GST aims to simplify India's indirect tax system by introducing one indirect tax to replace multiple taxes. It faces challenges in balancing revenue sharing between the central and state governments. The new system introduces IGST to address inter-state transactions. It reduces compliance burdens by providing a single registration and return filing point. However, input tax credit claims are only allowed if matching invoices show the seller paid taxes, which may require contract modifications. Dual empowerment of central and state authorities to audit returns could lead to conflicting assessments.

1. GST – Overview and
Problems
Vikram Singh Sankhala
14th May, 2017

2. Current System
• Currently there are different indirect taxes on Goods and Services
based on Manufacture, Sale, Delivery.
• These lead to a cascading effect when the Goods or Transfer pass
through multiple hands.
• VAT was introduced to allow input tax set off against output tax set
off in case of Sales Tax.
• CENVAT was introduced to club Service Tax and Excise Duty as inputs
for cross set off against either of the two.

3. Problems
• Since there are a plethora of Taxes the Cascading effect of Taxes was
not fully accomplished. The end effect was on the Consumer.
• What was required was a minimization of Categories to enable set of
maximum input taxes against output taxes.
• Ideally one single Indirect Tax.
• This was from the Economic Perspective.

4. The Government Perspective
• In a Quasi Federal System as ours, the Centre and States have their own
share of Revenues.
• Some indirect taxes are controlled (Legislation and Administration) by the
Centre and Some by the states. These form to put it a little simply, their
revenues.
• The best way out would be to supply is to split the taxes into two i.e those
allocated to the Centre and those allocated to the state.
• This gave rise to another problem. What if the origin is in one state and the
supply in another.
• This gave rise to a third category called IGST which is shared between the
Center and the states.

5. The Administrative Problem
• Multiple Taxes were administered by multiple Departments of the
State and the Central Government expanding the Compliance
Departments of Assessees and there were different registrations
numbers and files for different departments.
• Under the Proposed Set up Assessees will have a single registration
and single compliance point.
• However for Audit and Investigation, the Centre and the State
departments will have dual empowerment.

6. Integration via Technology
• There will be a single Portal for client access called GSTN.
• The data will be hosted on the GSTN Server.
• Access can be via GSP (GST Suvidha Providers) or for ERPs through
APIs (Application Programming Interfaces) for their respective ERPs.
• The APIs will provide seamless integration between the Client ERP
and the GSTN Server.

7. Registration
• For registration there are two options:
• Regular Dealer – Single UIN at the state of location with Threshhold of
Rs 20 Lakhs
• Composition Scheme (Tax based on Turnover) – No Input Credit
Allowed. Not for Services. Turnover to be less than 50 Lakhs.

8. Compliance
• Through there are 10 or 12, GSTRs (GST Returns), Three of them are
applicable mostly
• The first form is GSTR 1 which is a statement of outward supply and needs
to include Invoices.
• GSTR2A is a Report generated by the GSTN based on GSTR1
• The Assessee needs to confirm this report or make changes to GSTR 1
• GSTR 2 is a statement of Inward supplies.
• GSTR1A is a report generated by GSTN Server which needs to be confirmed
or the GSTR2 Modified.
• GSTR3 is the consolidated return of inward and outward supplies and
needs to be accompanied by Tax Payment
•

9. Input Tax Credit
• Next the GSTN Server does Invoice Matching and checks for Taxes
paid. Wherever no matching invoice is found or the seller has not
paid taxes, the Credit is Reversed. This is done on 21st of the Month
for the Previous Month.
• Finally on 31st, the Report is sent to the Assessee.
• The assesse can rectify the defect and claim input credit in the next
cycle.

10. ERP Changes
• Ledgers for Input and Output CGST, SGST and IGST need to be
created. These will be under the category Duties and Taxes and will be
Balance Sheet items.
• The Entry will hit the respective Purchase and Sale Registers against
these and will be reversed against Taxes Paid (P&L) and then Cash
after internal set off.
• Tax Registers need to be developed as Entities and as Reports based
on these Ledgers.
• Utilization Register would need to be developed as a report.

11. ERP Changes - 1
• New Function for Invoice Reconciliation as well a report would need
to be created.
• APIs would need to be installed for seamless integration with GSTN.
• SAP and Tally have APIs and are also GSPs

12. Problems and Approaches
• Input Credit can only be given if the Seller has paid the Tax.
• Accordingly Purchase Contracts may need to be modified to allow the
reimbursement of GST upon the Proof of Payment rather than with
the Invoice.
• Dual Empowerment may mean that the same registers maybe
audited by two sets of Authorities leading to two sets of conflicting
Assessments over the same Invoice.