is not free from doubting many cases.

8. Narrow Base

9. Complexities in Administration

GST (Goods and Service Tax)

GST means Goods and Service Tax. It is an indirect tax levied on sale of goods and services. The reformists believe that GST is one of the most awaited law which upon introduced will boost the economic growth in the country. This law if passed by the parliament may come into force from April 2016. As everyone is talking about it now, let’s get into the basics of the proposed law in this article.

Present system – This can be better explained through an example. Suppose you buy soap for Rs.50 per piece, it includes Excise Duty, VAT or CST, Customs duty on the imported raw materials, etc. So, currently you will have to pay multiple taxes on the same product. Let’s take another example; the food you buy at hotels will have VAT as well as Service Tax.

Complexities in the present system – The taxes are levied by central government as well as state governments. So, the businessman has to maintain accounts which will comply with all the applicable laws. It is perceived to be a complex system. Hence, worldwide over 150 countries have adopted GST, a simple tax system.Though it is late, India is catching up with the global trends.

Is it easy to implement in India? Not really. Today states have autonomy in collecting state taxes. They have thefeeling of losing their rights! They want liquor, fuel to be out of GST tax system. They are also worried about Central government sharing GST revenue with the states. If India becomes one common market, then the states will have to share their powers of taxing with the union government. (Which means states can’t increase the taxes as and when, as much as they want)

If the GST bill is passed; will it come into effect immediately? NO. The earliest day we can see GST in India will be in April 2016. Again implementation depends upon the initiative and involvement of state governments. Some of the states may act quickly and some of them may take time to implement.

GST Rate- Today, one pays Excise Duty of 12%, VAT of 14% on goods (totaling to 26%). 12% service tax on services. So, the rates may be anywhere between 12% and 26%. The average worldwide GST rate is around 18%.

FEATURES OF AN IDEAL GST

The main features of GST are as under:-

(a) GST is based on the principle of value added tax and either “input tax method” or “subtraction” method, with emphasis on voluntary compliance and accounts based system.

(b) It is a comprehensive levy and collection on both goods and services at the same rate with benefit of input tax credit or subtraction of value of penultimate transaction value.

(c) Minimum number of floor rates of tax, generally, not exceeding two rates.

(d) No scope for levy of cess, re-sale tax, additional tax, special tax, turnover tax etc.

(e) No scope for multiple levy of tax on goods and services, such as, sales tax, entry tax, octroi, entertainment tax,luxury tax, etc.

(f) Zero rating of exports and inter State sales of goods and supply of services.

(g) Taxing of capital goods and inputs whether goods or services relatable to manufacture at lower rate, so as to reduce inventory carrying cost and cost of production.

(h) A common law and procedures throughout the country under a single administration.

(i) GST is a destination based tax and levied at single point at the time of consumption of goods or services by theultimate consumer.

MODELS OF GST

There are three prime models of GST:

GST at Central (Union) Government Level only

GST at State Government Level only

GST at both, Union and State Government Levels

EXPECTED MODEL OF GST IN INDIA- DUAL GST

In India, the GST model will be “dual GST” having both Central and State GST component levied on the same base. All goods and services barring a few exceptions will be brought into the GST base. Importantly, there will be no distinction between goods and services for the purpose of the tax with common legislations applicable to both.

For Example, if a product have levy at a base price of Rs. 100 and rate of CGST and SGST are 8% then in such case both CGST and SGST will be charged on Rs 100 i.e. CGST will be Rs 8 and SGST will be Rs.8.

Interestingly, as per the recommendations of Joint Working Group (JWG) appointed by the Empowered Committee in May 2007, the GST in India may not have a dual VAT structure exactly but it will be a quadruple tax structure. It may have four components, namely

  (a) a Central tax on goods extending up to the retail level;

 (b) a Central service tax;

 (c) a State-VAT on goods; and

(d) a State-VAT on services.

The significant features of Dual GST recommended in India, in conjunction with the recommendations by the

JWG, are as under:

1. There will be Central GST to be administered by the Central Government and there will be State GST to be administered by State Governments.

2. Central GST will replace existing CENVAT and service tax and the State GST will replace State VAT.

3. Central GST may subsume following indirect taxes on supplies of goods and services: Central Excise Duties

(CENVAT)· Additional excise duties including those levied under Additional Duties· of Excise (Goods of Special Importance) Act, 1957. Additional customs duties in the nature of countervailing duties, i.e.,· CVD, SAD and other domestic taxes imposed on imports to achieve a level playing field between domestic and imported goods which are currently classified as customs duties. Cesses levied by the Union viz., cess on rubber, tea, coffee etc.·

Service Tax· Central Sales Tax – To be completely phased out· Surcharges levied by the Union viz., National Calamity Contingent Duty,· Education Cess, Special Additional Duties of Excise on Motor-Spirit and High SpeedDiesel (HSD).

4. State GST may subsume following State taxes: Value Added Tax· Purchase Tax· State Excise Duty (except on liquor)· Entertainment Tax (unless it is levied by the local bodies)· Luxury Tax· Octroi Entry Tax in lieu of Octroi·Taxes on Lottery, Betting and Gambling·

5. The proposed GST will have two components – Central GST and State GST – the rates of which will be prescribed separately keeping in view the revenue considerations, total tax burden and the acceptability of the tax.

6. Taxable event in case of goods would be ‘sale’ instead of ‘manufacture’.

7. Exports will be zero rated and will be relieved of all embedded taxes and levies at both Central and State level.

8. The JWG has also proposed a list of exempted goods, which includes items, such as, life saving drugs, fertilizers, agricultural implements, books and several food items.

9. Certain components of petroleum, liquor and tobacco are likely to be outside the GST structure. Further, State Excise on liquor may also be kept outside the GST.

10. Taxes collected by Local Bodies would not get subsumed in the proposed GST system.

As per the proposed GST regime, the input of Central GST can be utilized only for payment of CGST & the input of State GST can be utilized only for payment of SGST. Cross- Utilization of input of CGST in payment of SGST and vice-a- versa, will not be allowed.

Railways and Construction Sector might be included in GST.

Liquor, Petro Sector, Taxes of Local Bodies might be out of GST Stamp Duty – It has not yet been decided whether stamp duty will be part of the GST or not.

*Sources of the above information – Back Ground Material Issued by ICAI on GST.

General Budget 2015-16 - SERVICE TAX

General Budget 2015-16 - Changes in SERVICE TAX:

1. Change in Service Tax rates:

The service tax rate is being increased from 12% plus Education Cesses to 14%. The ‘Education Cess’ and ‘Secondary and Higher Education Cess’ shall be subsumed in the new service tax rate. The revised rate shall come into effect from a date to be notified

To further facilitate the ease of doing business, online central excise and service tax registration will be done in two working days. The assessees under these taxes will be allowed to issue digitally signed invoices and maintain electronic records. These measures will cut down lot of paper work and red tape. Time limit for taking CENVAT credit on inputs and input services is being increased from six months to one year as a measure of business facilitation.

Introduction of GST is eagerly awaited by Trade and Industry. To facilitate a smooth transition to levy of tax on services by both the Centre and the States, it is proposed to increase the present rate of service tax plus education cesses from 12.36% to a consolidated rate of 14%.

Penalty provisions in Customs, Central Excise & Service Tax are being rationalized to encourage compliance and early dispute resolution.

Central Excise/Service Tax assessees are being allowed to issue digitally signed invoices and maintain other records electronically.

2. Review of the Negative List :

The Negative List under service tax is being slightly pruned and certain other exemptions are being withdrawn to widen the tax base.

 1.Service tax to be levied on the service provided by way of access to amusement facility such as rides, bowling alleys, amusement arcades, water parks, theme parks, etc.

2) Service tax to be levied on service by way of admission to entertainment event of concerts, non-recognized sporting events, pageants, music concerts and award functions, if the amount charged for admission is more than Rs 500. Service by way of admission to exhibition of the cinematographic film, circus, dance, or theatrical performances including drama, ballets or recognized sporting events shall continue to be exempt.

 3) Service tax to be levied on service by way of carrying out any processes as job work for production or manufacture of alcoholic liquor for human consumption.

4) An enabling provision is being made to exclude all services provided by the Government or local authority to a business entity from the Negative List. Once this amendment is given effect to, all service provided by the Government to business entities, unless specifically exempt, shall become taxable

3. Review of General Exemptions :             

1) Exemption presently available on specified services of construction, repair of civil structures, etc. when provided to Government shall be restricted only to,

            a) a historical monument, archaeological site,   b) canal, dam or other irrigation work;    c) pipeline, conduit or plant for -  (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal.

2) Exemption to construction, erection, commissioning or installation of original works pertaining to an airport or port is being withdrawn.

3) Exemption to services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theater, will be limited only to such cases where amount charged is upto Rs 1,00,000 per performance (except brand ambassador).

 4) Exemption to transportation of ‘food stuff’ by rail, or vessels or road will be limited to transportation of food grains including rice and pulses, flours, milk and salt only. Transportation of agricultural produce is separately exempt which would continue.

5) Exemptions are being withdrawn on the following services: (a) services provided by a mutual fund agent to a mutual fund or assets management company; (b) distributor to a mutual fund or AMC; and (c) selling or marketing agent of lottery ticket to a distributor of lottery.

 6) Exemption is being withdrawn on the following services,- (a) Departmentally run public telephone (b) Guaranteed public telephone operating only local calls (c) Service by way of making telephone calls from free telephone at airport and hospital where no bill is issued

 7) Existing exemption notification for service provided by a commission agent located outside India to an exporter located in India is being rescinded, as this notification has become redundant in view of the amendments made in law in the previous budget, whereby services provided by such agents have been excluded from the tax net.

4. Relief Measures

1.)Services of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables are being exempted.

2) Life insurance service provided by way of Varishtha Pension Bima Yojna is being exempted.

3) Service provided by way of exhibition of movie by the exhibitor/ theatre owner to the distributor or association of persons consisting of exhibitor as one of it’s member is being exempted.

4) All ambulance services provided to patients are being exempted.

 5) Service provided by way of admission to a museum, zoo, national park, wild life sanctuary and a tiger reserve is being exempted.

 6) Transport of goods for export by road from the factory to a land customs station (LCS) is being exempted.

5. Changes in the Finance Act, 1994

1. A definition of the term “government” is being incorporated in the Act to resolve interpretational issues as regards the scope of this term in the context of the Negative List and service tax exemptions.

 2. To amend the definition of term “service” to specifically state the intention of legislature to levy service tax on: i. chit fund foremen by way of conducting a chit; and ii. distributor or selling agent of lottery, as appointed or authorized by the organizing state for promoting, marketing, distributing, selling, or assisting the state in any other way for organizing and conducting a lottery.

 3. It is being specifically prescribed in the Act that value of a taxable service shall include any reimbursable cost or expenditure incurred and charged by the service provider to make legal position clear and avoid disputes.

 4. Section 66F of the Act prescribes that unless otherwise specified, reference to a service shall not include reference to any input service used for providing such service. An illustration is being incorporated in this section to exemplify the scope of this provision.

6. Rationalization of abatement

 1. A uniform abatement is being prescribed for transport by rail, road and vessel to bring parity in these sectors. Service Tax shall be payable on 30% of the value of such service46 subject to a uniform condition of non-availment of Cenvat Credit on inputs, capital goods and input services. Presently, tax is payable on 30% of the value in case of rail transport, 25% in case of road transport and 40% in case of transport by vessels.

 2. The abatement for executive (business/first class) air travel, wherein the service element is higher, is being reduced from 60% to 40%. Consequently, service tax would be payable on 60% of the value of fare for business class.

3. Abatement is being withdrawn on chit fund service.

7. Service Tax Rules

1. In respect of any service provided under aggregator model, the aggregator is being made liable to pay service tax if the service is provided using the brand name of aggregator in any manner.

2. Consequent to the upward revision in Service Tax rate, the composition rate on specified services, namely, life insurance service, services of air travel agent, money changing service provided by banks or authorized dealers, and service provided by lottery distributor and selling agent, is proposed to be revised proportionately.

8. Reverse charge mechanism

1. Manpower supply and security services when provided by individual, HUF, partnership firm to a body corporate are being brought to full reverse charge as a simplification measure. Presently, these are taxed under partial reverse charge mechanism.

 2. Services provided by mutual fund agents, mutual fund distributors and lottery agents are being brought to under reverse charge consequent to withdrawal of exemption on such services.

9. The Cenvat Credit Rules,2004

Cenvat Credit Rules are being amended to allow credit of service tax paid under partial reverse charge by the service receiver without linking it to the payments of value of service to service provider as a trade facilitation measure.

Compensate states 100% on GST for first 3 years

The 14th Finance Commission has suggested that the Centre provide 100% compensation to states for the first three years for their revenue loss after implementation of the goods and services tax (GST) and set up a compensation fund.

The recommendations are expected to embolden the sta- tes to urge the Centre to rework its compensation formula and act as a hurdle in implementation of the country's most ambitious indirect tax reform.

"Given the scale of reform and apprehension of revenue uncertainty raised by the states, the revenue compensation should be for five years," the commission headed by former RBI governor Y V Reddy said. "It's suggested that 100% compensation be given to the states in the first, second and third years, 75% in the fourth year and 50% in the fifth and final years," it said.

The panel said the government should set up the compensation fund as states want such an entity be created constitutionally. "We recommend an autonomous and independent GST Compensation Fund through legislative action in a manner that it gives comfort to states limiting the period of operation appropriately," the panel said.

It said there were challenges and in the absence of clarity on the GST design and the final rate structure it's difficult to quantify compensation in case of revenue loss to states.




Courtesy: Times of India

Service tax mop-up may see robust growth in FY15

Service tax collections are tipped to be higher than those from two other indirect taxes - excise and Customs duties - for the first time in the next financial year.

The tertiary sector holds the key to growth in indirect tax collections over the next few years as revenue from excise and Customs is likely to remain muted until the economy revives. Aided by the Negative List for taxation of services, new penal provisions, and an amnesty scheme for defaulters, the revenue department is banking upon the service sector to drive future growth in tax receipts.

At current rates, service tax collections are projected to increase by 30.6 per cent to Rs 2,15,478 crore next year. Customs and excise duties, on the other hand, are projected to yield around Rs 2 lakh crore each to the exchequer, growing by 15 and 11.72 per cent, respectively.

WHAT LEADS TO RISE IN SERVICE TAX RECEIPTS
Negative list
Amnesty scheme
Arrest provisions
Services GDP
Cenvat credit
Service import rules

According to Budget documents, nominal GDP is projected to grow 13.4 per cent in 2014-15 and 11.9 per cent in 2013-14.

Services were first taxed barely 20 years ago, whereas customs duties date back to 1962 and excise to 1944. Including construction, services contribute about 60 per cent of India's GDP. The sector expanded by a higher rate than manufacturing and agriculture and so did tax collections from it. However, this is not the only factor that contributed to the 24.3 per cent growth in service tax collections this year, according to, revised estimates in the budget.

The Voluntary Compliance Encouragement Scheme (VCES), announced in Budget 2013-14 as a one-time opportunity for defaulters to pay up all their dues and escape penalty, added about Rs 4,000 crore to the government kitty. A total of 66,062 applications were received under the scheme and as many of these are first-time taxpayers, it widened the tax base and these assessees will the pay tax next year, too.

The last Budget also made non-payment of service tax above Rs 50 lakh a cognisable and non-bailable offence. This gave power to officials to arrest defaulters without requiring a warrant from court. The authorities have nabbed 28 executives in the last six months for non-payment of the tax.

The introduction of a Negative List in July 2012 also helped expand the tax base. Earlier, only 119 services were taxed, but now every service is taxable, barring the 17 mentioned in this list. People who were not paying service tax earlier are paying now and will continue to pay in subsequent years. The gains, however, may not be as high as seen in the first year.

"Services contribute the biggest chunk of GDP. We need to be tapping all of it. The real growth is in services and it will be there (in the future too), but the collections may not grow at that rate (as seen in the recent past) due to the economic slowdown,"

The finance ministry had originally projected a 36 per cent growth in service tax collections this year, but due to a slowing economy it fell short of target. Services, however, still performed better than excise and customs, where the revenue growth was barely 1.7 per cent and 5.8 per cent, respectively.

The another reason for service tax collection surpassing excise receipts was that many manufacturers were discharging their liability by setting off of the excise duty or service tax paid on inputs against the tax on the final product.

"After the introduction of Place of Provision of Services Rules, 2012, the liability to pay tax on import of certain services has risen in India,"

If the place of provision of service is in taxable territory, service tax will be payable even if payment is received in foreign exchange and the service receiver is located outside the taxable territory.

The target set for service tax collections for 2014-15 set by the finance ministry is slightly optimistic and the mop-up may not grow at the same pace in the future, but the growth will be more than excise. Telecommunications, insurance, works contract, renting of immovable property, business support, construction of residential complex, business auxiliary service, banking, and transport of goods by roads are some of the sectors contributing highly to service tax collections.

Indirect Taxes an overview

Indirect Taxes an overview 

       Indirect tax is levied on goods and services rather than on income or profits. It is most often thought as a tax that is shifted from one taxpayer to another, by way of an increase in the price of the good. Fuel, liquor and cigarette taxes are all considered examples of indirect taxes. The Central Board of Excise & Customs (CBEC)(Department of Revenue ,Ministry of Finance ,Govt Of India) is responsible for formulation of policy relating to levy and collection of Indirect taxes namely Customs, Central Excise and Service tax. The indirect tax system in India has undergone extensive reforms for more than two decades. India is still standing on the threshold of an opportunity to streamline its indirect tax regime in the country. The framework of Indirect taxes is presently complex not only for the trade but also for the government. The Indirect tax system in India has undergone extensive reforms for more than two decades.
Liberalisation of the Indian economy in 1992 forced the government to undertake indirect tax reforms so that the Indian industry can face international competition and economic growth can be accelerated. Peak rate of Customs duty was gradually reduced from 300 % to 10% .Excise duty reduced from peak of 220% to 16% .The Government’s revenue requirement was met by reduction in tax exemption ,introduction of service tax in 1994 and also significantly higher tax collection due to accelerated economic growth. Reduction in the tax rate also improved compliance and investment climate. Tax administration was improved and modernised .After achieving major success in central tax reforms and reaping its benefits in the form of higher economic growth and revenue expansion, it was realised that without undertaking tax reforms at the state level, the Indian economy will remain fragmented and the industry cannot derive significant gains. This led to the introduction of uniform VAT at state level in 2005 multi rate sales tax. It was a major step forward towards making India a one common economic market. But even after these reforms, it is still a highly fragmented and distortionary tax structure characterized by multiple tax rates, barriers to inter-state trade, and cascading of taxes. However, these reforms have succeeded in preparing the ground for the introduction of a comprehensive goods and services tax (GST).

Growth of Service Tax

Service tax is envisaged as the tax of the future. Well synchronized taxation on manufacturing, trade (domestic & international) and service without giving rise to cascading effect of taxation would be an ideal worth pursuing in the immediate future. This would bring in VAT in its truest sense, though the ultimate objection usher in the regime of Goods and Service Tax (GST).

            Continued growth in GDP accompanied by higher rate of growth in service sector promises new & wider avenues of taxation to the Government. If the tax on services reduces the degree of intensity of taxation on manufacturing and trade without forcing the Government to compromise on the revenue needs, then one of the basic objectives of taxing the service sector would be achieved.

                       Advanced economies of Western Europe, North America and Far East have share of service sector in their GDP ranging from 60% to 80%. The growth in absolute quantum of GDP and proportion of Service-sector in GDP holds promise for larger revenue generation without increasing the existing level of taxation

Future Course of Action

The following items of works have to be attended to urgently to improve the administration of Service Tax in the country.

1.     Service Tax collection Target (Budget estimate) of Rs.180141 crores for F.Y. 2013-14 to be exceeded.

2.      Intensify the field survey operations to ensure that all taxable service assessees are brought into the tax net and Service Tax due from them are collected without hitch.

3.      Recalcitrant/ habitual evaders of Service Tax have to be booked for appropriate action under the law. There could be no leniency in this regard.

4.         Effective use of Audit and Anti-evasion as tools for ensuring the compliance on the part of the assessee and curbing the instances of irregularities and tax evasion.  With the launch of ACES greater emphasis will be on training the staff in computer skills necessary to carry out effective, systematic and result oriented analysis of data available in the system to achieve greater result.   

5.      Effectively implement an Electronic Tax Administration (ETA) system for service tax so that service tax could be administered as a pioneer e-tax of the country. The Directorate General of Systems & Data Management has developed a web based software named as ‘AUTOMATION OF CENTRAL EXCISE AND SERVICE TAX’ (ACES) which automates various processes of Central Excise & Service Tax for Assesses and Department and gives complete end to end solution. This web based software is available at ‘www.aces.gov.in’

6.      Concentrate on liquidation of Service Tax arrears and issue necessary clarifications to the field officers so that arrears linked up with disputed interpretations of the provisions of the law could be easily resolved.

7.      Attend to all major court cases relating to Service Tax law for early decision.

8.    Deploy adequate staff to attend to the service tax work and provide infrastructure and conveyance to implement service tax law effectively.

GST -The need of the hour

Goods and Services are the two terminal points in any trade and commerce. Though they run parallel and are mutually exclusive, many a times, they blend at a point where they are thoroughly fused together! For example, if activities like teaching are pure services where there would be no involvement of goods at all would be one terminal point, the sale of commodities which are pure goods and where there would be no provision of services, would be the other terminal point. But in cases like construction of a building etc, there will be both, such as services (construction) as well as goods (cement, steel, etc). In such cases, the goods as well as the services would have a meeting point, so intertwined, where the services as well as the goods component cannot be distinguished or bifurcated. At present, having Excise/Customs duties for the commodities and Service tax for the services, the Government has formulated separate mechanisms to deal them separately. It would be relatively easy to tax the terminal points like the pure goods under Excise and pure services under Service tax. But levying tax on the sectors like ready-made garments etc, where both the goods and services are equally and inseparably present, taxing them has always been Herculean task! VAT IN INDIA The foundation stone to the GST was laid by the then Finance minister Mr. V.P. Singh, whereby, he introduced the first comprehensive and milestone set – off scheme under the Central Excise law, called MODVAT (Modified Value Added Tax) scheme in the year 1986. This MODVAT scheme neutralized the cascading effect of tax – on – tax by giving the credit of the excise duty paid on the inputs to be set- off against the duty payable on such final products. This MODVAT scheme, which was introduced to the inputs, raw materials and consumables which were used directly or indirectly used in the manufacture of the final products, was extended to the capital goods in the year 1994. With few restrictions like 50% availment in the first year and the balance in any subsequent years and no depreciation claim on the credit amount, this was the next beneficial extension of the MODVAT scheme. The year 1994 also saw a radical change in the indirect tax domain with the introduction of an indirect tax on services called the “Service Tax” through the Finance Act, 1994. Though introduced to three services like Telephones, Non-Life Insurances and Stock broking in the year 1994, this tax has multiplied like virus and today has near to 200 services in the net. With the tax rate @ 5%, the service tax lived its initial years without the benefit of the set – off schemes. Further, the Central Board of Excise and Customs (CBEC) had also issued certain clarifications in certain services, whereby, it had been clarified that there was no need to pay any service tax by the sub – contractors of the main service providers, if the main service provider is paying the service tax. Hence, both the moderate rate of tax as well as the non – requirement for the sub- contractors to pay any tax, did not either hurt the service tax assesses to cry for any credit scheme nor the Government to think of such a scheme for service tax. Subsequently, with the increase in the service tax rate from 5% to 8% and then to 10%, the service industry started feeling the pinch. Thus, in the year 2002, the Government introduced a “limited edition” of service tax credit and extended it in the year 2003 to all taxable services. The year 2004 has to be hailed as another significant year in Indirect tax administration as this year saw the introduction of “cross-sectoral” credit through the Cenvat Credit Rules, 2004 (CCR). The scheme rechristened as CENVAT credit is a milestone, whereby, the credit of the excise duty/countervailing duty paid on the inputs/capital goods and the service tax paid on the input services were allowed to be used for the payment of excise duty payable on the final products manufactured as well as for the service tax payable on the output services provided. Year 2005 saw the Value added Tax (VAT) being introduced in many States in India, whereby, the set-off scheme was introduced in the State administered indirect tax – Sales Tax! Now with the sound and solid groundwork, India is all set to launch the GST – the TAXATIONEXT! GST – ECO SYSTEM! To me, there are four direct players in this GST game, namely, the Central Government, the State Government , the Trade and last but not the least, the Consultants. Now we shall see the benefits to all of them, sequentially. Firstly, the Central Government. Today, the Centre levies indirect taxes on goods and services, namely the Central Excise duties on manufacture of goods, the Service tax on provision services and the Customs duties on import of goods. In the goods sector, the Centre is now empowered to levy taxes only upto the stage of manufacture. Today, the Centre is not able to levy a tax on the trading of the goods as the Centre is not empowered to tax the SALE of goods but only empowered to tax “MANUFACTURE” as per Entry 84 of the Union List. In other words, the huge value addition in the value chain of the commodities, from the stage of manufacture till the stage of retail trade, is out of the levy of Central Excise. Only the States are today empowered to tax the goods on their SALE upto the retail trade. By this GST, the Centre would be empowered to tax the commodities till the retail point and increase its tax base multifold. An illustration below, keeping a notional GST rate of 10%, would make the proposition lucid and clear. Stage of Supply chain Purchase value of input Value addition. Value of supply made to next stage Rate of GST GST on output Input