Banana banking and Reforms

Sbi orders forensic auidt on jet from 2015

SBI seems to be erring on the side of caution as it was also the largest lender for Kingfisher Airlines. SBI is unlikely to consider Jet's request for debt restructuring till EY submits the forensic audit report," said a source close to the development.

Jet Airways declined to comment. SBI said it does not comment on individual accounts or their treatment.

The airline is believed to have requested SBI for a lifeline, which entails fresh funds and conversion of a part of the existing debt to equity. Jet's debt stands at over Rs 8200 cr, and it recently declared a third straight quarter of losses of nearly Rs 1300 cr. Naresh Goyal has so far been unsuccessful in finding a white knight in Tata Sons as well as its existing 24% joint venture partner Etihad.

Jet Airways had been on the brink of collase in 2013 too, and then Naresh Goyal had brought Etihad on board and ensured cash infusion of nearly Rs 3600 cr. This time round Naresh Goyal may have no choice but sell a significant par of his 51% stake in the airline he founded nearly 25 years ago. The airline has not been able to pay salaries to nearly 15% of its workforce ie primarily pilots and senior management. It has stropped free meals for economy seats, and this week announced it would be cancelling seven routes

Genesis of CDR Mechanism in India
There are occasions when corporates find themselves in financial difficulties because of factors beyond their control and also due to certain internal reasons. For the revival of such corporates as well as for the safety of the money lent by the banks and financial institutions, timely support through restructuring of genuine cases is called for. However, delay in agreement amongst different lending institutions often comes in the way of such endeavors. Based on the experience in countries like the UK, Thailand, Korea, Malaysia, etc. of putting in place an institutional mechanism for restructuring of corporate debt and need for a similar mechanism in India, a Corporate Debt Restructuring System was evolved and detailed guidelines were issued by Reserve bank of India on August 23, 2001 for implementation by financial institutions and banks.
The Corporate Debt Restructuring (CDR) Mechanism is a voluntary non-statutory system based on Debtor-Creditor Agreement (DCA) and Inter-Creditor Agreement (ICA) and the principle of approvals by super-majority of 75% creditors (by value) which makes it binding on the remaining 25% to fall in line with the majority decision. 
The CDR Mechanism covers only multiple banking accounts, syndication/consortium accounts, where all banks and institutions together have an outstanding aggregate exposure of Rs.100 million and above. It covers all categories of assets in the books of member-creditors classified in terms of RBI's prudential asset classification standards. Even cases filed in Debt Recovery Tribunals/Bureau of Industrial and Financial Reconstruction/and other suit-filed cases are eligible for restructuring under CDR. 
The cases of restructuring of standard and sub-standard class of assets are covered in Category-I, while cases of doubtful assets are covered under Category-II.
Reference to CDR Mechanism may be triggered by:
  • Any or more of the creditors having minimum 20% share in either working capital or term finance, or
  • By the concerned corporate, if supported by a bank/FI having minimum 20% share as above.
It may be emphasized here that, in no case, the requests of any corporate indulging in fraud or misfeasance, even in a single bank, can be considered for restructuring under CDR System. However, Core Group, after reviewing the reasons for classification of the borrower as wilful defaulter, may consider admission of exceptional cases for restructuring after satisfying itself that the borrower would be in a position to rectify the wilful default provided he is granted an opportunity under CDR mechanism.
Structure of CDR System: The edifice of the CDR Mechanism in India stands on the strength of a three-tier structure: 
Legal Basis of CDRThe legal basis to the CDR System is provided by the Debtor-Creditor Agreement (DCA) and the Inter-Creditor Agreement (ICA). All banks /financial institutions in the CDR System are required to enter into the legally binding ICA with necessary enforcement and penal provisions. The most important part of the CDR Mechanism which is the critical element of ICA is the provision that if 75% of creditors (by value) agree to a debt restructuring package, the same would be binding on the remaining creditors.

Similarly, debtors are required to execute the DCA, either at the time of reference to CDR Cell or at the time of original loan documentation (for future cases). The DCA has a legally binding 'stand still' agreement binding for 90/180 days whereby both the debtor and creditor(s) agree to 'stand still' and commit themselves not to take recourse to any legal action during the period. 'Stand Still' is necessary for enabling the CDR System to undertake the necessary debt restructuring exercise without any outside intervention, judicial or otherwise. However, the 'stand still' is applicable only to any civil action, either by the borrower or any lender against the other party, and does not cover any criminal action.

Besides, the borrower needs to undertake that during the 'stand still' period the documents will stand extended for the purpose of limitation and that he would not approach any other authority for any relief and the directors of the company will not resign from the Board of Directors during the 'stand still' period.

Willful defaulters vs witch-hunt on defaulters

Media reports suggest Gajendra Haldea, Principal Adviser (Infrastructure) at the Planning Commission has written a scathing letter to bankers slamming them for inadequate due diligence, reckless lending and ‘gold plating’ of sub-prime infrastructure projects. He described banks’ enthusiasm to lend to problematic projects in the power sector as ‘banana banking’.

But the latest to fire a salvo has been the banking regulator itself. 

First, the newly appointed Reserve Bank Governor Raghuram Rajan declared war against NPAs saying "Promoters do not have a divine right to stay in charge regardless of how badly they mismanage an enterprise…”

And now, RBI Deputy Governor KC Chakrabarty who’s been given charge of managing the restructuring and recovery process had this to say in the central bank’s September bulletin. “For the umpteenth time, I reiterate that the reason for NPA is non-performing administration…What is really puzzling is why this affects the Public sector banks the most… In our assessment, the project appraisal and the decision making in public sector banks has been more impressionistic rather than being information based. How else does one defend the eagerness of some banks to fund power distribution companies with negative net worth!."
The RBI continues to maintain that NPAs are not a systemic issue yet. But with a crackdown on reining in bad assets, it looks like neither banks nor defaulters are going have it easy any longer. The Indian Express quoting a Finance Ministry note lists out a number of stringent actions the government has advised PSBs to take to recover dues. This includes making use of debt recovery tribunals and the SARFAESI Act which empowers them to recover NPAs without court intervention. 
Clearly the noose is tightening with rapid pace around both defaulters and banks. And one only hopes the momentum continues so we no longer have ‘affluent promoters with sick companies’ as the Finance Minister calls them, eating away at public money.  
While public ownership of banks avoids Lehman Bros kind aggression,it may turn blind eye to other kind of issues like NPA.

Declaring defaulting borrower as wilful defualter - RBI measures for defaulting borrowers

On July 1,2014 the Reserve Bank of India (RBI) released a master circular on wilful defaulters, outlining instructions for lenders in the event of default. Bankers also explained the process of identifying and declaring borrowers as wilful defaulters, discussed below:Wilful defaulter
A borrower is classified as a 
wilful defaulter in any of the following events:
·         The borrower defaults despite having the capacity to repay his dues
·         The borrower defaults and has not used the money for the specific purpose for which the loan was availed
·         The borrower defaults, has siphoned off the funds, and the money is not available with him in form of other assets
·         The borrower defaults and has disposed the assets given as security against the loan without informing lenders

Identifying wilful defaulters
Bankers say there is an internal committee, normally headed by an executive director that examines cases of wilful defaults. The credit monitoring or recovery departments give their reports on borrowers deemed to have defaulted wilfully to this committee. The panel examines the efforts made by the bank to recover the dues, the repayment capacity of the borrower, end use of the funds before identifying an individual as wilful defaulter. The decision taken on classification of wilful defaulters is well documented and supported with evidence
Declaring wilful defaulters
Once a borrower is identified as a wilful defaulter, the bank sends him/her a notice with the reasons for the same. The borrower is generally given 15 days to make a representation against the decision to the grievance redressal committee. This committee is either headed by the chairman and managing director or by the executive director who is not part of the panel on identification of wilful defaulters. The bank declares a borrower wilful defaulter if he fails to offer a proper explanation or avoids the grievance redressal committee hearing repeatedly despite notices.
Penal measures
Banks are advised to send their list of wilful defaulters to RBI, Securities and Exchange Board of India (Sebi) and Credit Information Bureau India (Cibil). This is aimed at preventing wilful defaulters from accessing capital markets and borrowing from other banks and financial institutions. The penal measures include the following:
·         No additional facilities will be granted to listed wilful defaulters by banks and financial institutions
·         Promoters of companies that have been identified for siphoning of funds, misrepresentation of accounts and fraudulent transactions will be debarred from institutional finance for floating new ventures for a period of five years
·         Legal process against wilful defaulters will be initiated. Lenders may initiate criminal proceedings also
·         Banks will adopt a proactive approach for a change of management of the willfully defaulting borrower unit.
·         Wilful defaulters will not be allowed to take up board positions in any company

Reporting to RBI, other regulators
Banks have to give the list of suit-filed accounts of wilful defaulters of Rs 25 lakh and above at the end of every quarter to a credit information company. Lenders will give a quarterly list of wilful defaulters where suits have not been filed only to RBI. Banks are advised to send the data on wilful defaulters to 
RBI and credit information companies at the earliest but not later than a month from the reporting date. Banks have been directed to consider all cases of wilful defaults of Rs 1 crore and above filing of suits. Lenders can also consider criminal action where instances of fraud by the defaulting borrowers have been detected. Banks need not report cases
[i] where outstanding amount due is below Rs 25 lakh and
[ii] where lenders have agreed for a compromise settlement and the borrower has fully paid the compromised amount.

Business Standard

GST chargeability and compliance


The government has amended CGST Act 2017 vide CGST Amendment Act 2018 with various changes w.e.f and one of the important amendment was made in Section 49 of CGST Act by introducing new section 49A after the section 49, which is as under:

*49A. Notwithstanding anything contained in section 49, the input tax credit on account of central tax, State tax or Union territory tax shall be utilized towards payment of integrated tax, central tax, State tax or Union territory tax, as the case may be, only after the input tax credit available on account of integrated tax has first been utilized fully towards such payment*

Section 49 (5) of CGST Act 2017 speaks about manner of utilising Input Tax Credit (ITC) for payment of GST output Tax liability, e.g IGST can be Set off against IGST and then CGST and SGST, CGST cane be set off against CGST and then against IGST, and SGST can be set off against SGST and then against IGST.

*Impact of amendment*

But now Government has changed the order of setoff by introducing section 49A w.e.f and now IGST Credit should be set off fully before taking any setoff of CGST or SGST. Which means earlier CGST/SGST ITC was used to set-off CGST /SGST liability, as the case may be, but now IGST Credit has to be 1st utilised fully for payment of IGST then for CGST and then for SGST liability as the case may be, even before utilisation of ITC of CGST or SGST.

*For e.g.*

Say supplier for February 2019 has following data for filing GST 3B

*Output tax liability*
IGST- Rs 200
CGST-Rs 200
SGST- Rs 200
Total- Rs 600
*ITC Available*
IGST- Rs 300
CGST-Rs 200
SGST- Rs 100
Total- Rs 600
*Before 01.02.2019 set off was as under*


IGST liability of Rs 200 set off from IGST ITC 

CGST liability of Rs 200 set off from CGST ITC

SGST liability of Rs 200 set off from remaining IGST ITC of Rs 100 and SGST ITC of Rs 100

*After 01.02.2019 (Section 49A) set off was as under*

*Supplier need to Pay Rs 100 from its pocket despite of having ITC available*

IGST liability of Rs 200 set off from IGST ITC 

CGST liability of Rs 200 set off from remaining IGST ITC of Rs 100 and CGST ITC of Rs 100

SGST liability of Rs 200 set off from SGST ITC of Rs 100 and rest liability of Rs 100 will be paid in cash


*IGST credit 1st used against IGST, and also IGST 1st need to be set off against CGST and then only CGST credit can be set off against CGST, by amending the section 49A supplier need to pay Tax of Rs 100 from his pocket*

Illustration before Sec 49A is introduced


GST on Residenial Property from 1st April 2019

Reverse Charge Mechanism


Service Tax on reimbursable expenses - Pure Agent basis exempt

In the case of Intercontinental Consultants And Technocrats Pvt Ltd Vs Union of India & Anr,2012-TIOL-966-HC-DEL-ST the Hon'ble Delhi High Court has declared that Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 as ultra vires since it travels much beyond the scope of Sections 66 and 67 of the Finance Act 1994.

In those Sections, there is no provision to include the expenditure in the consideration, which are incurred by the service provider in the course of providing the taxable service. However rule 5(1) was insisting the service provider to include the expenditure. Therefore the Hon'ble High Court has quashed the said rule.

In the Budget 2015 amendment is brought in to include reimbursables under taxable net

However , Rule 5(2) which gives exemption for expenses incurred as a pure agent is still available.

Export of Services - Output is exempt and hence input Credit is refunded

Refund of Input Credit

Duty drawback and refund of input taxes are allowed on input taxes paid in india for goods expoted out of india and hence expempt from output tax. However in this context one needs to note input credit can be taken only for goods taxable ( including expempt) but not goods which are not taxable that is outside the purview of taxation.

Audit under GST (Goods and Service Tax) and certification of reconciliation statement GSTR 9C

Audit under GST 

audit under GST
Types of audit under GST

Audit under GST is the process of examination of records, returns and other documents maintained by a taxable person. The purpose is to verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed, and to assess the compliance with the provisions of GST.

 Threshold for Audit

Every registered taxable person whose turnover during a financial year exceeds the prescribed limit [as per the latest GST Rules, the turnover limit is above Rs 2 crore] shall get his accounts audited by a chartered accountant or a cost accountant. He shall electronically file:
  1. an annual return using the Form GSTR 9B along with the reconciliation statement by 31st December of the next Financial Year,
  2. the audited copy of the annual accounts,
  3. a reconciliation statement, reconciling the value of supplies declared in the return with the audited annual financial statement,
  4. and other particulars as prescribed.

Rectifications after Return Based on Results of Audit under GST

If any taxable person, after furnishing a return discovers any omission/incorrect details (from results of audit), he can rectify subject to payment of interest. However, no rectification will be allowed after the due date for filing of return for the month of September or second quarter, (as the case may be), following the end of the financial year, or the actual date of filing o the relevant annual return, whichever is earlier.
For example, X found during audit that he has made a mistake in Oct 2017 return. X submitted annual return for FY 2017-18 on 31st August 2018 along with audited accounts. He can rectify the Oct 2017 mistake within-
20th Oct 2018 (last date for filing Sep return)
31st August 2018 ( the actual date of filing of relevant annual return)
-earlier, ie., his last date for rectifying is 31st August 2018.
This rectification will not be allowed where results are from scrutiny/audit by the tax authorities.

Audit by Tax Authorities audit under GST

  • The Commissioner of CGST/SGST (or any officer authorized by him) may conduct audit of a taxpayer. The frequency and manner of audit will be prescribed later.
  • A notice will be sent to the auditee at least 15 days before.
  • The audit will be completed within 3 months from date of commencement of the audit.
  • The Commissioner can extend the audit period for a further six months with reasons recorded in writing.

Obligations of the Auditee

The taxable person will be required to:
  1. provide the necessary facility to verify the books of account/other documents as required
  2. to give information and assistance for timely completion of the audit.

Findings of Audit

On conclusion of an audit, the officer will inform the taxable person within 30 days of:
  • the findings,
  • their reasons, and
  • the taxable person’s rights and obligations
If the audit results in detection of unpaid/shortpaid tax or wrong refund or wrong input tax credit availed, then demand and recovery actions will be initiated.

Special Audit 

When can a special audit be initiated?
The Assistant Commissioner may initiate special audit, considering the nature and complexity of the case and interest of revenue. If he is of the opinion during any stage of scrutiny/enquiry/investigation that the value has not been correctly declared or the wrong credit has been availed then special audit can be initiated.
Special audit can be conducted even if the tax payers books have already been audited before.
 Who will order and conduct special audit?
The Assistant Commissioner (with the prior approval of the Commissioner) can order for special audit (in writing). The special audit will be carried out by a chartered accountant or a cost accountant nominated by the Commissioner.
 Time limit for special audit
The auditor will have to submit the report within 90 days. This may be further extended by the tax officer for 90 days on an application made by the taxable person or the auditor.
The expenses for examination and audit including the auditor’s remuneration will be determined and paid by the Commissioner.
Findings of special audit
The taxable person will be given an opportunity of being heard in findings of the special audit.
If the audit results in detection of unpaid/shortpaid tax or wrong refund or input tax credit wrongly availed then demand and recovery actions will be initiated.

GST is a consumption based levy. Destination principle would be applicable in normal course. In an ideal GST, all the credit of taxes paid on purchase of inputs, input services and capital goods are seamlessly allowed for set-off against the tax payable on subsequent sale of goods that are either sold as such or sold upon conversion, or in the context of services, are supplied. 
 It is required to have a brief view of the existing indirect taxes regime, before proceeding to understanding GST. The excise duty, import duties of customs, VAT/CST and service tax are the main levies at present.
 a. Excise duty: Central Excise Duty is levied by the Central Government under the Central Excise Act, 1944. The levy is on all goods manufactured and produced in India, which are specified in the schedule to the Central Excise Tariff Act subject to certain exemptions. The effective rate may vary from product to product though most goods are subject to excise duty at 10% (without education cess).
 b. Import Duties: Customs duties are levied by the Central Government under the Customs Act, 1962.  The levy gets attracted on all specified goods imported into and exported from India, which are specified in the schedule to the Customs Tariff Act.  The customs duties are levied on assessable value and the total customs duty ordinarily would amount to an average of 24.42% (subject to cenvat credits) on the value of goods imported.
 c. Value Added Tax (VAT): Value Added Tax (VAT) is levied by the State Governments on transfer of property in goods from one person to another, when such transfer is for cash, deferred payment or other valuable consideration.  VAT is also payable on certain transactions that are deemed to be sale such as transfer of right to use goods, hire purchase and sale by installments, works contract and sale of food and drink as a part of rendering of any service.
 d. CST: The rate of CST is 2% against the declaration in Form C and in case the said declaration is not provided by the buyer, they are subject to tax at the rate specified in the local VAT law.  Form C is allowed to be issued by the buyer when he purchases the goods for use in manufacture or for resale or for use in telecommunication network or in mining or in generation or distribution of power.
 e. Service Tax: Service tax is levied on specified services, referred to as taxable services, when rendered by a service provider.  Service tax is presently taxed at 10% (without education cess).  Ordinarily, service tax is payable by the service provider, except in specified cases.
What is meant by GST?
 Goods & Service Tax (GST) as the name suggests, is a tax on supply of goods or services. Any person, providing or supplying goods or services will be liable to charge GST.  The person supplying the goods or services is allowed to take credit for taxes paid on purchases, consequent to which, GST becomes a tax on the value added by the supplier. Further GST would be levied by both the Central Government and State Government on the same transaction, making GST a dual transaction tax structure. 
What would be the Applicability of Levy?
 Under GST, every specified transaction would be subject to tax. 
Supply within State: In case the supply of goods or services is done locally i.e. the place of consumption rules provide that local GST needs to be applied for the transaction, then the supplier would charge dual GST i.e. SGST and CGST at specified rates on the supply. This is explained with the following example:
 Basic value charged for supply of goods or services
Add: CGST @ 10%*
Add: SGST @ 10%*
Total price charged for local supply of goods or services
Note:   In the above illustration, the rate of CGST and SGST is assumed to be 10% each.
The CGST & SGST charged on the customer for supply of goods or services will be remitted by the seller into the appropriate account of the State/ Central Government.
 Supply from One State to Another
 In case the supply of goods or services is done interstate i.e. the place of consumption rules provide that interstate GST (or integrated GST) needs to be applied for the transaction, then the supplier would charge IGST at specified rates on the supply.  This is illustrated with the help of the following example:
Basic value charged for supply of goods or services
Add: IGST @ 20%*
Total price charged for interstate supply of goods or services
Note:   In the above example, the rate of IGST is assumed to be 20%.
The IGST charged on the customer for supply of goods or services will be remitted by the seller into the appropriate account of the Central Government.
 In case the supply of goods or services are exported out of India i.e. the place of consumption rules provide that regard the transaction as ‘exported’, then the transaction would be zero rate.  In other words, the supplier will be allowed to export the goods or services without charging any tax. This is explained with the help of the following example:
Basic value charged for supply of goods or services
Add: GST
Total price charged for export of goods or services
From the above the following features of the GST emerge.
 The salient features of GST are given below:
 1. Dual GST: Dual GST signifies that GST will be levied by both, the Central Government and the State, on supply of goods or services.  Under the Constitution, presently the taxing powers are presently split between the State and the Centre.  In case of certain transactions, the power to tax is vested with the Centre and while in certain others, the power is vested with the State.  Under GST, the power to tax on supply of all goods and services will be vested in the hands of both, the State and the Centre.  In certain cases, such as the interstate transactions, the power to tax will be vested with the Central Government, while the revenue will in some appropriate manner, get distributed to the States. Considering the dual taxation power to tax transactions under GST, the structure is referred to as Dual GST. Considering the basic framework of the constitution and keeping its structure intact, Dual GST appears to be implementable solution for India scenario.
 2. Subsuming all Taxes: GST should subsume all major indirect taxes levied by the Central Government i.e. central excise, customs and service tax and majority of the taxes levied by the State Government i.e. VAT, luxury tax, entertainment tax, etc.  In this regard, tax on petroleum products and alcohol are intended to be kept either outside or tax additionally under GST. The following taxes would be absorbed/ subsumed into GST:
 The following indirect taxes would be subsumed under GST:
Levied By
Duty of excise on manufacture
CVD & SAD (component of customs duties)
Service tax
Taxes when sale or purchase takes place in the course of inter-State trade
Taxes on consignments that take place in the course of inter-State trade
Taxes on the entry of goods into a local area for consumption, use or sale therein (other than that in lieu of octroi).
Taxes on sale/purchase of goods within state
3. Rate Structure: It is expected that GST will be levied on the transaction value i.e. price actually paid or payable for supply of goods and services. The GST for local supplies will be split into SGST and CGST. The Task Force on GST of Thirteenth Finance Commission (TFC) has worked out a Revenue-Neutral Rate (RNR) of 12% (5% CGST and 7% SGST) assuming there is a single GST rate and stamp duty & electricity duty are also subsumed in the GST.
 GST would have a 4 rate structure with standard rate, concessional rate, special rate for bullion & jewellery and exempted/ nil rated. It is not clear whether services and goods will have the same rate or be subjected to tax at different rates. Further, the Government is yet to specify the rate of taxes proposed for each of these categories.
 The discussion paper mentions that the empowered committee has decided to adopt the following SGST rate structure for taxing goods and services:
 1. Exempted goods: The current list under the State VAT law-0%
2. Special rate: Precious metals- could be 1-2%
3. Concessional rate: Necessities and goods of basic importance-could be 5%
4. Standard rate: For all other goods- could be 10%
5. Specified rate: Services- could be 10%
The discussion paper has recommend a uniform State GST threshold of INR 10 Lakhs for both goods and services and INR 150 Lakhs for Central GST threshold limit for goods.  The discussion paper has not recommended the threshold amount for taxing CGST on services, though it has recommended to be kept appropriately high.
 The discussion paper has recommended for upper ceiling of gross annual turnover of INR 50 Lakhs with a floor tax rate of 0.50% across the States for composition scheme. 
4. Credit Scheme: GST will be levied on supply of goods and services and the supplier will be allowed credit for the GST paid on purchases.  The credit would be seamless except that the credit of CGST paid will not be allowed for set-off against SGST payable and vice versa.
How would this work?
 The assessee dealer will be entitled to avail credit of GST paid on purchases. In this regard, the dealer may purchase the goods or services locally or interstate or as imported. The following taxes paid on purchases when made locally, interstate or imported, would be available as credit in the hands of the dealer:
 Type of purchase
GST incidence on purchase (taxes payable)
Credit entitled on (with respect to taxes paid)
 The assessee is required to account for CGST, SGST and IGST separately.
 Extent of Cross Utilisation:
Nature of tax paid on purchase
Can be utilized for payment of
5. IGST: Under this model the Centre will levy the IGST which will be CGST plus SGST on all inter-State transactions of taxable goods and services. Inter-State seller would pay the IGST on value addition after adjusting of IGST, CGST and SGST on purchases. The Exporting state will transfer to the Centre the credit of SGST used on payment of IGST.
6. Administrative Mechanism: Both the Central Government and State Government will have the authority and control over the assessee as follows.
 (i) The administration of the Central GST would be with the Centre and for State GST with the States.
 (ii) Each taxpayer could 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. The exact design would be worked out in consultation with the Income-Tax Department.
 (iii) Keeping in mind the need of tax payers convenience, functions such as assessment, enforcement, scrutiny and audit would be undertaken by the authority which is collecting the tax, with information sharing between the Centre and the States.
 (iv) Accordingly, the assessee dealer would be required to pay GST into the specified account of the State/ Centre and file periodic returns separately with the State/ Central Government.
 The way events are happening, the ultimate GST may after being compromised and watered down, made tax gatherer friendly not have any of the best practices needed to make it a great tax of the future. Inspite of that fact, in due course of time when better sense prevails, the GST would be useful for the industry and general public.

What is expected of GST

This is completely revolutionary, the sort of economic backroom plumbing that can change your life without you even noticing. It means that every commercial establishment will find it slightly easier to pay taxes – and also, they will discover, it’s become slightly more difficult to avoid doing so. It means that there will be, hopefully, more in common between the taxes you have to pay in Maharashtra and Madhya Pradesh than there has been so far. Another thing that’s been keeping companies small is that moving into another state is a tremendous expense. You need to follow an entirely different set of regulations – but also a completely different set of taxes. Not to mention the fact that your truck has to wait for a week at the border to pay taxes to cross. Properly implemented, the GST can change all that, and replace all this confusion with a simple, common tax rate that’s easy to pay. Hopefully, that will increase tax revenue sharply.

Concers over current version of Indianised GST
Far from creating a barrier-free pan-Indian market for smooth transaction of goods and services across the country, the proposed system may well create new tax hurdles. Instead of improving tax compliance, there could be a strong incentive for tax payers to avoid the higher tax burden to be imposed by the new system. The tax base too may not widen because of the many items that would be excluded from the GST chain. And, most important, instead of enhancing the value of the country's economic activity, the proposed GST system may well be a dampener for achieving higher growth in gross domestic product or GDP.

1% non-creditable tax on inter-state movement of goods from producing states to consuming states
As GST is a destination-based tax, manufacturing states like Gujarat and Maharashtra have demanded an additional one per cent tax on inter-state movement of goods, to compensate them for the losses.
The cascading effect of this, will work against the overall theme of GST. The multiplier effect: The tax levied every time goods enter a new state will be substantial and it is likely to erode competitiveness of domestic manufacturing units.
Tobacco, alcohol, petroleum excluded 
As the success of GST largely depends on its coverage, excluding these items, which account for a significant chunk of the government’s revenue, is likely to lower its effectiveness. 

Real estate left out 

As has been written earlier, since the real estate sector is excluded, all construction activities and expenditure incurred on them will be outside of the ambit of the GST system. So, suppliers will not be able  to set off their intermediate tax burden against their final tax liability.

Differences in Practical asepects in GST vs VAT

After the introduction of GST, indirect taxation system of India will be subsumed under GST because a line of different taxes will be covered in a single tax law which is GST (Goods and Service Tax). Before GST the main indirect taxation which is generally used are VAT, Service Tax, Excise etc. Where VAT is a tax which is added at each point of time that is from the time of manufacture up to the time of sale. Tax is added at each stage when the value is added that is why it is called value added tax.
There are a number of differences between GST and VAT:
Return to be Filed
Under GST, taxable person will be required to file the details of all the sales electronically by 10th day of every month in GSTR-1 succeeding the taxable month and simultaneously he has to file the details of all the purchases by 15th day of month in GSTR-2 succeeding the taxable month and he has to file the monthly return in GSTR-3 by 20th day of every month succeeding the taxable month. And annual return should be filed up to 31st December in GSTR- 8 of next financial year.
For Composition dealers, there is quarterly return GSTR-4 which will be filed by 18th of the month succeeding the quarter. While in present VAT system the seller has to file quarterly VAT returns and at the same time assessee has to file Sales register and purchase register. And at the end of the year, the assessee is liable to file annual return too. In many states generally, Vat dealer is liable to file quarterly returns but in some states like Maharashtra and Karnataka there is monthly return provision too.
Input Tax Credit
After the introduction of GST Law, this cascading effect will be eliminated because in GST we can take Cenvat Credit of interstate sales Purchase as well as in GST we can take credit even after sales of Services. Thus the prices of Goods and services become low and ultimately the inflation rate become down and economic growth will increase.
While under VAT system tax credit for CST cannot be taken against VAT payable so it leads to cascading effect i.e. tax on tax.
Cost Reduction
The introduction of GST law will ultimately result in cost reduction of goods as there will be a single tax levied that is goods and service tax.
While under VAT law a trader cannot utilize credit of other indirect taxes like service tax credit etc. for payment of VAT liability so it will result in an increase in the cost of goods.
Tax on Interstate Sales
Under GST law IGST will be levied in case of inter-state sale and purchases. While under VAT Law CST is levied on inter-state purchase and sales of goods.
Input Tax Credit Mismatch
Under GST law the biggest problem of ITC mismatch will get solved as all the details of sales will be filed till the 10th day of next month and all the details of purchases will be filed by 15th of next month and monthly return will be filed by 20th of next month. So as all the details will be timely filed and then the monthly return will be filed so all the details will be cross-tallied.

While under VAT system there is a very big issue of ITC mismatch as there is no such system for filing details of sales and purchase by some specified date before filing the VAT return which gives rise to Input tax credit mismatch.

Applicability of Service tax and Vat on Right to use Tangible goods

Transfer of right to use goods is one of the elements of "deemed sale" under the enlarged meaning and scope of Article 366 (29A)(d) of our constitution post the 46th Amendment.
What realistically constitutes a transfer of right to use taxable under State laws has been a topic of long debate under the various Sales Tax laws in India since this amendment. The Supreme Court in the case of Builders Association of India 1989 73 STC held that
"transfer, delivery or supply of any goods shall be deemed to be sale of those goods by the person making the transfer, delivery or supply and purchase of those goods to whom such transfer, delivery or supply is made."
Hence the essence of taxability is transfer of goods by the seller by means of delivery of goods and receipt of the same by the purchaser. Essentially, for a transaction to be taxed under the Vat laws as regards "transfer of right to use goods", the transfer has to be coupled with possession.

Test of Effective control and possession 

The spate of litigation on what constitutes a transfer of the right to use, to be taxable under the state sales tax laws, had reached the Andhra Pradesh High Court in the case of Rashtriya Ispat Nigam Ltd. Vs. CTO 1990 
77 STC 182 
where it was held that in terms of the particular contractual agreement under reference, the effective control and possession of the machinery that was used in the execution of the contracted works continued to remain with the person who supplied the machinery for the purpose and hence sales tax cannot apply.