BASICS OF GOODS AND SERVICE TAX WITH HELP OF EXAMPLES CA. RAJAT MOHAN B.Com(H), A.C.A., D.I.S.A.

1. Introduction Last month a colleague of mine has just sent me an email relating to a very important meeting. The email was supposed to contain key information that I needed to present, as part of the business case for an important project. But there's a problem: I was not able to understand quickly. Then I felt that in today's information overload world, it's vital to communicate clearly, concisely and effectively. People don't have time to read book-length materials, and they don't have the patience to scour badly-constructed materials for "buried" points. Then I asked my self a question why not I shall convert the complete Goods and Service Tax in a series of examples. So here I am giving you GST all in form of examples and that too without using any jargons. 2. Developments in GST till now Idea of national GST was first mooted by Kelkar Task Force in 2004. A task force was formed under Chairmanship of Shri Vijay Kelkar on Implementation of Fiscal Responsibility and Budget Management Act. The Kelkar Committee submitted its report in July 2004. The Committee strongly recommended fully integrated GST on national basis. Since then there have been several government documents on this subject of GST. Out of these several government documents following reports were presented were most relevant and important: Government Authority Report name Month of issue Empowered Committee Of A Model Roadmap for Goods and 2008 State Finance Ministers Services tax in India Department of Economic GST Reforms and March 2009 Affairs Intergovernmental Ministry of Finance Considerations in India Government of India Empowered Committee Of First Discussion Paper November State Finance Ministers On 2009 Goods and Services Tax In India th Task force set up by 13 Report of task Force 13th Finance December Finance Commission Commission 2009 National Council of Moving to Goods and December

Applied Economic Research Department of Revenue

Services Tax in India: 2009 Impact on Indias Growth and International Trade Comments of Department of January Revenue on First Discussion paper 2010

3. Illustration 3.a) Example Basic Example Mr. A manufactures goods. He bought goods for Rs. 1,20,000 and incurred expenses of Rs. 10,000. These manufactured goods were sold for Rs. 145,000. GST Rate 12%. Compute Sale Price. Solution Particulars Cost of Goods Add: Expenses Add: Profit Sales GST 145000 @ 12% Sales Price

Amount (Rs.) 120000 10000 15000 145000 17400 162400

3.b) Example Mr. A manufactures goods. He bought goods for Rs. 56,000 and incurred expenses of Rs. 74,000. These manufactured goods were sold inter-state at Rs. 145,000 plus applicable GST. Rate of SGST and CGST is 7% and 5% respectively. Compute GST payable. Solution Particulars

Amount (Rs) Cost of Goods 56000 Add: Expenses 74000 Add: Profit 15000 Sales 145000 IGST* 145000 @ 12% 17400 Sales Price 162400 * IGST (12%) = CGST (5%) + SGST (7%) 3.c) Example Manufacturer vs. Wholesaler vs. Retailer Let us understand the working of GST on a manufactured commodity from point of view of a manufacturer, wholesaler, retailer and final consumer.

Assuming GST rate is 10%, Table Stage of Supply Chain

Purchase Value Value Value of Addition of supply Input 30 20 10 130 150 160

Manufacturer 100 Wholesaler 130 Retailer 150

Rate GST ITC Net GST Of on = GST on GST output Output ITC 10% 13 10 13-10 = 3 10% 15 13 15-13 = 2 10% 16 15 16-15 = 1

Manufacturer Manufacturer making value addition of Rs.30 on his purchases worth Rs.100 of input of goods and services used in the manufacturing process. The manufacturer will then pay net GST of Rs. 3 after setting-off Rs. 10 as GST paid on his inputs (i.e. Input Tax Credit) from gross GST of Rs. 13. The manufacturer sells the goods to the wholesaler. Wholesaler When the wholesaler sells the same goods after making value addition of Rs. 20, he pays net GST of only Rs. 2, after setting-off of Input Tax Credit of Rs. 13 from the gross GST of Rs. 15 to the manufacturer. Retailer When a retailer sells the same goods after a value addition of Rs. 10, he pays net GST of only Re.1, after setting-off Rs.15 from his gross GST of Rs. 16 paid to wholesaler. Thus, the manufacturer, wholesaler and retailer have to pay only Rs. 6 (i.e. Rs. 3+Rs. 2+Re. 1) as GST on the value addition along the entire value chain from the producer to the retailer, after setting-off GST paid at the earlier stages. That is to say final price paid by consumer is Rs. 160 + 10% x 160 = 176. 3.d) Example Input Tax Credit - 1 Mr. A manufactures goods. He bought goods for Rs. 56,000 (including GST paid @12%) and incurred expenses of Rs. 74,000. These manufactured goods were sold for Rs. 145,000 plus applicable GST. Rate of SGST and CGST is 7% and 5% respectively. Compute output GST & GST payable. Solution Particulars Cost of Goods

Amount(Rs) 56000

Add: Expenses Add: Profit Sales CGST 145000 @ 5% SGST 145000 @ 7% Sales Price

74000 15000 145000 7250 10150 162400

Input Tax Credit In this, Cost of Goods sold of Rs 56000 includes GST @ 12%. So, we will calculate the value of goods purchased by back calculations. Value of goods = 56000 x 100 = 50000 100+12 Particulars Total value CGST SGST Value net of GST Cost of Goods 56000 2500 3500 50000 Tax Payable Calculation Particulars CGST SGST Output GST 7250 10150 Less: Input Credit 2500 3500 Tax payable by cash 4750 6650

3.e) Example Input Tax Credit -2 Ram, a dealer purchased 20,000 liters of inputs on which SGST and CGST paid at the rate of 7% and 5%. Input tax credit available for SGST and CGST is Rs. 10,500 and Rs. 7,500 respectively. He manufactured 18,000 liters of finished products from the inputs. 2,000 liters was normal loss in the process. The final product was sold at uniform price of Rs. 10 per liter as follows:1. Goods sold within State 8,000 liter. 2. Finished product sold in inter-State sale 6500 liter. 3. Goods sent on stock transfer to consignment agents outside the State 3,500 liter. SGST and CGST rate on the finished product of dealer is 7% and 5% respectively. Calculate liability of SGST and CGST. Find Input tax credit available to dealer and tax required to be paid in cash. Solution Output Tax Calculation

Description

Quantity Value Sold of (liter) Goods sold Sale within State 8,000 80000 Goods sent on stock transfer to 3,500 35000 consignment agents outside the State Goods sold Inter-State 6500 65000 Total 18,000 1,80,000 Tax Payable Calculation Particulars CGST SGST IGST (Rs.) (Rs.) (Rs.) Output tax Less: Input tax credit CGST Rs.7500 SGST Rs.10500 Net tax payable 4000 (4000) NIL 5600 12000

CGST SGST IGST @ 5% @ 7% @ (Rs.) (Rs.) 12% (Rs.) 4000 5600 Nil Nil Nil 4200

Nil 4000

Nil 5600

7800 12000

(3500) (5600) (4900) NIL 3600

SGST and CGST of Rs. 10,500 and Rs. 7,500 are paid on inputs. This input tax credit should first be utilized for payment of CGST and SGST, respectively, and balance is to be used for payment of IGST. Thus, balance available for payment of IGST is Rs. 3500 of CGST and Rs. 4900 of SGST and he is liable to pay balance amount of IGST of Rs. 3600 by cash.(12000-3500-4900 = 3600). Since credit of SGST of Rs.4900 has been utilized for payment of IGST, the State Government will get debit of Rs. 4900 from the Central Government. 3.f) Example Input Tax Credit -3 Ram, a dealer purchased 20,000 liters of inputs on which SGST and CGST paid at the rate of 7% and 5%.Input tax credit available for SGST and CGST are Rs. 14,000 and Rs. 10,000 respectively. He manufactured 18,000 liters of finished products from the inputs. 2,000 liters was normal loss. The final product was sold at uniform price of Rs. 10 per liter as follows:1. Goods sold within State 8,000 liter. 2. Finished product sold in inter-State sale 6500 liter. 3. Goods sent on stock transfer to consignment agents outside the State 3,500 liter. SGST and CGST rate on the finished product of dealer is 7% and 5% respectively.

Calculate liability of SGST and CGST. Find Input tax credit available to dealer and tax required to be paid in cash. Solution Output Tax Calculation Description

Quantity Value Sold of (liter) Goods sold Sale within State 8,000 80000 Goods sent on stock transfer 3,500 35000 outside State Goods sold Inter-State 6500 65000 Total 18,000 1,80,000 Tax Payable Calculation Particulars CGST SGST IGST (Rs.) (Rs.) (Rs.)

CGST SGST IGST @ 5% @ 7% @ (Rs.) (Rs.) 12% (Rs.) 4000 5600 Nil Nil nil 4200 Nil 4000 nil 5600 7800 12000

Output tax 4000 5600 12000 Less: Input tax credit CGST Rs.10000 (4000) (6000) SGST Rs.14000 (5600) (6000) Net tax payable NIL NIL NIL SGST and CGST of Rs. 14,000 and Rs. 10,000 are paid on inputs. This input tax credit should first be utilized for payment of CGST and SGST, respectively, and balance is to be used for payment of IGST. Thus, balance available for payment of IGST is Rs. 6000 of CGST and Rs. 6000 of SGST.(Remaining balance of Rs. 2400 is still available for input tax credit in respect of SGST, i.e. (14,000-5,600-6,000 = 2400) Since credit of SGST of Rs.6000 has been utilized for payment of IGST, the State Government will get debit of Rs. 6000 from the Central Government.

3.g) Example Input Tax Credit -4 Ram, a dealer purchased 20,000 liters of inputs on which SGST and CGST paid at the rate of 7% and 5%.Input tax credit available for SGST and CGST are Rs. 14,000 and Rs. 10,000 respectively. He manufactured 18,000 liters of finished products from the inputs. 2,000 liters was normal loss. The final product was sold at uniform price of Rs. 10 per liter as follows:-

1. Goods sold within State 8,000 liter. 2. Finished product sold in inter-State sale 6500 liter. 3. Goods Exported to Australia 3,500 liter. SGST and CGST rate on the finished product of dealer is 7% and 5% respectively. Calculate liability of SGST and CGST. Find Input tax credit available to dealer and tax required to be paid in cash. Solution Output Tax Calculation Description Quantity Sold (liter) Sale within State 8000 Exported (Zero rating) 3500 Goods sold Inter-State 6500

Value of Goods sold 80000 35000 65000

CGST @ 5% (Rs.) 4000 Nil nil

SGST @ 7% (Rs.) 5600 nil nil

IGST @ 12% (Rs.) Nil Nil 7800

Total 18,000 180000 4000 5600 7800 As finished product is exported, then there will be no tax liability. Hence, IGST will be Rs.7,800. Tax Payable Calculation Particulars CGST (Rs.) Output tax 4000 Less: Input tax credit CGST Rs. 10000 (4000) SGST Rs. 14000 Net tax payable NIL SGST IGST (Rs.) (Rs.) 5600 7800 (6000) (5600) (1800) NIL NIL

SGST and CGST of Rs. 14,000 and Rs. 10,000 are paid on inputs. This input tax credit should first be utilized for payment of CGST and SGST, respectively, and balance is to be used for payment of IGST. Thus, balance available for payment of IGST is Rs. 6000 of CGST and Rs. 1800 of SGST.(Remaining balance of Rs. 6600 is still available for input tax credit in respect of SGST, i.e. (14,000-5,600-1,800 = 6600) Since credit of SGST of Rs.1800 has been utilized for payment of IGST, the State Government will get debit of Rs. 1800 from the Central Government. 3.h) Example Input Tax Credit -5 Ram, a dealer, located at Delhi, purchased 20,000 liters of inputs from Maharashtra. Input tax credit available for IGST is Rs. 8,000.

He manufactured 18,000 liters of finished products from the inputs. 2,000 liters was normal loss. The final product was sold at uniform price of Rs. 10 per liter as follows:1. Goods sold within State 8,000 liter. 2. Finished product sold in inter-State sale 6500 liter. 3. Goods sent on stock transfer to consignment agents outside the State 3,500 liter. SGST and CGST rate on the finished product of dealer is 7% and 5% respectively. Calculate liability of SGST and CGST. Find Input tax credit available to dealer and tax required to be paid in cash. Solution Output Tax Calculation Description

Quantity Value Sold of (liter) Goods sold Sale within State 8,000 80000 Goods sent on stock transfer 3,500 35000 Outside State Goods sold Inter-State 6500 65000 Total 18,000 1,80,000 Tax Payable Calculation Particulars CGST (Rs.) Output tax 4000 Less: Input tax credit IGST Rs. 8000 Net tax payable 4000 SGST IGST (Rs.) (Rs.) 5600 12000 5600 (8000) 4000

CGST SGST IGST @ 5% @ 7% @ (Rs.) (Rs.) 12% (Rs.) 4000 5600 Nil Nil nil 4200 Nil 4000 nil 5600 7800 12000

The IGST paid should first be utilized for payment of IGST. Hence, he should utilize entire Rs. 8,000 for payment of IGST.

3.i) Example Input Tax Credit -6 Ram, a dealer, located at Delhi, purchased 20,000 liters of inputs from Maharashtra. Input tax credit available for IGST is Rs. 16,000. He manufactured 18,000 liters of finished products from the inputs. 2,000 liters was normal loss. The final product was sold at uniform price of Rs. 10 per liter as follows:1. Goods sold within State 8,000 liter.

2. Finished product sold in inter-State sale 6500 liter. 3. Goods sent on stock transfer to consignment agents outside the State 3,500 liter. SGST and CGST rate on the finished product of dealer is 7% and 5% respectively. Calculate liability of SGST and CGST. Find Input tax credit available to dealer and tax required to be paid in cash. Solution Output Tax Calculation Description

Quantity Value Sold of (liter) Goods sold Sale within State 8,000 80000 Goods sent on stock transfer 3,500 35000 Outside State Goods sold Inter-State 6500 65000 Total 18,000 1,80,000 Tax Payable Calculation Particulars CGST (Rs.) Output tax 4000 Less: Input tax credit IGST Rs. 16000 (4000) Net tax payable 4000 SGST IGST (Rs.) (Rs.) 5600 12000 (4000) (8000) 1600 4000

CGST SGST IGST @ 5% @ 7% @ (Rs.) (Rs.) 12% (Rs.) 4000 5600 Nil Nil nil 4200 Nil 4000 nil 5600 7800 12000

The IGST paid should first be utilized for payment of IGST, then CGST and finally for SGST.

3.j) Example Input Tax Credit -6 Inputs worth Rs. 1,00,000 (excluding GST @12%) were purchased within the State. CGST and SGST paid on procurement of capital goods worth Rs. 1,00,000 during the month was at 8,000 each. Rs. 3,00,000 worth of finished goods were sold within the State and Rs. 1,00,000 worth of goods were sold in the course of inter-State trade. If the input and output tax rates in the State are 7 % and 5 % of SGST and CGST, find the total tax liability. Solution

Output Tax Calculation Description Value CGST SGST IGST of @ 5% @ 7% @ 12% Goods sold (Rs.) (Rs.) (Rs.) Sale within State 300000 Goods sold Inter-State 100000 Total 400,000 Tax Payable Calculation Particulars CGST (Rs.) Output tax 15000 Less: Input tax credit Capital goods (8000) Inputs (5000) Net tax payable 2000 15000 nil 15000 21000 Nil 21000 nil 12000 12000

SGST IGST (Rs.) (Rs.) 21000 12000 (8000) (7000) 6000 12000

Since no credit of SGST has been utilized for payment of IGST, there will be no debit to the State Government. 3.k) Example Import Mr. A imported goods for Rs. 56,000 and incurred expenses to produce final saleable goods. BCD @ 10 % was chargeable on imported goods. These manufactured goods were sold within the state at Rs. 145,000 plus applicable GST. Rate of SGST and CGST is 7% and 5% respectively. Compute GST payable. Solution Calculation of Net cost of imported goods Particulars

Amount (Rs) Cost of Goods imported 56000 Add: Basic Customs Duty @ 10% 5600 Cost of imported goods (including BCD) 61600 Add: CGST on Import @ 5% 3080 1 Add: SGST on Import @ 7% 4312 2 Cost of imported goods (including BCD & GST) 68992

1 2

Assuming that GST would be levied on cost of imported goods including Basic Customs Duty. Assuming that GST would be levied on cost of imported goods including Basic Customs Duty.

Particulars

Amount (Rs) Sale Value 145000 Add: CGST on Import @ 5% 7250 Add: SGST on Import @ 7% 10150 Sales 162400 Tax Payable Calculation Particulars CGST (Rs.) Output tax 7250 Less: Input tax credit CGST (3080) SGST Net tax payable 4170

SGST (Rs.) 10150 (4312) 5838

3.l) Example Export Rahul purchased goods worth Rs.2000. He paid Rs.500 as expenses to labour. Also, profit of Rs.250 is added to these goods, He ultimately sold these goods to Jatin. Jatin exports these goods to Mr. Bersolini in Russia. Assuming the GST rate as 10% on input and output, Calculate GST payable. Solution Mr. Rahul Particulars Amount (Rs.) Cost of goods purchased 2000 Add: Labor 500 Add: Profit 250 Value of goods sold (without GST) 2750 Add: GST @ 10% 275 Total Selling Price 3025 Mr. Jatin Particulars Cost of goods purchased Add: Labor Add: Profit
3

Input GST Net Payable (Rs.) (Rs.) 200 3

200

75

Amount Input GST Net Payable (Rs.) (Rs.) (Rs.) 2750 275 500 250

Assuming 10% GST was paid on inputs.

Value of goods sold (without GST) 3500 Add: GST @ 10% 0 Total Selling Price 3500 Final Analysis Particulars SP to consumer Total Levy of GST Less: Refund adjustment Net levy of GST

Zero rating Economy 3500 275 (275) 0