25 February 2019 ankitchadha

GST : One Nation One Tax is a reality or a myth?


GST i.e. Goods and Service Tax is an Indirect Tax which has subsumed most of the earlier existing indirect taxes but not all. For example : State Excise still exists and on liquor GST is still not levied, State Excise is charged and paid by the vendors.

Before GST was introduced, there was a whole lot of propaganda telling the nation that by bringing GST Tax system-

  • All other indirect taxes would be eliminated. The slogan of “One Nation One Tax” was bold and loud enough to influence people to genuinely look forward to this change.
  • It would ensure the seamless flow of input credit across the chain (from manufacturing to point of consumption) and across the country.

But due to certain restrictions imposed by the CGST Act 2017, wherein the provision of “Ineligible Inputs” blocked the seamless flow of inputs and cast additional tax liability on  the final consumer.Though GST as introduced by the Union Finance Minister was claimed to provide seamless flow of credit, it seems to achieve it only halfheartedly.

What are Input Tax Credits?

Input credits means at the time of paying tax on output, you can reduce the tax you  have already paid on inputs and pay the balance.

But there is a list of certain items provided U/s 17(5) of CGST Act which are not allowed for claiming Input tax credit which are as follows:-

  1. Motor vehicles and Conveyance except when used for:-
    • Transportation of goods
    • For making following taxable supplies:-
      • Further supply of such vehicles e.g. for car dealers
      • Transportation of passengers e.g. travel agency
      • Imparting training e.g. Motor driving schools

        It means that if a registered taxable person buys a car to be used for business use, and pays GST, that will not be available as Input whereas if that person sells his old car then he will have to still pay GST.
  2. Foods and Beverages, outdoor catering, beauty treatments, health services, cosmetic and plastic surgery except where Inward supply of these is used for making an outward supply of same category

    It means that GST paid on restaurant bills while doing business meetings is a big NO-NO for availing input tax credit.

  3. Membership of club, health and fitness centre.
  4. Rent a cab, life insurance and health insurance except where
    • The government has made it obligatory for an employer to provide any of those services to its employees.
    • If Inward supply of these services is used for making an outward supply of same category.

      Again it means that GST paid on all Uber/ Ola rides for travelling for business meetings are not allowed as input tax credit.

  5. Travel benefits to employees
  6. Work Contract Services for construction of immovable property except when:
    • It is input service for further supply of further work contract services.

It means that if a registered taxable person hires a contractor for construction of his office building and pays GST to the contractor, that GST amount is not eligible for claiming it as input.

There is a lot to be desired to make GST- One Nation, One Tax a reality. A lot of it has to do with the diverse nature of industries India houses. Of course, the implementation too needs a sea change to make the whole system more transparent.