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the management accountant, July 2010 521

Official Organ of the Institute of Cost and Works Accountants of Indiaestablished in year 1944 (Founder member of IFAC, SAFA and CAPA)

Volume 45 No. 7 July 2010

TheManagementAccountant

IDEALSTHE INSTITUTE STANDS FOR

❏ to develop the Cost andManagement Accountancy profe-ssion ❏ to develop the body ofmembers and properly equip themfor functions ❏ to ensure soundprofessional ethics ❏ to keepabreast of new developments.

The contents of this journal are thecopyright of The Institute of Costand Works Accountants of India,whose permission is necessary forreproduction in whole or in part.

PRESIDENTG. N. Venkataraman

email : [email protected] PRESIDENT

B.M. Sharmaemail : [email protected]

CENTRAL COUNCIL MEMBERS

A. N. Raman, A. S. Durga Prasad,Ashwin G. Dalwadi, Balwinder Singh,Chandra Wadhwa, Hari Krishna Goel,

Kunal Banerjee, M. Gopalakrishnan,Dr. Sanjiban Bandyopadhyaya,

S. R. Bhargave, Somnath Mukherjee,Suresh Chandra Mohanty, V. C. Kothari,

GOVERNMENT NOMINEESJaikant Singh, D. S. Chakrabarty,

Ms. Nandana Munshi, Munesh Kumar,P. K. Jena

CHIEF EXECUTIVE OFFICERSudhir [email protected]

Senior Director (Examinations)Chandana Bose

[email protected] Director

(Administration & Finance)R N Pal

[email protected] (Technical)

J. P. [email protected]

Director (Studies)Arnab Chakraborty

[email protected] (CAT),L. Gurumurthy

[email protected] (PD, Training & Placement)

J. K. [email protected]

Additional Director (CEP)D. Chandru

[email protected] Director (Membership) cum

Joint SecretaryKaushik Banerjee

[email protected] Director (International Affairs)

S. C. [email protected]

EDITORSudhir Galande

Editorial Office & Headquarters12, Sudder Street, Kolkata-700 016

Phone : (033) 2252-1031/34/35,Fax : (033) 2252-1602/1492Website : www.icwai.org

Delhi OfficeICWAI Bhawan

3, Institutional Area, Lodi RoadNew Delhi-110003

Phone : (011) 24622156, 24618645,Fax : (011) 24622156, 24631532, 24618645

Editorial 523

President’s Communique 524

Role of Cost and ManagementAccountants in GST Regime

GST-Introduction and Role of Costand Management Accountantby Dilip M. Bathija 530

Reform in Indirect Taxes —Importance of Unified Goods andServices Tax [GST]by Mrityunjay Acharjee 533

GST for Indian Economyby Satya Ranjan Doley 543

Goods and Services Taxes (GST) inIndia and its impactby Dr. Asish Kumar Sana &

Susanta Kanrar 547

Cost and Management Accountants’Role in GST Regimeby Asok Chattopadhyay 551

A Road Map for CGST and SGSTby Sudarshan Maity 553

Changing Phase of Indirect Taxes–Challenges And Opportunitiesby R Ganesh 560

Goods and Service Tax (GST) inIndia : An Overviewby Dr. Kartik Chandra Nandi 563

Role of Cost and ManagementAccountants in GST Regimeby Dr. Sukamal Datta &

Tamal Taru Roy 569

Role of Cost and ManagementAccountants in GST Regimeby Ela Sen 576

Role of Cost and Management Accoun-tants In Regime-Strategies to ManageChangeby Nilakanta Shastry Tata 579

A Study on GST System Prevailing inSome Other Countries of the Worldby Sujit Sikidar &

Kaveeta Maheswari 583

Recent Developments in FinanceTaxation Awareness of MBA students –Role of professionalsby Shilpa Parkhi 586

Testing the Beta Stability of BankingSector over various phases in IndianStock Marketby Roopam Kothari &

Narendra Sharma 591

IAS 27, Consolidated and SeparateFinancial Statements — A Closer Lookby K. S. Muthupandian 596

Regions & Chapters 604WIRC Seminar 605Calendar of MDP Programmes 607

522 the management accountant, July 2010

MISSION STATEMENT

�ICWAI Professionals would ethicallydrive enterprises globally by creating value tostakeholders in the socio-economic contextthrough competencies drawn from theintegration of strategy, management andaccounting.�

VISION STATEMENT

�ICWAI would be the preferred source ofresources and professionals for the financialleadership of enterprises globally.��

DISCLAIMER

The views expressed by the authors arepersonal and do not necessarily representthe views and should not attributed toICWAI.

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Editorial

Two distinct events have been hogging the head-lines of late. One has been the international uproarover the oil spill in the Gulf of Mexico by oil major,BP. Another has been the hue and cry over whatvictims of Bhopal’s Union Carbide gas leak viewas a redressal too little and too late. These twoepisodes belong to different time frames and invery far off parts of the world, yet there is a commonthread that runs between the two events. They high-light the spectre of corporate liability.

Corporate liability determines the extent to whicha corporation as a legal person can be liable forthe acts and omissions of the natural persons itemploys. Under the aegis of this legal protection,BP has been fined 20 billion US dollars to com-pensate the shrimp farmers affected by the spill.Union Carbide India Ltd., the pesticide companyfrom whose Bhopal plant, toxic methyl isocyanategas was released, was ordered to pay 3.3.billionUSD but has so far paid only 470 million USDas compensation. The Chairman of the companyagainst whom culpable homicide charges were filed,could not be traced.

Under laws of some lands, corporate liabilityis considered a criminal vicarious liability whichdemonstrates the gravity of this offence. A cor-porate can be held criminally responsible in casesof conspiracy, bribery, larceny, misuse of medicine,public nuisance, violation of regulatory/ consumerprotection laws, non compliance with court orders/decrees, extortion, statutory federal crimes andviolation of Occupational Safety and Health Act.The very intent of corporate liability laws is deterrentin nature.

However, there are many grey areas that existin this realm as can been seen both from the Indianand American episodes. Today, the corporate sphereis ruled by multinationals, whose seamless opera-

tions across different countries impede the deter-mination of jurisdiction of this law while seekingprotection. Also the multinationals havedeep pockets which results in long drawn litigationprocesses. And we are all aware of the saying “Justicedelayed is justice denied”. Finally when victimsseek redressal, they often fail to get anywhere inlocal courts, but discover that the head office abroadis a separate entity. This problem – the ‘corporateveil’ – means strong evidence is needed to holda parent company liable, which can be a dauntingtask for disaggregated and poor victims.

More specifically in India, the statutes have notkept pace with the changing corporate scenario.Most statutes hold only the officials and not thecompany responsible; even the Indian Penal Codedoes not take corporates into consideration whiledirecting compulsory imprisonment. Most cases donot recognize corporates to be criminally liable andeven if they do so, the punishment is reduced tothat of fines. Often the fines are too paltry in relationto the amount of damage or the profits of the company.This defeats the very purpose of corporate liabilitylaw since fines (which escape imprisonment) donot act as a deterrent nor are the victims adequatelyretributed.

These existing lacunae in the legal systems needto be filled in. Apart from stiff monetary punish-ments that can both act as disincentive for thecompany as also create a rehabilitation fund forvictims; social sanctions that tarnish the reputationof such offending companies, are also effective toprevent further such incidents. Corporate liabilityshould occupy greater place in corporate gover-nance not merely in terms of monetising impactof such liability; but in a greater drive to replacecorporate liability with greater corporate respon-sibility.


●●●●● PrPrPrPrPresident’esident’esident’esident’esident’s Communique s Communique s Communique s Communique s Communique ●●●●●

Dear Professional Colleagues,I head towards completing my tenure as President of this esteemed Institute with

deep sense of gratitude and great satisfaction. It was indeed the encouragement,cooperation and support, I received from all my colleagues on the Council of theInstitute, Past Presidents, Members, students and other professionals that enabledme to render my duties towards growth and development of our profession. Some ofthe major developments during the year, that I wish to share with you are as under :-

2nd CMA Global Management Accounting Summit 2010I am happy to inform that the 2nd CMA Global Management Accounting Summit on the theme

of “CMA for Sustainable Business” was held in Colombo from 29th June to 1st July, 2010. This wasa moment of pride and joy for ICWAI too, as the sapling of Global Summit on Management Accountingthat we planted in 2008 has grown to bear fruits. The Institute of Cost and Works Accountantsof India (ICWAI) co-hosted the Global Summit with the host Institute of Certified Management Accountantsof Sri Lanka and other co-host institutes of the region. CMA, Canada and IMA, USA were the TechnicalPartners in the Summit. I on behalf of ICWAI and CMA fraternity profusely thank Shri R.Bandyopadhyay,IAS, Secretary, Ministry of Corporate Affairs, Government of India to be the Guest of Honour duringInaugural Session, and addressed the CMA’s for future.

India Corporate WeekThe Ministry of Corporate Affairs observed India Corporate Week from 14th to 21st December,

2009 on the theme “Corporate Sector and Inclusive Growth”. To commemorate the occasion, theInstitute, its Regional Councils and Chapters organized programmes independently as well as incollaboration with other sister professional bodies and associations. The celebration culminated atVigyan Bhavan, New Delhi on 21st December, 2009, where Her Excellency, Smt. Pratibha DevisinghPatil, President of India, presented a Trophy to ICWAI in recognition to its excellent contributiontowards growth and development of profession of Cost and Management Accountancy and promotinggood governance culture in Corporate India, in the gracious presence of Mr. Salman Khurshid, Hon’bleMinister of State (I/C) for Corporate Affairs and Minority Affairs and Shri R. Bandyopadhyay, IAS,Secretary, Ministry of Corporate Affairs. “Corporate Governance Voluntary Guidelines 2009 and‘Corporate Social Responsibility Voluntary Guidelines, 2009” formulated by the Ministry of CorporateAffairs and to be followed by India’s corporates, were also released on this occasion. I congratulateMCA, IICA and NFCG for giving a thrust to these events for the first time in Corporate India andincluding our Institute to carry on the task.

Visit of Hon’ble Minister of Corporate Affairs to ICWAI Delhi office.September 11, 2009 was indeed a path breaking and significant date, when for the first time

in the history of our Institute, even for that matter in the annals of the history of any professionalbody, the Hon’ble Minister for Corporate Affairs, Mr. Salman Khurshid addressed our Council atNew Delhi and more than that, spent considerable amount of time clarifying and assuring that Governmentwas seized with the several issues facing the profession, particularly the name change of the Institutewhich he clarified to the press, has lot of support from Government. This has given a new life andwill bring cheers to the members, as this has been pending for quiet some time due to several reasons.

Investors’ Awareness ProgrammeMinistry of Corporate Affairs, Government of India has empanelled ICWAI for the first time

to organize Investors’ Awareness Programme preferably in two-tier and three-tier cities through out



the country. The Institute has responded favourably to this by holding such programmes. I congratulatethe Vice-President, ICWAI Shri Brij Mohan Sharma, Central Council Members and Regions & Chaptersin conducting the Investor Awareness Programmes, which are appreciated by MCA. A message hasbeen received from the Ministry indicating that ICWAI should focus on conducting Investor AwarenessProgrammes all over the country, right from 1st April, 2010 onwards for another year till 31.3.2011to drive the advantage of spreading the Investor Awareness Programme every month, if possibleevery fortnight at various places in India. I request the Chapters and Regions to plan the eventsin advance and intimate the Delhi Office and Vice President, ICWAI so that we could focus onthe directions of Ministry in implementing their guidelines.

Cost Accounting Standards Board (CASB)The Cost Accounting Standards Board has been working tirelessly for developing the cost accounting

standards under the Chairmanship of Shri Chandra Wadhwa. The Council of the Institute has sofar issued 12 Cost Accounting Standards. The Council has also made the application of these CostAccounting Standards mandatory w.e.f. accounting period commencing on or after 1st April, 2010for the preparation and certification of General Purpose Cost Accounting Statements. In case themembers of the Institute in practice are of the opinion that the aforesaid cost accounting standardshave not been complied with for the preparation of the cost statement, it shall be their duty tomake a suitable disclosure/qualification in their audit report/certificate. Once again for the first timethe President, IFAC Robert Bunting visited our Institute and participated in CASB Meeting. He commentedthat India is the leader in contributing cost accounting standards to the whole world. He also expressedthe opinion that while developing the Cost Accounting Standards, the Institute should keep in mindthe International perspective and appeal.

On Companies Bill 2009Regarding, Companies Bill, 2009, we have brought it to the notice of all the concerned that we

will be presenting our comments before the Chairman and Members of the Standing Committee.ICWAI is geared up to meet the challenges with regard to certain sections of the new CompaniesBill 2009 which may have to be looked into and we are confident that this Government will dojustice to our profession.

The Institute was given an opportunity to appear before the Hon’ble Parliamentary Committeeon Finance for oral hearing on Companies Bill 2009 on 24th May 2010 at New Delhi. A presentationwas made before the Hon’ble Committee and further replies were submitted for the queries.

GST and Direct Tax CodeThe Taxation, Perspective Planning & Execution Committee, prepared a full proof document regarding

the importance of Role of Cost Accountants in forthcoming DTC to ensure reduction of leakageof Revenue and protection social interest and presented the same before the Ministry of Finance.On Direct Tax matter, the committee finalised the draft on Guidance Note on Transfer Pricing. Thecommittee also finalised the preparation of Technical Guide on Implementation of Goods & ServiceTax in India, being the First Publication in the Country, and presented to all concerned for theirconsideration

International AffairsIt was our good experience to participate in the International Seminar of CAPA on SMEs and

SMPs organized by IFAC and World Bank. I and Shri S.R.Bhargave, Central Council Member participatedeffectively in the above programme at Beijing during the end of October, 2009. As a part of Programme



of CAPA, I was also fortunate to attend the World Bank programme arranged along with the ChineseGovernment where the Finance Minister of China and Auditor General of China discussed aboutthe introduction of IFRS in particular in China and other 23 countries.

During 1st week of November 2009, it was a satisfactory meeting at Dhaka of SAFA Board andAssembly with ICWAI’s participation effectively. Shri Kunal Banerjee, Immediate Past President andShri A.N. Raman, CCM & Board member of SAFA, brought out many points particularly with regardto the Enterprise Governance matters and also certain lacunas in introduction of IFRS, namely, byintroducing fair value accounting which in turn calls for a current cost accounting approach. Wealso brought that in respect of countries like India wherein heavy subsidies are given on cost baseapproach, the adoption of fair value will bring in surmounting problems. This was well appreciatedby the SAFA Board.

During 15th & 16th of November, 2009, ICWAI partnered with Institute of Cost and ManagementAccountants, Oman to launch Accounting Technician Course. ICWAI efforts were appreciated byour Indian Ambassador and officials of ICMA Institute. We want to share our knowledge till weachieve full professional growth in Oman for which we have signed an MoU with the approvalof Government of India. You may observe that it marks a beginning of era of knowledge cooperationin Gulf Region, wherein a big potential exist. I am happy that ICWAI has taken this lead. Omanhas successfully conducted the first exam in June 2010.

I am happy to inform you that ICWAI participated in the recent SAFA meetings and conferencein Karachi, Pakistan. The team was led by me along with the immediate past president Shri KunalBanerjee and Mr. V. C. Kothari and Mr. A.N.Raman. It was our pleasure in participating in thememorial lecture organized by ICMAP in the memory of their founder president Late Mr. Md. Shoaib,who happened to be our founder president also. The crowd applauded at Karachi when I proclaimedthat I am the 52nd president having received the baton from Late Mr. Md. Shoaib and their successors.

INDO-USA Delegation to America led by our Hon’ble Secretary, MCA Shri R.Bandhyopadhyay,IAS

We are happy to inform you that our Council Members Shri A.N.Raman, Vice-President, SAFA& Member, PAIP, IFAC and Shri Chandra Wadhwa, Past President, led by our Hon’ble Secretary,MCA Shri R.Bandhyopadhyay, IAS visited Washington and New York and held discussions withvarious International Bodies to study the implementation of IFRS and also the contribution of CMAsfor the development of management accounting profession. The discussion with IMA-USA was veryhelpful and both Mr. Bandhyopadhyay ji and Shri Jitesh Khosla ji, IAS who headed the delegationstressed the need for an MoU between ICWA of India and IMA-USA.

Visit of CIMA President, Mr Aubrey Joachim to our InstituteMr Aubrey Joachim, President, CIMA-UK visited the Delhi office of the Institute on 10th March,

2010 and met Central Council Members and officials. After detailed discussions many issues werefinalised for further follow-up like, exchange programme between the members of the two Institutionsfor training; undertaking research work jointly in India and other countries, particularly in the areaof Cost Audit, Health and Education; possibility of making e-learning programme available to theIndian students at a concessional rate; holding joint conference/seminars on various areas likePerformance Management, Enterprise Governance, Cost Audit etc.

SAFA Board Meeting and other Committee Meetings hosted by ICAI-Sri Lanka at ColomboI represented ICWAI at SAFA Board and Committee Meetings along with my colleagues Shri

B.M.Sharma, Vice-President, ICWAI; Shri Kunal Banerjee, Immediate Past President and Shri A.N.Raman,



Vice-President, SAFA. Deliberations took place on two days. On the first day, SAFA finalized theTask Force recommendations towards revised constitution of SAFA. There was also meeting of PublicAccounting Governmental and Public Sector Enterprises Accounting. On the next day was the BoardMeeting of SAFA, represented by all the member bodies. The deliberations were very fruitful andI am happy to say that the Board approved two SAFA programmes for India, one at New Delhiand another at Bangalore.

CAPA Board and Annual General MeetingI along with Shri B.M.Sharma, Vice-President, ICWAI attend the Confederation of Asian and Pacific

Accountants (CAPA) Board Meeting and Annual General Meeting held on 20th and 21 May 2010in Wellington, New Zealand. There was also a presentation from all countries of CAPA as wellas India on the latest professional achievements.

ICWAI represented by the President in MCA delegation to Netherlands and GermanyAn MCA delegation led by Shri R.Bandhyopadhyay, IAS, Secretary, MCA visited Netherlands

and Germany during 24-31 May, 2010 to establish a Joint Working Group with the Governmentsof Netherlands and Germany in the area of Corporate Governance and Corporate Social Responsibility.There was also an interaction with various organizations engaged in the areas of CG/CSR in thesetwo countries. During this visit, detailed discussions were held with the Netherlands Governmentat Hague to identify the areas of interest to develop a mutual consensus for exchanging points relatingto Corporate Governance and Corporate Social Responsibility. The Netherlands Government appreciatedthe efforts taken by the Ministry of Corporate Affairs, Government of India in this regard. We werehappy to participate in an International Global Reporting Initiative Conference at Amsterdam andwere among the 77 countries which discussed various practices of Global Reporting Initiatives.

ICWAI 51st National Cost Convention51st National Cost Convention of Cost and Management Accountants of India was organized by

the Eastern India Regional Council of the Institute from 23rd to 25th April, 2010 at Fortune ParkPanchwati, at Kolkata on the theme “CMAs in Nation Building – Today and Tomorrow”.

Shri SriPrakash Jaiswal, Hon’ble Minister of State (I/C) for Coal, inaugurated the 51st NationalCost Convention. Shri Promode Mankin, Minister of Cultural Affairs Bangladesh was Guest of Honour.Technical discussions took place after the inauguration which was very useful to participating costand management accountants. Prof. Sugata Roy, Minister of State for Urban Development inauguratedthe 2nd day of the Convention on 24th April, 2010. The Minister while addressing appreciated therole of Cost and Management Accountants and said that we have to play a greater role in the comingyears. To a request made by the President, ICWAI for allocation of a land for the Research andExcellence Center at Delhi, he suggested that since there is no land in Delhi, Institute may approachNoida Authorities. However, he said he will be considerate to the request of the President of ICWAI.It needs to be underlined here that this Convention was attended by more than 600 delegates fromall over the Chapters and Regions. I once again express my heartiest congratulations to the EIRCand the Organizing Committee for making the event a grand success. I also place on record theefforts put in by two Council colleagues Shri Somnath Mukherjee and Dr. Sanjiban Bandyopadhyayfor making the Convention a grand success.

ICWAI Signs MOU with CBECI am happy to inform that The Institute of Cost and Works Accountants of India (ICWAI) and

Central Board of Excise & Customs have signed a Memorandum of Understanding (MOU) on 13th



April, 2010 to set up ACES Certified Filing Centres (CFCs) across the country. These CFCs can beset up and operated by the Members of ICWAI, who have valid certificate of practice issued bythe ICWAI. This initiative aims at providing services to taxpayers who may not have requisite ITinfrastructure/resources, to use ACES. These services will also be beneficial to the industry and theywill not be required to visit the office of CBEC for Registration, Returns, etc. The services wouldbe available on payment of prescribed services charges for various services such as digitization ofpaper documents and on-line filing/ uploading of documents such as Application for Registration,Returns, Claims, Permissions and Intimations etc. in ACES.

MOU between ICWAI and MCX Stock Exchanges LtdI am happy to inform you that the Institute of Cost and Works Accountants of India (ICWAI)

and MCX Stock Exchanges Ltd (MCX-SX) have signed a Memorandum of Understanding (MOU)on 7th May 2010 at Kolkata. The programme was graced by Shri R.Bandyopadhyay, IAS, Secretary,MCA as the Chief Guest. This MOU will result in joint programmes between ICWAI and MCX-SX for various certification programmes on financial markets, cost accounting standards and effectivecorporate functioning.

CAT course inauguration at Srinagar, KashmirI am happy to inform you that The Institute of Cost and Works Accountants of India (ICWAI)

has made headway in Kashmir Valley through Global College of Professional Studies (GCPS) asa Recognized Oral & Coaching Centre (ROCC) to launch CAT course in Srinagar on 05.04.2010.Shri Balwinder Singh, Chairman, CAT was also present on this occasion. The CAT course will beno doubt a boon for the students’ community from the Valley and with this the Institute has establishedOral Coaching Centres for CAT from Kashmir to Kanyakumari. As of date, Institute has 222 OralCoaching Centres apart from Regional Councils and Chapters for imparting oral coaching to CATstudents. CAT course indeed reflects the inclusive agenda of the Institute for benefiting the students’community especially from rural and remote areas.

Strengthening of Infrastructure at Regional Councils/ChaptersThe Council continued its efforts to strengthen the infrastructural facilities of Regional Councils/

Chapters during the year. As a result, I am pleased to inform you that the Professional Developmentactivities at Regional Councils/Chapters have increased significantly. I am sure, the services beingrendered by the Regional Councils/Chapters to the students and members would be more visibleand satisfying in times to come.

SAFA Vice-PresidentshipAfter 14 years, our Institute has got the turn of occupying the Vice Presidentship of SAFA and

this has happened on 23rd January 2010 when SAFA Assembly elected ICWAI Council Members,Shri A.N. Raman as its Vice President for the year 2010 with an overwhelming unanimous support.

Green Initiative from ICWAISouthern India Regional Council of ICWAI took initiatives to meet the “Green Initiative Standards”

as part of CSR initiatives, which was declared open on 22nd February 2010 by Shri R. Bandhopadhyay,IAS, Secretary-MCA. This was piloted by Shri M.B. Nirmal, Founder of Exnora International, well-known for such initiatives in the country. Shri M. Gopalakrishnan, CCM, co-ordinated the activitiesto make it a success. Apart from Chairman and members of SIRC, Shri V. Kalyanaraman, Past Presidentof ICWAI and SAFA also played a key-role in the completion of the programme. In his address,



Shri R. Bandhopadhyay, IAS, Secretary-MCA, lauded the initiatives taken by ICWAI and emphasisedthat such efforts will bear fruits by including this subject in the Curriculum so that students canbe well acquainted with the subject of “Green Costing and Audit.” His suggestion was well endorsedand I on behalf of ICWAI commit that all the Chapters and Regional Councils of ICWAI wouldbe drawn to the Green Initiative in the course of time. The programme was well taken by the mediawith good coverage in National Newspapers and Television Network. The programme was attendedby Students & Members of ICWAI and Officials from the Regional Office of MCA.

I am glad to inform you that recently the Karnataka Government has recognized the Cost Accountantsalso in corporate VAT Audit by amending Karnataka Value Added Tax. The Government is releasingthe amendment of Rule 34 (Third Amendment Rules, 2009). We are extremely grateful to the Hon’bleChief Minister of Karnataka, Shri B.S. Yeddyurappa for recognizing Cost Accountants to shoulderthis responsibility.

Announcement from Government of Kerala on inclusion of Cost Accountants in Urban Local Bodiesfor the purpose of adoption of Double Entry Accrual Based System of Accounting

I would like to place on record my sincere appreciation and thanks for S/Shri R Bandyopadhyay,Secretary, P. D. Sudhakar, Special Secretary, Avinash K Srivastava, Joint Secretary, Smt. Renuka Kumar,Joint Secretary, S/Shri B. B. Goyal, Adviser (Cost), Jaikant Singh, Manoj Arora, Director of theMinistry of Corporate Affairs in this regard.

ICWAI 7th National Award for Excellence in Cost Management - 2009The Institute is organizing the ICWAI 7th National Award for Excellence in Cost Management

-2009 at 5:30 PM on 8th July, 2010 at Scope Auditorium, SCOPE Complex, Core VIII, 7 Lodhi Road,New Delhi. The ceremony will be inaugurated by Shri Salman Khurshid, Hon’ble Minister of Statefor Corporate Affairs and Shri R.Bandyopadhyay, IAS, Secretary, MCA will grace the occasion asGuest of Honour. The Award ceremony will be preceded by a Seminar on ‘Cost Audit under NewMechanism and Cost Accounting Standards’ at 2:30 PM.

National Seminar on “Regulatory Practices-Role of Management Accountants” at Bhubaneswarfrom 25th - 27th June, 2010

I was happy to praticipate in The Cuttack-Bhubaneswar Chapter of the Institute of Cost andWorks Accountants of India (ICWAI) organized a three day National Seminar on “Regulatory Practices-Role of Management Accountants” at Bhubaneswar during 25th June, 2010 to 27th June, 2010. Hon’bleDr. Justice Arijit Pasayat, Chairman, Competition Appellate Tribunal inaugurated the Seminar asGuest of Honour and member, Competition Commission of India, Shri P. N. Paresar gave the keynote address.

With regards,Yours sincerely,

(G. N Venkataraman)President

Date : July 8, 2010


GST-Introduction andRole of Cost andManagement AccountantCMA Dilip M. Bathija*

he Proposed Goods andService tax (GST),a veryimportant part of India’s

tax reforms is around us. Afterthe successful introduction of VAT,GST — the next logical step — willbe a further breakthrough.

GST is a comprehensive valueadded tax on goods and services.

CENVAT in 2004-05. Introductionof VAT in the States started fromApril 1, 2005. Now all the statesand Union Territories have imple-mented VAT.

Why GST ?Even though VAT has been

successful, tax revenues have in-creased and cascading effect of taxhas been reduced, there arestill certain shortcomings in thestructure of VAT both at theCentral and at the State level.

Shortcomings& Several Central taxes such as

additional customs duty, sur-charges etc not included inthe overall are framework ofCENVAT , hence benefit of set-off is not available.

& Several taxes such as luxurytax,entertainment tax etc are notincluded in State level VATScheme.

& CENVAT load on the goodsremains included in the valueof goods which is taxed underState VAT,thus cascadingeffect on account of CENVATelement.

& CST remains element of cost, asno set-off available.The introduction of GST at the

Central and at the State level willcomprehensively include moreindirect taxes, wider coverageof input tax set-off and service taxset-off, and phasing out of CST.Thus additional burden of Cenvatand Serivce tax would be compre-hensively removed and a continu-ous chain of set-off from the origi-nal producer’s point and serviceprovider’s point up to the retailer’slevel will eliminate cascading ef-fect of tax.

GST—Indian ScenarioThe Empowered Committee of

State Finance Ministers had re-leased the First Discussion Paperon Goods and Services Tax inIndia on 10th November 2009.This discussion paper is dividedinto following four sections :

1. Introduction2. Preparation for GST3. Goods & Services Tax Model

for India4. Annexure on Frequently Asked

Questions and Answers onGST.* B.Com., LL.B., GDC& A., AICWA.

T

Present Indirect Tax Scenario in India

Taxable Event Type of Indirect tax levied

Import of goods Basic Customs Duty

Manufacture of goods Central Excise

Import of goods Additional duty of customslevied in lieu of excise duty

Providing Service Service Tax

Inter-state sale of goods CST

Sale of goods within state VAT

Import of goods Special Additional Duty leviedin lieu of VAT

It is levied and collected on valueaddition at each stage of sale orpurchase of goods or supply ofservices based on input creditmethod but without state boun-dries.

GST—Global ScenarioAbout 140 countries have

adopted GST. Different models ofGST exist, each having its ownpeculiarities. In many countries,

standard GST rate rangesbetween 15-20%.

In India,VAT was introducedat the Central level on selective basisin terms of MODVAT with effectfrom March 1, 1986, and slowlyit was extended to all commoditiesin terms of CENVAT in 2002-03.Service tax was also added to

Role of Cost and Management Accountants in GST Regime


With the release of this FirstDiscussion Paper, the govern-ment has invited interaction withthe representatives of industry,trade, agriculture and commonpeople.

Main Features of the ProposedGST Model (As per First Discus-sion Paper)1. GST will have two components,

one levied by the Centre (CGST),and the other levied by the States(SGST).

2. The CGST and the SGST willbe levied simultaneously onall transactions of goods andservices except exempted list,goods outside the purview ofGST and the transactionsbelow the prescribed thresholdlimits.

3. CGST and SGST to be paid tothe accounts of the Centre andthe States separately.

4. Cross-utilization of Input TaxCredit between CGST and SGSTin general not allowed.

5. To the extent feasible, uni-form procedure for collection ofboth CGST and SGST.

6. Centre would administer CGSTand State would administerSGST.

7. Taxpayer to submit periodicalreturns to both the CGST au-thority and to the concernedSGST authority.

8. Each taxpayer would beallotted a PAN linked tax-payeridentification number with atotal of 13/15 digits.

9. A uniform State GST thres-hold of Rs. 10 lakhs for bothgoods and services for all Statesand Union terri-tories recom-mended. The threshold forCGST for goods may be keptat Rs. 1.5 crore and the thresholdfor services may also be appro-priately high.

10. Composition/CompoundingScheme with cut-off at Rs. 50lakhs of gross annual turnoverand a floor rate of 0.5% acrossthe States.

GST Rate StructureGoods—A two tier rate struc-

ture will apply at both CGST andSGST levels.

Services—A single rate isexpected to apply at the Centraland State levels.

According to Empowered Com-mittee, characteristics of the ratestructure will be :& A lower rate for necessary

items and goods of basic impor-tance.

& A standard rate of goods ingeneral.

& A special rate for precious met-als

& A list of exempted items.

Exact rates will be released inlegislations.

Exports—Exports would be zerorated.

Imports—Both CGST and SGSTwill be levied on import of goodsand services into the country,with provision of full and completeset-off.

Taxes to be subsumed under theGST

CETRAL TAXES to be sub-sumed:1. Central Excise Duty2. Additional Excise Duties

3. The Excise Duty levied underthe Medicinal and ToiletriesPreparation Act.

4. Service Tax5. Additional Customs Duty

(CVD)

6. Special Additional Duty ofCustoms (SAD)

7. Surcharges

8. Cesses.

Illustration explaining the working of GST

Stage of Purchase Value Sale Assumed GST on Input Tax NetSupply Chain Value Addition Value GST Rate Output Credit GST

Rs. Rs. Rs. Rs. Rs. Rs.

Manufacturer 100 50 150 10% 15 10 5

Wholesaler 150 30 180 10% 18 15 3

Retailer 180 20 200 10% 20 18 2

———

10

———



STATE TAXES AND LEVIES to besubsumed

1. VAT/Sales Tax

2. Entertainment tax(unless it islevied by the local body)

3. Luxury Tax

4. Taxes on lottery, betting andgambling

5. State Cesses and Surchargesrelating to supply of goods andservices.

6. Entry tax not in lieu of Octroi.

Taxation of Inter-State transac-tions of Goods and Services

Centre would levy IGSTwhich would be CGST and SGSTon all inter-state transactions oftaxable goods and services.The inter-state seller will payIGST on value addition afteradjusting available credit ofIGST, CGST, and SGST on his pur-chases. The importing dealer willclaim credit of IGST while discharg-ing his output liability in his ownstate.

It can be seen from the abovetable that Manufacturer, Whole-saler and Retailer pay Rs. 10(Rs. 5 + 3 + 2) as GST on the valueaddition along the entire valuechain from the producer to theretailer, after setting off GST Paidat the earlier stage.

GST in India—Latest PositionEmpowered Committee of

State Finance Ministers has re-leased first discussion paper onGST on 10-11-2009. FinanceMinister in his Budget Speech inFebruary 2010 has said that itwill be his earnest endeavourto introduce GST from April2011.

Role of Cost and ManagementAccountant in GST Regime

1. Advisory/Support service toGovernment

Training and teaching isrequired at various levels. Stafftraining will be very importantarea as many new concepts willemerge. Government has to put ITInfrastructure in place. State Infra-structure facilities are to be tiedup with Central facilities. Lot ofwork is to be done in the areasof arriving at revenue neutral rates,compensation to be given to States.How much will be loss due tophasing out of CST and how muchwill be additional revenue due totaxation of services to the States.Cost and Management Accountantwith his specialized knowledge canhelp the government in these areaswith his analytical tools such asCost Benefit Analysis equippedwith the knowledge of indirecttaxes, deeper understanding ofmanufacturing, and also distribu-tion channels.

2. Training to Corporate StaffCorporates have to do lot of

changes in their systems to adoptGST. Staff will have to be trainedto make them familiar with con-cepts, record keeping, returnsfiling and other compliances.Cost and Management Accoun-tant — with his knowledge ofIndirect taxes can provide stafftraning.

3. Consultancy Service for SMESector

GST will be a new concept.Enterprises in the SME sectorwill need lot of guidance in thematters of Classification, Taxation,

Threshold limits, RegistrationProcedures and Compliances.They will also need guidance onwhether to go for Composition/Compounding Schemes or togo for normal provisions.Costand Management Accountantcan provide guidance in theseareas.

4. Facilitation CentresAs GST will involve many

new things, new principles,new concepts, government likeMCA may open facilitation centresor Help Centres to help the Indus-try, Trade etc. Cost and Manage-ment Accountant can enter thisarea and provide help to theIndustry.

5. Decision making functionsIn the light of new develop-

ments due to GST Regime, man-agement may have to take impor-tant decisions about their marketstrategies, stock transfer policies,godown keeping policies,establishing branch versus estab-lishing manufacturing unit indifferent States. In all these areas,Cost and Manage-ment Accountantcan help the management in takingright decisions by doing analysissuch as Cost Benefit Analysis etc.

6. AuditCost and Management Accoun-

tant is already engaged in doingAudit under Central Excise, Cus-toms and State Vat Acts. In the GSTRegime also, he can offer his servicesas Auditor.

From the above, it is clear thatCost and Management Accountantcan become GST expert and renderservices to the government, Indus-try and Trade. ❏



Reform in Indirect Taxes� Importance ofUnified Goods andServices Tax [GST]CMA Mrityunjay Acharjee*

Basic Objectives of Tax Reforms

he basic objective to in-troduce the new system isto establish a tax system

economically efficient, neutral inits application, widely distri-buted and simple to comply andadminister.

Revenue considerations su-ggest that the tax base should bebroad, comprise all items in theconsumer basket, including goods,services, as well as real property.

The tax system should containthe principles of neutrality whichmay comprise :

1. That the tax be a uniformpercentage of the final retail price,of a product regardless of thesupply-chain arrangements forits manufacturing and distribution;

2. That the tax on inputs be fullycreditable to avoid tax cascading;and

3. That the tax be levied on thebasis of the destination principle,with all of the tax on a givenproduct/service accruing in thejurisdiction of its final consump-tion;

4. Projection of simplifica-tion of tax administration andcompliance — the first factor istax design itself like minimum

classifications and minimumtax rates.

The objective of reforming anytaxation policy and structureshould be :

First, that trade and industry,particularly small business units,should be able to comply with theprovisions of tax laws with the leastof time and money cost. The taxa-tion laws need to be simple andunambiguous and the nature ofrecords to be maintained, returnsto be submitted, in terms of thecontents and periodicity, should becommensurate with the size andcomplexities or the business units.

Secondly, the taxation ratesshould not be prohibitive. Thesetwo factors are considered to bethe most important in inducing taxcompliance.

Single Point Tax vis-a-vis MultiPoint Value Added Tax

Single point tax system, whetherat the first point or the last point,was considered an inefficient wayof taxation because it led to hugetax evasions, very high rates or tax,multiplicity of tax rates and hugenumber of disputes. Major historicstep in this regard was adoptionof Value Added Tax (VAT) system,

which mainly brought about two-rate structure, transparency in VATrealised by the dealers, removal ofthe cascading effect of local salestax, widening of tax base ete. Thenext revolutionary reform in indi-rect taxes will be in the form ofGoods and Services Tax (GST),which will not only integrate Goodsand Services tax structure but alsointegrate tax structures of Govern-ment of India and State Govern-ments, with a fresh look at taxexemptions and rate structure.

Reforms in tax structure towardsconverging into new tax regime

Reforms in the taxation statuesare an ongoing process. From theera of age-old sales tax or singlepoint levy of sales tax, the countryis now witnessing the reformedera of Value Added Tax wheretax on goods sold is levied atevery stage wherever any valueaddition takes place in the entiresupply chain till the goods ulti-mately reaches the end customer.Consumers as well as the govern-ment has been immensely benefitedwith the introduction of ValueAdded Tax in India. By the dintof the innovative idea to neutralisethe amount of tax paid on Inputraw material procured within thestingate with the amount of taxpayable on the finished product atthe time of its sale, sales tax nolonger remains as a part ofcost of production and accordingly,the end consumer gets the benefitof neutralization of the cascadingeffect of sales taxes.

An attempt has been made toanalyze the different reasons re-sponsible for non-compliance of thetax laws so that an integrated andbalanced view may be taken forimproving the tax compliance.

T


* AICWA


Undoubtedly, higher tax rateshave been an important factorresulting in massive tax evasions.However, simpler tax laws areessential in facilitating compliance,reducing transaction costs and inmaking it easier to do business.Hence, the tax policies have to aimat simpler tax laws, keeping in viewthe nature and size of business.However, various rules and regu-lations, which require detailedinformation, periodic reports in-cluding real time reporting, orwhich grow complicated with thegrowing economic complexities,however, are not the real reasonsfor tax evasion. Requirement forinformation from the tax payers orthe dealers is likely to increase infuture for cross-verification pur-poses, besides the data beingcaptured through electronic surveil-lance etc. In fact, submission ofstructured and accurate informa-tion has become very easy withmaintenance of electronic recordsby almost all the dealers who arerequired to comply with suchrequirements.

However, policymakers have tomake conscious efforts to evolvean administrative and legal frame-work which ensures level playingfield to the various business unitsin the same class of business in itsfinal impact, which would includeaggregate impact on the profits dueto fiscal and non-fiscal benefits.Final impact, of course, has to beassessable with respect to viabilityof the business. In fact, this factoris internationally recognised, moreso in the context of globalisation.This is the reason that tariff-bar-riers, domestic subsidies and evenexploitation of labour or otherdomestic laws are closely studiedby the competitors in other

countries to assess the impact onthe level playing field. Anti-dump-ing duties, safeguard duties andban on imports from certain coun-tries are imposed only to providedomestic industries a same anduniform playing field.

Though Tax Reforms is anongoing process and the nextrevolutionary reforms in the areaof Indirect Taxes shall be theintroduction of Goods & ServicesTax (GST) which shall not onlyconsolidate and integrate the stat-utes rearmament.

Dual Goods and Services tax,proposed to be levied by theGovernment of India and the Stateson the common base, is expectedto bring about further substantialreforms, which should result inremoving remaining distortions inthe tax structure which hamper levelplaying field. Several State leveland Central indirect taxes such asValue Added Tax, Entry Tax, Taxon consumption of goods, LuxuryTax, Entertainment Tax, CentralSales Tax, Central Excise Duty,Service Tax, Cenvat on imports arelikely to be subsumed in Goodsand Services Tax. Besides, Goodsand Services Tax also aims at com-pleting the process of destination-based tax, which has been initiatedin the case of goods only with theintroduction of VAT, by CST beingphased out gradually. While itwill remove distinction betweengoods and services so far as tax-ability is concerned, it will alsobroaden the tax base by bringingunder tax net untaxed services ofall kinds and classes except theservices consciously exempt.

What is GST?GST is a broad based and a single

comprehensive tax levied on goods

and services consumed in aneconomy. GST is levied at everystage of the production-distributionchain with applicable set-offs inrespect of the tax remitted atprevious stages. It is basically a taxon final consumption. To put ata single place, GST may be definedas a tax on goods and services, whichis leviable at each point of sale orprovision of service, in which atthe time of sale of goods or pro-viding the services the seller orservice provider may claim theinput credit of tax which he haspaid while purchasing the goodsor procuring the service.

It is seen as the panacea forremoving the ill-effects of thecurrent indirect tax regimeprevalent in the country. If adoptedand implemented, GST mayneutralise the existing problem oftaxes being levied on top of taxes.For instance, when a shoe companyproduces a pair of shoes, the CentralGovernment charges an excise dutyon them as they leave the factory.At the retail level, the state wherethe outlet is located charges VAT(different states charge differentrates of VAT) without giving crediton the excise duty levied earlier(the State tax is levied on top ofa Central tax). In the GST system,both Central and State taxes maybe collected at the point of sale.Both components (the Centraland State GST) may be charged onthe manufacturing cost of the goodsmanufactured and servicesprovided.

This system is basically designedto simplify current level indirecttax system. It integrates the unionexcise duties, customs duties, ser-vice tax and State VAT into a singlelevy known as GST. GST may berightly termed as national level VAT



on goods and services with onlyone difference —in this system notonly goods but also services areinvolved and the rate of tax ongoods and services are generallythe same.

Widening the Tax BaseThe GST at the Central and at

the State level will thus give morerelief to industry, trade, agricultureand consumers through a widecomprehensive and wider cover-age of input tax set-off and servicetax set-off, subsuming of severaltaxes in the GST and phasing outof CST. With the CST being prop-erly formulated by appropriatecalibration at rates and adequatecompensation wherever necessary,there may also be revenue/re sourcegain for both the Centre and theStates, primarily through widen-ing of tax base and possibility ofa significant improvement in tax-compliance. In other words, the GSTmay usher in the possibility of acollective gain for industry, trade,agriculture and common consum-ers , as well as for the CentralGovernment and the State Govern-ments. The CST may, indeed, leadto the possibility of collectivelypositive-sum game.

GST THE NEED OF THE DAYAny multiple tax structure

can’t construe a conducive environ-ment for accelerated economic de-velopment. It is, accordingly, thedemand of all the countries thata Tax System should be structuredin the following manner :

(i) To avoid multiple taxes andthus cascading effect on prices mustgo.

(ii) While presenting the FinanceBills almost every Finance Minis-ter, may be at the Centre or the

State levels, states that the economicphilosophy says that taxes shouldbe collected from the public with-out causing hardship. However, itdoes not happen in practical. Onlyhonest tax payers are paying regu-lar taxes whereas the tax offenderscould still walk scott free. The ideato bring CST is to make a chainwhich is difficult to break and baseof tax collections may widen, sothat at lower rates better revenuemay be garnered.

(iii) Kautilya’s ‘Arthashastra’,says that public prosperity, rewardsfor good conduct, capture of taxevasion, prevention of mismanage-ment by officials, abundance ofgreenery, prosperity of commerce,prevention of disasters, reductionin unnecessarily expenditure andoptimum collection of taxes leadsto prosperity of the State. Keepingthese objectives in mind the intro-duction of the CST is imperative.

(iv) “Law cannot stand still, itmust change with the changingsocial concepts and values. If thelaw fails to respond to the needsof the changing society, then eitherit will stifle the growth of the societyand choke its progress or, if thesociety is vigorous enough, it willcast away the law which standsin the way of its growth. Law must,therefore, constantly be on the moveadapting itself to the fast changingsociety and matured lag behind”— P N Bhagwati.

(v) The law has not, so is thedefinition of the term ‘goods’ undervarious sales tax laws. Now, it isjudicially decided that the term‘goods’ is not merely what istangible but it embraces within itsambit what is called intangibles too,like electricity, softwares etc. Notonly the definition of the term

‘goods’ has widened, so is the effecton the mode and method of doingbusiness with the advent of tech-nology. Now the computers haveruled over the age of chivalry.Therefore, the newer laws — whichare universal in nature must pre-vail in the era of globalization.When an MNC wants to do busi-ness in India it finds new laws ineach State. Not only that but theyfind so many laws applicable onthem that find it impossible to workwith such a country like India andthey reroute to some other neigh-boring country like China. There-fore, it is almost imperative nowto enter the era of GST.

(vi) To allow inter-State transac-tions VATable.

(vii) Input tax credit must beallowed on all inputs includingcapital goods, services etc acrossthe board.

(viii) Multiplicity of tax lawsmust be minimized.

(ix) The success of a tax systemrests upon its efficiency, equity andsimplicity.

(x) The compliance cost of thetax system should be minimum.

(xi) It must be simple to admin-ister.

(xii) It should be wider in baseand tax evasion must be difficult.

(xiii) There should be minimumnumber of tax rates and, insteadof long schedules of tax rates, itmust provide only negative list ofgoods and services being exemptor zero-rated.

(xiv) It must contain simplerprovisions for registration, filing ofreturns, assessment procedures,maintaining of books of accounts,closing of business for small tax-payers.



(xv) It may contain compositionschemes for small tax-payers.

(xvi) These must abolish compe-tition and a cold tax war betweenvarious States.

Advantages of GSTVAT has been accepted world-

wide as a buoyant source of rev-enue to the Government. It hasbeen considered as the broadeningtax base system and neutral topatterns of production and con-sumption decisions due to mini-mum tax rates and minimumexemptions. GST may bring downrates of tax and still may increasethe total revenue. Significant Ad-vantages of a comprehensive GSTModel are :a) Reduces the effective rate of tax

to one or two base floor rates;b) Abolition of multiple rate struc-

ture relating to sale, manufactingof goods and provision ofservices on all India basis;

c) Reduces cost of compliance andincreases voluntary compliance;

d) Removes the cascading effect oftaxation and all distortions inthe economy;

e) Enhances manufacturing anddistribution efficiency, reducesthe cost of production of goodsand services;

f) Increases the demand, produc-tion of goods and services;

g) Makes all the goods & servicesmore competitive in globalcompetitive field leading tomore export of goods & services;

h) Shall promote more economicefficiency and sustainable longterm economics growth sinceGST is neutral to business pro-cesses, business models, geo-graphic locations and productsubstitutes;

i) Reduces litigation, harassmentand corruption;

j) Bring-in ‘e’-Governance andelectronic data based environ-ment replacing the age-oldconventional system of tax man-agement and administration;

k) Widening the tax base and taxnetwork and thereby enhancingthe revenue of the Centre as wellas State Governments;

l) Reduces administrative cost ofthe Government;

m) Moving towards internationallycomparable and compatible taxstructure and tax administra-tion.High tax rates do not generate

more revenue—rather discouragecompliance and gives rise to eco-nomic distortions. The history ofour tax system is evident that thepeak basic rate of customs dutyhas been reduced to 10% in 2007-08 from 300% in 1990-91 onmanufacturing nonagriculturalproducts. Also, the basic excise dutyhas been reduced to 14% from 110%in the same period with an objec-tive to encourage more voluntarycompliance.

Background of introduction ofGST in India

In the Budget Speech of 2006,the Honb’le Finance Minister ShriP Chidambaram had set a targetof year 2010 date for the introduc-tion of the Goods and Services Tax(GST) and stated that the samewould help India achieve econo-mies of scale by becoming a com-mon market, and help India scorein the global market for labour-intensive manufacturing. Thequestion now remains that whatabout translating this intent intoexecution. The effort to introducethe new tax regime was reflected,

for the first time, in 2006-2007Union Budget Speech. TheHon’ble Finance Minister Mr.P. Chidambaram remarked thatthere is a large consensus that thecountry must move towards anational level GST that must beshared between the center and thestates. He proposed 1 April 2010as the date for introducing GST.After successful introduction ofValue Added Tax (VAT) in almostall the States and continuous in-crease in number of services underthe service tax net, nobody musthave any doubt of the FinanceMinister’s seriousness about GST.The present rates for service taxand CENVAT, that is most proxi-mate to the global GST rate, andthe continuous steps towardsphasing out of Central Sales Tax(CST), clearly hints at the endeavoron the part of Government of India.The Hon’ble Finance MinisterShri P. Chidambaram once againreferred to the new system andinformed that there is considerableprogress in preparing a roadmapfor introducing the GST witheffect from 1 April 2010. By 2010,revenue deficit may be completelyeliminated as per the goals set outin the Fiscal Responsibility andBudget Management Act, 2003(FRBM). Meeting with the FRBMtarget may help in proper intro-duction of the new tax regime—that is GST.

Once again, the Finance Min-ister took one step further whenhe announced that, EmpoweredCommittee of State Finance Min-isters has agreed to work withthe Central Government to preparea roadmap for introducing a na-tional level GST with effectfrom 1 April 2010. In May 2007,



Empowered Committee (EC) ofState Finance Ministers, in consul-tation with the Central Govern-ment, constituted a Joint WorkingGroup (JWG), to recommend theGST model. Within 7 months ofits constitution, that is in Novem-ber 2007, JWG presented its reporton the GST to the EC. The EC hasaccepted the report on GST sub-mitted by the JWG.

All these developments in theIndian tax scenario is quite evidentof the government’s incessant efforttowards the successful introductionand implementation of the GSTregime. Indian democracy involvesmany actors, and has an exquisitedispersion of power. Complex fiscalreforms hence, require special carein planning and implementation.Two important role models can becited. The first was the FRBM itself,which was led by Shri YashwantSinha and Dr. Jaswant Singh, andimplemented in a non-partisanmanner, which lent itself to con-summation by the UPA govern-ment. The second was the StateVAT, which was led by theEmpowered Committee of StateFinance Ministers in a non-partisanframework. Both these were multi-year efforts through carefullycrafted institutional arrangements,which ultimately succeeded. Insimilar fashion, an EmpoweredCommittee for GST Implementa-tion now needs to be set up. Unlikethe State VAT, the GST involvesboth Centre and States. Hence, itis fitting that this committee shouldbe chaired by the FM.

In the Union Budget 2010, theFinance Minister, Shri PranabMukherjee, has categoricalyconfirmed that implementation ofGST should take place effectivefrom 1st April 2011.

Limitation of Dual GST SystemFiscal autonomy to both State andCentre

Whether this variant can strikea good balance between fiscalautonomy of the Centre and Statesand whether it will bring harmo-nization between the two authori-ties is a big question. It empowersboth levels of Government to applythe tax to a comprehensive baseof goods and services, at all pointsin the supply-chain, under twoseparate legislations—probablyboth under Central Government.It may tantamount States to bemerely collecting institutions,which the State may not agree to.It only partially eliminates taxcascading because of truncated orpartial allowance of input taxcredit of the Centre and state taxes.

Inter State Transactions in FluxThe apprehension about feasi-

bility of application of State GSTto inter-State transactions of goodsand services is understandable,given the complete absence of anyframework in India for determin-ing their place of supply. However,the task of developing of such aframework is not insurmountable.Such frameworks do already existfor application of tax to interna-tional cross-border goods andservices which can be modified forinter-State services.

Reality transactionsThe modern VATs apply to all

supplies, including supplies ofland and real property. The servicetax has already been extended torentals of commercial property andconstruction services. However, theEmpowered Committee’s proposalis silent on the treatment of landand reality transactions in thedescription of this variant.

Other vexed issuesUnder this system, defining the

bases of tax, definition of servicesand goods, movement of goods andservices from one State to another,sites of sales, transfer of propertyin goods and services, applicationof different rates (SGST and CGST)of tax, classification disputes, tax-ing of indivisible works contractsmay continue to be vexed issues.these challenges may frustrate thevery purpose of implementation ofGST. Moreover, with more than68% of rural base population ofIndia, the complexities of claiminginter-chain and inter-State input taxcredit at the time of malfunctionof robust electronic system maymake the administration difficult.

WHAT TAXES WILL SUBSUMEIN GSTArchitecture of GST can subsume

The Goods and Services Tax(GST) is aimed to subsume almostthe entire system of indirect taxa-tion in India. Presently, the follow-ing systems of indirect taxes areprevalent in one form or the other :

Custom Duties on Imports ofGoods.

Additional Duties of Customs(known as Countervailing Duty)

Excise Duty on Manufacture ofGoods.

Additional Excise Duty.Surcharges.Service Tax on Rendition of

Services.VAT on State Sales/Purchase

of Goods including deemed sales.Central Sales Tax.Lottery Tax.Betting and Gambling Tax.Entry Tax, Octroi on entry of

goods in the State.



Luxury Tax on Services in Hotelsand Restaurants.

Entertainment Tax.Stamp Duties.Telecom License Fees.Tax on consumption on electric-

ity.

Salient features need to be notedin respect of GST

GST is a destination based taxstructure

Presently, Central Excise Dutyis levied on any product that havebeen manufactured within thecountry. Further, while the goodsare sold, Central Sales Tax or localsales tax is levied. Though creditin respect of Central Excise Dutypaid on removal of goods as wellas Value Added Tax (VAT) is set-off against the duty credit availableto the manufacturer, credit in re-spect of CST paid is not available.Different State Governments levydifferent rates of VAT on the sameproduct within the country and thatleads to a total confusing situation.Under the GST model, both Unionand State taxes would be collectedat the point of sale and the tax sopaid shall be available as input taxcredit and, accordingly, the cascad-ing effect shall be minimized.

Dealer under GST ActDealers of all category in-

cluding the manufacturers,traders, wholesaler, contractexecutors, service providers,resellers shall be covered withinthe ambit of GST. Accordingly, GSTshall be a unified tax system withinIndia.

Registration of DealerIn GST scenario, dealers need

to be registered under the Act,failing which input credit chain willbreak. If a dealer is not registered,

he can’t charge GST and, accord-ingly, the GST chain shall breakand the dealer can’t claim inputtax credit in respect of all hispurchases of goods and services.

Input Tax CreditLike the existing CENVAT/

VAT system, under GST model,entire tax shall be available as credit.Such input tax credit shall beavailable based on invoice. Theinput tax credit shall be availablefor set-off seamlessly against anytax liability of the dealer—be itagainst manufactured goods,goods sold, as well as servicesrendered.

Joint Working Group of Empow-ered Committee

Hon’ble Union Finance Minis-ter, during his Budget Speech, 2007-2008, announced that at his re-quest, the Empowered Commi-tteeof State Finance Ministershas agreed to work with the CentralGovernment to prepare a Roadmapfor the introduction of the Goodsand Services Tax (GST) with effectfrom 1st April 2010. In view ofabove, it has been decided by theEmpowered Committee of StateFinance Ministers, in consultationwith the Central Government, toconstitute a joint Working Groupin May 2007.

The Working Group wouldstudy the various models of GSTexisting globally and any otherrelevant material available on thesubject. It would also identify thepossible alternative models forintroduction of GST in India andexamine their various characteris-tics and assess their suitability inIndia’s fiscal federal context. Afterthese studies, the Working Groupshould present its findings before

the Empowered Committee fordecision on the most appropriatemodel for introduction of GST inIndia.

The Working Group wouldidentify the Central Taxes and StateTaxes which possess properties tobe appropriately subsumed underGST.

While suggesting a model forthe base and rate structure of GST,the following should be kept inmind by the Working Group:

(a) CST should be so designedthat it should be revenue fair withsufficient growth of revenue to theCentre and every State. Interestsof the Special Category, North-Eastern States and Union Territo-ries have to be especially kept inmind.

(b) The group will examinedifferent models and see the mannerin which the power of levy, col-lection and appropriation of rev-enue should be vested in the Centreand the States by looking at thepros and cons of various models.

(c) The various models sug-gested by the Working Groupshould ensure that double taxationis avoided.

(d) The Working Group wouldensure that the suggested modelstake into account the problems facedduring inter-State transactions andany revenue loss.

(e) The Working Group shouldconsider how exempted goods andservices and Non-VAT items suchas petroleum goods and alcoholmight be treated under the newregime.

(f) The models developed shouldreflect the interests of the Trade,Industry, Agriculture and Consum-ers, with due concern to the Centre-State relations.




(g) The Working Group wouldbe free to constitute sub-WorkingGroups and would also be com-petent to co-opt experts.

(h) Commissioners of TradeTaxes of the States could join theirSecretaries/ Principal Secretaries ofFinance/Taxation during themeetings.

(i) All Secretarial assistance tothe Working Group would beprovided by the EmpoweredCommittee Secretariat.

(j) The Working Croup wouldsubmit its report to the EmpoweredCommittee within a period of fourmonths.

Salient Features of the DiscussionPaper on Goods & Services Tax(GST) in India

One of the principal objec-tives of the Goods & Service Taxwas to remove the cascadingeffect of all indirect taxes in thevaluation of product as well asservices. In the present State-level VAT scheme, CENVAT loadon the goods remains included inthe value of goods to be taxed underState VAT, and contributing tothat extent a cascading effect onaccount of CENVAT element. ThisCENVAT load needs to be removed.Despite the success with VAT, thereare still certain shortcomings in thestructure of VAT—both at theCentral and at the State level. Theshortcoming in CENVAT of theGovernment of India lies in non-inclusion of several Central taxesin the overall framework ofCENVAT, such as additional cus-toms duty, surcharges, etc, and thuskeeping the benefits of comprehen-sive input tax and service tax set-off out of reach for manufacturers/dealers. Moreover, no step has yet

been taken to capture the value-added chain in the distributiontrade below the manufacturinglevel in the existing scheme ofCENVAT.

The objective behind introduc-tion of GST at the Central level willnot only include comprehensivelymore indirect Central taxes andintegrate goods and service taxesfor the purpose of set-off relief, butmay also lead to revenue gain forthe Centre through widening of thedealer base by capturing valueaddition in the distributive tradeand increased compliance.

In the regime of GST, thereshould be integration of VAT ongoods with tax on services at theState level as well, and, at thesame time, there should also beremoval of cascading effect ofservice tax. Accordingly, both thecascading effects of CENVAT andservice tax are removed withset-off, and a continuous chain ofset-offs from the original produ-cer’s point and service provider’spoint up to the retailer’s level isestablished which reduces theburden of all cascading effects. Forthis, GST to be introduced at theState level, it is essential that theStates should be given the powerof levy of taxation of all services.This power of levy of service taxeshas so long been only with theCentre. A Constitutional Amend-ment will be made for giving thispower also to the States. The burdenof Central Sales Tax (CST) shouldbe removed for effective implemen-tation of GST in India. The GSTat the State-level is, therefore, jus-tified for(a) additional power of levy of

taxation of services for theStates,

(b) system of comprehensive set-off relief, including set-off forcascading burden of CENVATand service taxes,

(c) subsuming of several taxes inthe GST, and

(d) removal of burden of CST.

Proposed Models of GST in India(i) The GST shall have two com-

ponents: one levied by the Centre(hereinafter referred to as CentralGST), and the other levied by theStates (hereinafter referred to asState GST). Rates for Central GSTand State GST would be prescribedappropriately, reflecting revenueconsiderations and acceptability.This dual GST model would beimplemented through multiple stat-utes (one for CGST and SGST stat-ute for every State). However, thebasic features of law such aschargeability, definition of taxableevent and taxable person, measureof levy including valuation provi-sions, basis of classification etcwould be uniform across thesestatutes—as far as practicable.

(ii) The Central GST and the StateGST would be applicable to alltransactions of goods and servicesmade for a consideration except theexempted goods and services,goods which are outside the pur-view of GST.

(iii) The Central GST andState GST are to be paid to theaccounts of the Centre and the Statesseparately. It would have to beensured that account-heads for allservices and goods would haveindication whether it relates toCentral GST or State GST.

(iv) Each taxpayer would beallotted a PAN-linked taxpayeridentification number. This wouldbring the GST PAN-linked systemin line with the prevailing PAN-



based system for Income Tax,facilitating data exchange and taxcompliance.

(v) Central GST and State GSTare to be treated separately. Ac-cordingly, taxes paid against theCentral GST shall be allowed tobe taken as input tax credit (ITC)for the Central GST and could beutilized only against the paymentof Central GST. The same principlewill be applicable for theState GST. Cross-utilization of ITCbetween the Central GST and theState GST would not be allowedexcept in the case of inter-Statesupply of goods and services underthe IGST model.

(vi) To the extent feasible, uni-form procedure for collection ofboth Central GST and State GSTwould be prescribed in the respec-tive legislation for Central GST andState GST.

(vii) Concurrent Jurisdiction—The administration of the CentralGST to the Centre and for StateGST to the States would be given.This would imply that the Centreand the States would have concur-rent jurisdiction for the entire valuechain and for all taxpayers on thebasis of thresholds for goods andservices prescribed for the Statesand the Centre.

(viii) Uniform Threshold Limitfor Goods & Services

A uniform State GST thresholdacross States is desirable and, there-fore, it is considered that a thresh-old of gross annual turnover of Rs.10 lakh both for goods and servicesfor all the States and Union Terri-tories may be adopted with ad-equate compensation for certainStates. The States are also of the viewthat Composition/CompoundingScheme for the purpose of GST

should have an upper ceiling ongross annual turnover and a floortax rate with respect to gross annualturnover. In particular, there wouldbe a compounding cut-off atRs. 50 lakh of gross annual turn-over and a floor rate of 0.5% acrossthe States.

(ix) The taxpayer would needto submit periodical returns, incommon format as far as possible,to both the Central GST authorityand to the concerned State GSTauthorities.

(x) The concerned authoritywhich is collecting the tax wouldundertake functions such as assess-ment, enforcement, scrutiny andaudit , with information sharingbetween the Centre and the States.

(xi) Central and State Taxes tobe subsumed under GST

Keeping in mind Revenue fair-ness for both the Union and theStates it is recommended that thefollowing Central Taxes should be,to begin with, subsumed under theGoods and Services Tax :(i) Central Excise Duty(ii) Additional Excise Duties(iii) The Excise Duty levied under

the Medicinal and ToiletriesPreparation Act

(iv) Service Tax(v) Additional Customs Duty,

commonly known asCountervailing Duty (CVD)

(vi) Special Additional Duty ofCustoms — 4% (SAD)

(vii) Surcharges, and(viii) Cesses.

Following State taxes and levieswould be, to begin with, subsumedunder GST :(i) VAT/Sales Tax(ii) Entertainment tax (unless it

is levied by the local bodies)(iii) Luxury tax

(iv) Taxes on lottery, betting andgambling

(v) State Cesses and Surchargesin so far as they relate to supplyof goods and services.

(vi) Entry tax not in lieu of Octroi. The various Central, State and

local levies were examined toidentify their possibility of beingsubsumed under GST.

However, a number of Stateshave disagreed to subsume theamount of purchase tax a while.

(xii) Other Relevant Issuesrelating to GST

Tax on items containing Alco-hol (Service Tax on Alco-holicBeverages : Alcoholic beverageswould be kept out of the purviewof GST. Sales Tax/VAT can becontinued to be levied on alcoholicbeverages as per the existingpractice. In case it has been madeVATable by some States, there isno objection to that. Excise Duty,which is presently being levied bythe States, may not be also affected.

Tax on Tobacco products:Tobacco products would be sub-jected to GST with ITC. Centre maybe allowed to levy excise duty ontobacco products over and aboveGST without ITC.

Tax on Petroleum Products: Asfar as petroleum products areconcerned, it was decided that thebasket of petroleum products —i.e. crude, motor spirit (includingATF) and HSD — would be keptoutside GST as is the prevailingpractice in India. Sales Tax couldcontinue to be levied by the Stateson these products with prevailingfloor rate. Similarly, Centre couldalso continue its levies. A final viewas to whether Natural Gas shouldbe kept outside the GST will betaken after further deliberations.


Taxation of Services : As in-dicated earlier, both the Centre andthe States will have concurrentpower to levy tax on all goods andservices. In the case of States, theprinciple for taxation of intra-Stateand inter-State has already beenformulated by the Working Groupof Principal Secretaries/Secretariesof Finance/Taxation and Commis-sioners of Trade Taxes with seniorrepresentatives of Department ofRevenue, Government of India. Forinter-State transactions, an inno-vative model of Integrated GSTwill be adopted by appropriatelyaligning and integrating CGST andSGST.

(xiii) Inter-State Transactionsof Goods and Services(IGST for Inter-State Taxation ofGoods & Services)

The scope of IGST Model is thatCentre would levy IGST whichwould be CGST plus SGST on allinter-State transactions of taxablegoods and services with appropri-ate provision for consignment orstock transfer of goods and services.The inter-State seller will pay IGSTon value addition after adjustingavailable credit of IGST, CGST,and SGST on his purchases. TheExporting State will transfer to theCentre the credit of SGST used inpayment of IGST. The importingdealer will claim credit of IGSTwhile discharging his output taxliability in his own State. TheCentre will transfer to the import-ing State the credit of IGST usedin payment of SGST. The relevantinformation will also be submittedto the Central Agency which willact as a clearing house mechanism,verify the claims and inform therespective governments to transferthe funds.

The major advantages of IGSTModel are :a) Maintenance of uninterrupted

ITC chain on inter-State trans-actions.

b) No upfront payment of tax orsubstantial blockage of funds forthe inter-State seller or buyer.

c) No refund claim in exportingState, as ITC is used up whilepaying the tax.

d) Self-monitoring model.e) Level of computerization is

limited to inter-State dealersand Central and State Govern-ments should be able to com-puterize their processes expe-ditiously.

f) As all inter-State dealers willbe e-registered and correspon-dence with them will be by e-mail, the compliance level willimprove substantially.

g) Model can take ‘Business toBusiness’ as well as ‘Businessto Consumer’ transactions intoaccount.

(xiv) GST Rate StructureThe Empowered Committee has

decided to adopt a two-rate struc-ture—a lower rate for necessaryitems and goods of basic impor-tance and a standard rate for goodsin general. There will also be aspecial rate for precious metals anda list of exempted items.

Zero Rating of ExportsExports would be zero-rated.

Similar benefits may be given toSpecial Economic Zones (SEZs).However, such benefits will onlybe allowed to the processing zonesof the SEZs. No benefit to the salesfrom an SEZ to Domestic Tariff Area(DTA) will be allowed.

GST on ImportsThe GST will be levied on

imports with necessary Constitu-tional Amendments. Both CGSTand SGST will be levied on importof goods and services into the coun-try. Full and complete set-off willbe available on the GST paid onimport on goods and services.

Special Industrial Area SchemeAfter the introduction of GST,

the tax exemptions, remissions etcrelated to industrial incentivesshould be converted, if at all needed,into cash refund schemes aftercollection of tax, so that the GSTscheme—on the basis of a continu-ous chain of set-offs—is not dis-turbed. Regarding Special Indus-trial Area Schemes, it is clarifiedthat such exemptions, remissionsetc would continue up to legitimateexpiry time—both for the Centreand the States.

IT InfrastructureAfter acceptance of IGST Model

for Inter-State transactions, themajor responsibilities of IT infra-structure requirement will beshared by the Central Governmentthrough the use of its own ITinfrastructure facility.

Constitutional Amendments,Legislations and Rules for admin-istration of CGST and SGST

Constitutional Amendments forempowering the States for levy ofservice tax, GST on imports andconsequential issues as well ascorresponding Central and Statelegislations with associated rulesand procedures should be imple-mented. Simultaneous steps havealso been initiated for drafting ofa legislation for IGST and rules andprocedures. A dispute resolutionand advance ruling mechanismshould also be formulated andimplemented.



Need for compensation duringimplementation of GST

Despite the sincere attemptsbeing made by the EmpoweredCommittee on the determinationof GST rate structure, revenueneutral rates, it is difficult toestimate accurately as to how muchthe States will gain from servicetaxes and how much they willlose on account of removal of cas-cading effect, payment of input taxcredit and phasing out of CST.Adequate compensation should beprovided for the loss that mightemerge during the process of imple-mentation of GST for the next fiveyears

Role Model of Cost & Manage-ment Accountant in GST

Professionals such as Cost &Management Accountants shallplay an active and very importantrole, individually as well as collec-tively as a professional body, increating an effective voice forlevel playing field, thereby increas-ing tax compliance. Instances ofthis kind will bring the professioninto the limelight of the societyand benefit the profession. At thesame time, it is the duty of the Cost& Management Accountants tohighlight departures from taxcompliance and ensure approp-riate application of the rules andprocedures of the statute reli-giously.

The role of the Cost & Manage-ment Accountants is unique in thisrespect due to various reasons.

First, being intimately connec-ted with the business activitiesof the entrepreneurs and havingaccess to the primary records in-cluding cost records, proper appli-cation of all the provisions ofthe statute towards availment of

all Input Tax Credit may beensured. The Cost & ManagementAccountants may provide rationaland convincing recommenda-tions towards ensuring theGovernment revenue and protect-ing all possible slippage of re-venue.

Secondly, based on inputs fromvarious business units and alsoother professional colleagues, itis possible for them to arrive atgeneral conclusions and theirresponse time can be minimum.

Thirdly, being a statutorybody set up by the Governmentof India, they can always presenttheir views on reforms and correc-tive actions which would be ben-eficial for the Government, manufa-cturers, selling dealers, serviceproviders and all citizens of thecountry at a large.

There has been a renewedinterest in the financial data-keeping procedures and financialmanagement approach takenby several entities in different coun-tries since the introduction of theGoods and Services Tax (GST) in2000. It is generally accepted thatthere is a greater level of usageof Computerized AccountingSystems since the GST commencedand under such circumstancesand the role of cost & managementaccountants becomes of immenseimportant because of their effi-ciency in developing a greater e-enabled environment and total sys-tem based financial data manage-ment.

The following paragraphsshall enumerate the importanceof management accountants inthe implementation as well asmaintaining GST accountingsystem.


An analysis—which involvedboth IT users and non-users—indicated that the major IT prob-lems were: inefficient use of thetechnology, lack of IT expertise, andlack of planning for implementa-tion and training. In the forthcom-ing regime of Goods and ServicesTax (GST) in India effective fromthe year 2011 should encouragemany small businesses to upgradetheir accounting systems; either byimproving their existing comput-erized system or by replacing theirmanual accounting system with acomputerised one. Since the entireprocedure of financial data flowmanagement including availmentsand utilization of Input Tax Creditwould be operated in an electronicdatabase management system andall the procedural aspects wouldbe under e-governence during theGST regime, Cost & ManagementAccountants shall have a greaterrole in developing and maintainingthe e-governance in all the spheres.All category of business housesincluding small businesses shouldbe computerised in GST regime forgreater and effective control andgovernance of the provisions of thestatute. Cost & ManagementAccountants are uniquely placedto provide accounting softwareadvice and support to their clientsas business owners value the rec-ommendations made by their man-agement accounting firms in choos-ing accounting software, applica-tion thereof and fulfilling all theprovisions of the Act. Further, beingan expert in the field of valuation,the cost & management accountantscould provide a much reliable andacceptable basis of valuation ofgoods & services towards levyof GST. ❏


GST for IndianEconomySatya Ranjan Doley*

he Indian tax system wasarchaic with complex andcumbersome procedures,

multiplicity of rates, numerousexemptions and large areas of dis-cretion, all of which had a com-pelling desire for evasion by thetaxpayer and harassment by the taxauthorities. It was, therefore, nec-essary to have a system whereinall these loopholes are suitablyplugged in order to reduce tariffs,harmonize state taxes, widen taxnet and, above all, increase the bud-getary support for developmentalpurposes.

Process of reforms in taxes wasformally started with Modvat inCentral Excise in 1986. Initially,the scheme of input credit wasrestricted only to inputs used inmanufacture. In 1994, the schemewas extended to Capital Goodsand extended to services in 2004.In the meantime, Modvat becameCenvat without many changes inthe basic provisions. This was thefirst step to minimize cascadingeffect of Excise Duty and ServiceTax. Introduction of State Vatstarted in 2005 and now most ofthe states have implemented StateVat.

Despite the success of Vat, therewere still certain shortcomingsin the structure of Vat — both atthe Central and State level. Theshortcomings in CENVAT of the

Government of India lies in non-inclusion of several Central taxesin the overall framework ofCENVAT such as additional cus-toms duty, surcharges, etc andthus keeping the benefits of com-prehensive input tax and servicetax set-off out of reach for manu-factures/dealers. Moreover, no stephas yet been taken to capture thevalue added chain in the distribu-tive trade below the manufac-turing in the existing scheme ofCENVAT. Goods and Services Tax(GST) is one more and very im-portant landmark in Indian taxreforms.

Goods and services tax

Now-a-days our country is fol-lowing the unitary system for col-lection of Indirect Taxes levied onmanufacture, sale and consump-tion of goods as well as servicesin order to create a suitable reformin Indirect tax from both domesticand foreign investment perspec-tive—thereby reducing burden-some compliance, high cost oftransaction and nagging uncer-tainty in tax liability for a busi-ness.

The budget speech of 2006-2007 included a proposal forcommencement of Goods andServices Tax (GST) and in thebudget speech of 2009-10 it hasbeen said again that the intro-duction of GST would be accel-erated with effect from April 01,2010. (It is now likely to beintroduced w.e.f. April 01, 2011).

GST model is outlined with adual GST consisting of a Centraland a State GST. To relieve thepressure on States, an assistanceof Rs 1,000 crore will be providedto them for GST implementation.

Government of India isstudying tax reforms that includemany other Central and State leveldirect and indirect taxes, exciseduties, service tax and luxury tax,and replace them with a singleGoods and Services Tax (GST).Customs duty will be levied outof GST and is likely to be replacedby VAT on imports.

The introduction of goods andservices tax will create an effectfor abolition of taxes such as octroi,Central Sales Tax, State level salestax, entry tax, stamp duty, telecomlicence fees, turnover tax, tax onconsumption or sale of electricity,taxes on transportation of goodsand services, and get rid of thecascading effects of multiple layersof taxation.

The predicted rate for the pro-posed GST is going to be 20 percent.Petroleum products and liquorare, however, likely to stay behindthe GST structure. Liquor and to-bacco could be included in GST.States could impose an additionaltax on these products.

Goods and services that aresubject to GST can be taxed atstandard rate, which is at a fixedrate of, for example 5% or 10%,and at zero rate. Zero rating is aconcept only found under the GSTframework. Suppliers of zero ratedsupplies do not collect GST becausethe GST rate is zero

Goods and Services Tax (GST)is a part of the proposed tax reformsthat centre round evolving anefficient and harmonized consump-tion tax system in the country.

*Assistant Professor, Accounting andFinance, DHSK Commerce College,Dibrugarh (Assam).

T



ing balance, if any, of the inputcredit.

RefundsThe dealer is entitled to get

refund subject to the provisions oflaw applicable in this respect ifthe input credit of a dealer is morethan the output credit for a taxperiod. Depending on the provi-sion of law, the excess amountneed to be brought forward to nextperiod or should be refunded withimmediate effect.

Exempted Goods and ServicesSome particular goods and ser-

vices may be marked as exemptedgoods and services and the inputcredit should not be claimed onthe GST paid for purchasing theraw material in this regard or GSTpaid on services used for providingsuch goods and services.

Zero Rated Goods and ServicesNormally, export of goods and

services are treated as zero-ratedand the GST paid by the exportersof these goods and services is re-funded in this regard. This is thefundamental distinction betweenZero-rated and exempted goodsand services.

Tax InvoiceTax invoice is the most vital

and basic document in the GST.A dealer registered under GSTcan issue a tax invoice, and withthat invoice the credit (Input)can be claimed. Usually, a taxinvoice should include the nameof supplying dealer, his taxidenti-fication numbers, addressand tax invoice numbers. coupledwith the name and address of thepurchasing dealer, his tax identi-fication numbers, address and de-scription of goods sold or serviceprovided.

Presently, there are parallel systemsof indirect taxation at the Centraland State levels. Each of the sys-tems needs to be reformed toeventually harmonize them. Worldover, goods and services attract thesame rate of tax. That is the foun-dation of a GST. Goods and Ser-vices Tax is nothing but a step for-ward towards progressive conver-gence of the service tax rate andthe CENVAT rate.

How GST will WorkThe idea of Goods and Services

Tax (GST) also known as ValueAdded Tax (VAT) is a tax on eachfinancial contribution in the dis-tribution chain. The taxable eventis ‘supply of goods’ and ‘supplyof services’. Any transmission ofright to utilize goods will comprisesupply of goods, and any supplynot engaging goods will be treatedas supply of service. On the otherhand, the tax is exercised on thevalue-added component of thesupply. This is accomplished byworking tax on the full fundamental value of the goods orservice and giving set off/creditof tax undergo at previous stage,identified as input stage, to keepaway from cascading effect. Thus,the entire supply chain up tofinal consumer gets taxed with in-built mechanism of input stagecredit. In this system, the finalconsumer ends up bearing the fullburden of tax without any set-offbenefit.

The GST can be categorized inthe following segments forbetter understanding :

Charging TaxThe dealers (including Manu-

facturers, Wholesalers and Retail-ers and Service Providers) regis-tered under GST need to charge

GST on goods and services deliv-ered to customers at the specifiedrate of tax. The GST payable is com-prised in the price borne by thepurchaser of the goods and theservice buyer. The supplier includ-ing seller and service providershould deposit this GST amountto the Government.

Getting Credit of GSTIf the recipient of goods or

services belongs to a registereddealer (Manufacturers, Wholesal-ers and Retailers and ServiceProviders) and has got an appro-priate tax invoice then he can claima credit for the payment of GSTamount. This “input tax credit” isset-off against any GST (Out- put),charged on goods and services bythe dealer to his customers.

Ultimate Burden of Tax on LastCustomer

As the last and final consumerof the goods and services obtainsno credit for the GST paid to thesellers or service providers, theultimate burden of the tax dropsto him.

RegistrationDealers including the suppliers,

manufacturers, service providers,wholesalers and retailers must beregistered for GST; failing whichhe is normally unable to charge GSTand claim credit for the GST hepays. Besides, he can not also issuea tax invoice.

Tax PeriodThe tax period should be cal-

culated by the respective law andnormally for monthly and/or quar-terly. The concerned dealer has todeposit the tax on a particular taxperiod applicable to him if hisoutput credit is more than the inputcredit after considering the open-



GST ModelsThere exist various models of

GST. Each model has its ownadvantages and disadvantages.

Australian ModelIn Australia, GST is a federal

tax, collected by the Centre anddistributed to the States. But Indiais a diverse country and it is notpossible that States may permit theCentre to gather all the taxes whilethey become just spending insti-tutions.

Canadian ModelThe GST in Canada is dual

between the Centre and the Statesand has three varieties: (i) FederalGST and provincial retail sales taxes(PST) managed separately —followed by the largest majority;(ii) Joint federal and provincialVATs administered federally(Harmonious Sales Tax — HST);and (iii) Separate federal andprovincial VAT administered pro-vincially (QST) — only forQuebec as it is like a breakawayprovince.

The first variety is fundamen-tally the Canadian model, whichis similar (though not the same)to the existing situation in India.

Kelkar-Shah ModelThis model of a unified GST,

is based on a grand bargain tomerge Central Excise, service taxand state VAT into one commonbase. Two different rates of tax areto be levied by the Centre and theStates. The collection may be bythe Centre. This is like the HSTmodel in Canada.

Bagchi-Poddar ModelThis model, just like Kelker-

Shah’s, envisages a combination ofCentral Excise, service tax and VATto make it a common base of GST

to be levied both by the Centre andthe States separately. This meansthat the Central Excise Act, 1944,may be abolished and the goodstax may be only on the sale of goods.It may merge in it the service tax.

To put this in legal language,the taxable event for the GST maybe the act of sale of goods andservices. The difference between theBagchi-Poddar and Kelker-Shahmodels is that, in the former, thecollection is at two levels, by theCentre and the States, while in thelatter the collection is only by theCentre. So while the Kelkar-Shahmodel is like the Canadian HST,the Bagchi-Poddar one is like theQuebec model. Although the modelsays that it is based on the Quebecmodel, it is actually not fully soas this model envisages collectionboth by the Centre as well as theStates, whereas the Quebec modelenvisages collection only by thestate of Quebec.

The Bagchi-Poddar model alsoclearly envisages that a Constitu-tional amendment is necessary tobring the taxing powers on goodsand services under the concurrentlist and to abolish the presentdivision of taxing powers betweenthe Centre and the States.

The Practical ModelThe same result with no up-

heaval/without upsetting thepresent setup can be achieved bya dual VAT or parallel GST at theCentral as well as the State levels.At the Central level we can have,as we have now, a combination ofCenvat and Service Tax. At the Statelevel we can have VAT alonewithout Service Tax. There is noneed to combine Cenvat and VATwhich envisages the completeabolition of Central Excise Act,

which gives the power to the Centreto charge tax on manufacture. Atthe Centre the merging of Cenvatand Service Tax has been alreadydone to a large extent by allowinginterchangeability of input creditfor both goods and services. Therate of tax can be made 14 per centfor both goods and services in thenext Budget or the one after that.At the State level, VAT can beperfected by abolishing CST andallowing inter-changeability ofinput credit between States. Thiswill work administratively as wellas revenue-wise.

Taxes to be subsumedAccording to Empowered

Committee, the following Centraltaxes should be subsumed underCGST :a) Central Excise Dutyb) Additional Excise Dutyc) The Excise Duty levied under

the Medicinal and ToiletriesPreparation Act

d) Service Taxe) Additional Customs Duty, com-

monly known as Counter-vailing Duty (CVD)

f) Special Additional Duty ofCustoms

g) Surcharges, andh) Cesses.

The following State taxes andlevies would be subsumedunder SGST :

a) VAT/sales taxb) Entertainment tax (unless it is

levied by the local bodies)c) Luxury taxd) Taxes on lottery, betting and

gamblinge) State cesses and Surcharges in

so far as they relate to supplyof goods and services

f) Entry tax not in lieu ofOctroi.



Exempt Goods and ServicesSome goods and services are

exempt from GST in order to keepsome goods and services cheaperfor lower-income group. In thiscase, no GST is charged on yoursupplies of goods and services andinput tax credits (ITCs) is claimed.

There are two types of GSTexclusions: tax-free and tax-exempt:

“Tax-exempt” exclusions con-sist of goods and servicesthat are charged with GST at theproduction and distribution stagesbut not at the final retail stage.Manufacturers, whole-salers, andretailers can’t claim an Input TaxCredit. As such, some GST isembedded in the final price of thegood or service; however, it islower than it would otherwise beunder the regular GST regime.Examples of tax-exempt exclusionsinclude residential rents, healthand dental care, and educationalservices.

“Tax-free” exclusions covergoods and services that are notwith GST throughout the life ofthe product. Final consumers arenot charged GST while purchasingthese products from distributors.Moreover, vendors get Input TaxCredits at the production anddistribution stages. As a result, thegood or service becomes com-pletely free from taxation relating

to the GST. Examples of tax-freeexclusions include basic groceries,prescription drugs, and medicaldevices.

Examples of exempt goods andservices includee Goods transported by rail.e Supply of transport vehicles

(goods carriage) to a goodstransport agency (GTA) to beused for transport of goods byroad.

e Transport of essential goodssuch as foodgrains, fertilisers,and petroleum products.

e Edible oilseeds and edible oil,foodgrains (cereals and pulses)and flour, petroleum and pe-troleum products and defenceand military equipment.

e Transport of parcels contain-ing newspapers (registered withthe Registrar of Newspapers).

e Raw jute and jute textile,seeds for food crops and fruitsand vegetables, seeds for cattlefeed, jute seeds, medicine/pharmaceutical products andrelief materials meant forvictims of natural or otherdisasters.There are certain issues that need

to be taken into account beforeimplementation of GST. One areaof concern is about the revenue-neutral rate of GST in which noconsensus has been reached yet.Since the success of the GST would

critically depend on the rate oftaxation, there is need to have avery realistic estimate of the RNR.Another area of concern is aboutthe quantum of compensation tobe paid to the States during theimplementation of the system.The formula for calculation ofthe amount of compensation to bepaid to the States would becomedifficult for the Central Govern-ment.

ConclusionIt is anticipated that the

implementation of GST wouldreduce inefficiency of VAT, compelbetter compliance, minimize trans-actional cost and increase theamount of revenue which will resultin buoyancy of our economy. Thispiece of legislation would surelycontribute to the growth of theeconomy in the days ahead. ❑

References

■ Bhargave, Sanjay 2009.GettingReady for GST. The Management Ac-countant. 44(12):992-994.

■ Jandial, Dheeraj 2010. GST for aBuoyant Economy. The Sentinel 9th

May, P. 5.

■ http://gst4india.com/aboutgst.htm

■ ht tp : / /gs t4 ind ia . com/how-gst -work.htm

■ http://gst4india.com/gst-model.htm

■ http://gst4india.com/exempt-goods-and-services.htm


ANNOUNCEMENT

The Management Accountant — August, 2010 will be a special issue on

‘COST AND MANAGEMENT ACCOUNTANTS IN TRANSPORT & LOGISTICS SECTOR’

Articles, views and opinions on the topic are solicited from readers to make it a special issue to

read and preserve. Those interested may send in their write-ups by e-mail to research @icwai.org,

followed by hard copy to the Research & Journal Department, 12 Sudder Street, Kolkata-700016 to

reach by 15th July, 2010.


Goods and Services Taxes(GST) in Indiaand its impactDr. Asish Kumar Sana*Susanta Kanrar**

Introduction

imply, the meaning of GSTis goods and service taxes.Value Added Tax (VAT)

is considered to be a major im-provement over the preexistingCentral excise duty at the nationallevel and the sales tax system atthe State level. Then the Goods andServices Tax (GST) will be a furthersignificant breakthrough towardsa comprehensive indirect tax re-form in the country. Keeping thisover-all objective in view, anannoun-cement was made by ShriP. Chidambaram, the then UnionFinance Minister in the CentralBudget (2007-2008) to the effectthat GST would be introducedfrom April 1, 2011 and that theEmpowered Committee of StateFinance Ministers, on his request,would work with the Central Gov-ernment to prepare a road map forintroduction of GST in India. Afterthis announcement, the Empow-ered Committee of State FinanceMinisters decided to set up a JointWorking Group (May 10, 2007),with the then Adviser to the

Union Finance Minister and theMember-Secretary of EmpoweredCommittee as Co-conveners andthe concerned Joint Secretaries ofthe Department of Revenue ofUnion Finance Ministry and allFinance Secretaries of the States asits members. This joint workinggroup is entrusted with everyaspect of GST in India.

Finally, GST is going to beapplicable from 01.04.2011 inIndia. In 1954, GST was firstintroduced in France. Today thistax has spread across 140 coun-tries.

Concept of GST Goods and Services Tax (GST)

is a tax on goods and serviceswhich is leviable at the point ofsales by the seller from the pur-chaser. GST is applicable on goodsas well as on provision of services,where VAT is only applicable ongoods but not on services. GST isa tax on only value addition ateach stage. In GST, the seller ofgoods and services providers canclaim the input credit of taxeswhich he has already paid at thetime of purchasing of goods andservices. Thus the tax burdenfinally comes on the shoulder ofthe consumers or last users ofgoods and services. The followingexample makes clear the concept

of GST or how the GST works :Let us suppose that GST rate is10%, with the manufacturermaking value addition of Rs. 300on his purchases worth Rs. 1000of input of goods and services usedin the manufacturing process. Themanufacturer will then pay netGST of Rs. 30 after setting-offRs. 100 as GST paid on his inputs(i.e. Input Tax Credit) from grossGST of Rs. 130. The manufacturersells the goods to the wholesaler.When the wholesaler sells thesame goods after making valueaddition of (say), Rs. 200, he paysnet GST of only Rs. 20, aftersetting-off of Input Tax Credit ofRs. 130 from the gross GST ofRs. 150 to the manufacturer.Similarly, when a retailer sells thesame goods after a value additionof (say) Rs. 100, he pays net GSTof only Rs. 10, after setting-offRs. 150 from his gross GST ofRs. 160 paid to whole seller. Thus,the manufacturer, whole salerand retailer have to pay onlyRs. 60 (= Rs. 30 + Rs. 20 + Rs. 10)as GST on the value additionalong the entire value chain fromthe producer to the retailer, aftersetting-off GST paid at the earlierstages. The overall burden of GSTon the goods is, thus, much less.This is shown in Table-1. Thesame illustration will hold inthe case of final service provideras well.

From the above it is clear thatthe whole system is developed insuch a way that cascading effectcan be avoided and final taxburden is on final user of goodsand services. The seller or serviceprovider-collect taxes from theircustomers and deposit it to theexchequer after adjusting theirinput credit. This system is verysimilar to the existing VAT system

* Sr. Lecturer, Department of Com-merce, University of Calcutta.

** AICWAI, Asst. Professor of MBADepartment, Seacom EngineeringCollege, Dhulagarah, Howrah &Visiting Professor, S. A. JaipuriaCollege, Kolkata.

S



but only difference is that VAT isapplicable on only goods but GSTis on goods as also on service.

In GST, the rate of taxes onmost goods and services are uni-form but some goods and servicescan be declared as exempted orzero rated goods and service.Export can be considered as zerorated and exporters are returnedall taxes paid by them which theypaid at the time of purchasing ofraw materials or other materialsor inputs to make export morecompetitive.

Features of GSTCollection of Tax : The GST to

be collected by Central (CentralGST) as well as by the Stategovernment (State GST) but basicfeatures such as chargeability,definition of taxable event andtaxable person, measure of levyincluding valuation provisions,basis of classification etc would beuniform across these statutes as faras practicable.

Applicability : The GST wouldbe applicable to all transactions ofgoods and services except the ex-empted goods and services or goodswhich are outside the purview of

GST and the transactions which arebelow the prescribed thresholdlimits.

Tax to be paid : The CentralGST and State GST are to be paidto the accounts of the Central andthe States separately.

Administration : The adminis-tration power of the Central GSTwould be with the Central, and forState GST with the States.

Return : The taxpayer wouldneed to submit periodical returnsto both the Central GST authorityand to the concerned State GSTauthorities as per GST rules.

Separate identification : Eachtaxpayer would be allotted a PANlinked taxpayer identification num-ber with a total of 13/15digits. This would bring the GSTPAN-linked system in line with theprevailing PAN-based system forIncome Tax facilitating data ex-change and taxpayer compliance.The exact design would be workedout in consultation with the IncomeTax Department.

Tax treatment : The Central GSTand State GST are to betreated separately. In general, taxespaid against the Central GST shall

be allowed to be taken as inputtax credit (ITC) for the Central GSTand could be utilized only againstthe payment of Central GST. Thesame principle will be applicablefor the State GST.

Input tax utilization : Cross-utilizations of Input Tax Creditbetween the Central GST and theState GST would, in general, notbe allowed.

Collection procedure : Uniformprocedure for collection of bothCentral GST and State GST wouldbe prescribed by the respective leg-islation for Central GST and StateGST.

Verification : Assessment, en-forcement, scrutiny and auditwould be undertaken by the au-thority which is collecting the tax,with information sharing betweenthe Central and the State govern-ments.

Proposed rate structure of GSTe A lower rate structure for nec-

essary goods would be set anda standard rate would be set forgeneral goods.

e Special rate will be applicablefor precious metals.

e Alcoholic beverages would be

Table 1

Stages of Purchase Value Value at time GST GST on Input Net GSTsupply chain value of addition of transfer- Rate output of Tax Payable =

inputs ing the goods Goods & Credit GST onand services services output tax –at next stage GST on input

tax credit

Manufacturer 1000 300 1300 10% 130 100 130 – 100= 30

Wholesaler 1300 200 1500 10% 150 130 150 – 130= 20

Retailers 1500 100 1600 10% 160 150 160 – 150= 10



kept out of the purview of GST.Sales Tax/VAT can be contin-ued to be levied on alcoholicbeverages as per the existingpractice.

e Tobacco products would besubjected to GST with ITC. Cen-tre may be allowed tolevy excise duty on tobaccoproducts over and above GSTwithout ITC.

e Petroleum products i.e. crude,motor spirit (including ATF)and HSD would be kept outsideGST as is the prevailing practicein India. Sales Tax could con-tinue to be levied by the Stateson these products with prevail-ing floor rate.

e Exports and Special EconomicZones (SEZs) would be zero-rated.

e The GST will be levied onimports, both CGST and SGSTwill be levied on import of goodsand services into the country.

Justification of GSTThe existing VAT structure has

some shortcomings in both Stateand central levels , to remove suchshortcomings the GST is going tobe introduced.

The shortcomings of existingCENVAT ( i,e at Central level) :

i. It not includes the variouscentral level indirect taxes in theCENVAT, such as

Additional Excise Duties,Additional Customs Duty, Sur-charges etc.

ii. Moreover, no step has yetbeen taken by the existing CENVATto capture the value-added chainin the distribution trade below themanufacturing level.

The introduction of GST at theCentral level will introduce morecomprehensive indirect Centraltaxes and integrate goods andservice taxes for the purpose of set-

off relief. GST also may lead torevenue gain for the Central bywidening the dealer base.

Shortcoming at State levelVAT :

i. There are several taxes atState level which are in the natureof indirect taxes on goods andservices, such as luxury tax, en-tertainment tax, etc. and yet theyare not subsumed in the VAT.

ii. In the present State-level VATscheme, CENVAT load on the goodsremains included in the value of goodsto be taxed under State VAT, andcontributing to that extent acascading effect on account ofCENVAT element. This CENVATload needs to be removed.

iii. If any good produced in thenature of product as alsosome nature of service have doubletaxation, VAT as also service taxes— that cascading effect is elimi-nated in GST.

Thus the GST at the Central andat the State level will give morerelief to industry, trade, agricul-ture, and consumers through a morecomprehensive and wider cover-age of input tax set-off and servicetax set-off, subsuming of severaltaxes in the GST and phasing outof CST. It also bring advantagesto central as also State governmentin respect to tax collection.

Subsumed of various Centraland State Taxes under GST :

For proper implementationof GST the various Central and Statelevel taxes and levies are require tosubsumed with the GST.

Various Central level taxes tobe subsumed :(i) Central Excise Duty.(ii) Additional Excise Duties.(iii) The Excise Duty levied under

the Medicinal and ToiletriesPreparation Act.

(iv) Service Tax.

(v) Additional Customs Duty,commonly known as Counter-vailing Duty (CVD).

(vi) Special Additional Duty ofCustoms — 4% (SAD).

(vii) Surcharges, and(viii) Cesses.

State level taxes and levies sub-sumed under GST(i) VAT/Sales tax.(ii) Entertainment tax (unless it

is levied by the local bodies).(iii) Luxury tax.(iv) Taxes on lottery, betting and

gambling.(v) State Cesses and Surcharges

in so far as they relate to sup-ply of goods and services.

(vi) Entry tax not in lieu of Octroi.

Advantages of GSTe It will eliminate the cascading

effect of taxation.e Consumers will able to get goods

and services at lower price as GSTreduces multi taxation.

e It will result in simple, easy andtransparent tax system.

e Handling of various indirecttaxes will not be requireunder this system.

e It will result in uniformity of taxrate throughout the country,only two tax structureswill be CGST and SGST.

e In GST system, taxes will becollected only at the point of sale.

e In GST, as input credit is avail-able, cost of products andservices remain within the jus-tification level.

e It will broaden the tax bases.e It will result in more collection

of taxes in the hand of Centralas well as State.

e It will result in simple tax pay-ment system.

e Traders, retailers, consumers,exporters all will benefit bythe GST.



e It will introduce simple taxadministration system.

e Very small trader will be bene-fited as they will be exemptedfrom GST.

Role of Cost and ManagementAccountants in GST regime

A cost and management accoun-tant can play vital role in imple-mentation of GST.

From the viewpoint of govern-ment : the role of cost and man-agement accountants are :

1. GST structure determina-tion : A cost and managementaccountant can properly determinethe entire structure of the GST, i,ehow the system is to be operated,starting point of taxation systemand ending point, resposibility ofdifferent personnel relating to suchsystem etc, as he has sufficientknowledge about the taxationsystem and also has good knowl-edge about the VAT.

2. GST rate determination :Properly, GST rate determination isnot an easy task. If the rate is higheror lower than what it actuallyshould be, then it may have strong/viable impact on the industry andtrade. VAT rate should be properlyanalysed and as GST avoids thecascading effect of taxation it hasimpact on total revenue earning ofthe government . A cost and man-agement accountant can properlydetermine the GST rate as he hassufficient knowledge in this area.

3. Proper handling of entireGST system : A cost and manage-ment accountant can properlyand efficiently handle the entireGST system, as he has sufficientknowledge about not only theVAT and GST but also the entiretax structure. He has sufficientknowledge both on direct as alsoon indirect taxation. GST comesunder indirect taxationsystem.

4. Advisory work : A Cost andManagement Accountant also canact as a advisor for the govern-ment by applying his expert knowl-edge on this matter.

From the viewpoint of traders,exporters, importers, manufac-turers etc

1. Suggetion provider : Costand management accountants canprovide better suggetions to theabove mentioned various partiesregarding how the maximum bene-fits can be availed from the GST.

2. Minimisation of GSTburden : By using expertiseknowledge of cost and manage-ment accountants all the abovementioned parties can minimisetheir GST burden.

3. Handling of GST related anywork : All the above mentionedparties can properly handle any GSTrelated matter with the help of costand management accountants. ❑


ANNOUNCEMENT

We at ICWAI are committed to encourage sustainable development policies for the future.

One such issue very dear to the Institute’s heart is environmental preservation. Towards

this end we propose to come out with a special edition of the Research Bulletin on ‘Climate

Change and Protection’. We request the active participation of all readers through sharing

of news, views and opinions on the abovementioned topic. The articles may cover a wide

canvas touching upon issues of the economic, social and physical impact of climate change;

variants of urban pollution and rural environmental damage; and steps for controlling the

damage with special emphasis on improvement of quality of human life, rehabilitation measures

and costs of preservation. Write-ups containing case studies and live examples will be preferred.

All interested can send their write-ups to Research & Journal Dept., ICWAI, 12 Sudder Street,

Kolkata-700016 or email to [email protected].


Cost and ManagementAccountants� Rolein GST RegimeCMA Asok Chattopadhyay*

oods and Services Tax isthe contemporary methodof taxation being followed

by most of the countries. This isa comprehensive tax on Goodsand Services with a continuouschain of set off benefits. This willbenefit the business as these aretransparent and a completechain of set offs which will resultin widening of tax base and bettertax compliance. Effect of this isclear – a lower tax burden at thehand of the consumer by elimi-nating the cascading effect oftaxation.

Till date, around 140 countrieshave adopted the GST pattern andmore, including India, are in theprocess. All the countries have dem-onstrated lower tax burden on theconsumers, as it widens the taxa-tion base. At the outset, this methodlooks very simple but becomescomplicated when inputs need tobe separated from the productioncost and also at the time of fixationof sale price, calculating landedcosts etc.

In India, GST is being introducedwith some caution and delibera-tions. There are few basic reasonsfor this :

1. India is a federal state andevery State has its own indirect

taxation laws, luxury tax andentertainment tax laws. Thesewill be abolished and one GSTAct will be there which iscommon throughout the country.Naturally, States will have tounderstand the basis of proposedtax laws and ensure their revenueis not reduced.

2. States are not empowered tocollect Services Tax. Constitutionalamendments are required for giv-ing States such power.

3. Businessmen are accustomedto the old pattern of forms, taxesetc and it will take time to get themmentally accustomed to thechanged scenario.

4. Seamless credit transfermechanism for the interstate trans-actions need to be established andthe IGST method should functionfrom the very first day; other-wise, the purpose of GST will bedefeated.

In his Budget Speech, theFinance Minister has set the datefor introduction of GST with effectfrom 1st April 2011. Naturally, allthe Government machinery isworking towards keeping the date.As per the recommendations of theFinance Commission, the GST willbe introduced with the followingfeatures :� There will be dual taxation –

CGST and SGST.� Destination based SGST.

� Uniform classification, formsand returns.

� Cross credit between States willbe allowed.

� Tax will be levied from produc-tion to consumption.

� Uniform threshold exemptionlimit.

� Petroleum products, Alcohol,Tobacco etc. will get specialtreatment.Since Cost and Management

Accountants are better equippedwith the knowledge of productionmethods or service criteria, theyare in a better position to provideservice to the industry. Cost andManagement Accountants willbe extensively required for thefollowing specialized nature ofjobs :� GST proposed to introduce

credit availability on petroleumproducts used for productionbut do not allow credits fortransportation. Cost and Man-agement Accountants can beequipped with the method of de-termining the amount to becharged for credit.

� In case of transport business,abatement is available. CMAs canhelp in claiming the abetment.

� The specialized treatment ofHigh Seas sales and internetsales – determination, classifica-tion etc need to be done by aprofessional accountant.Cost and Management Accoun-

tants have a major role to play beforeand after the GST comes into force.The areas where the cost accoun-tants can play their role are :

Before GST comes into exis-tence� Creating public awareness and

making the businessmen under-stand the proposed taxation sys-tem and its benefits.

� Providing training to the small

*FICWA, Chief Manager, MarketingFinance, Haldia Petrochemicals Ltd.,Kolkata.

G



and medium business man-power about the processes andprocedures of GST and its ben-efits.

� Providing training to the StateGovernment taxation depart-ment about the GST proceduresas this process of taxation is en-tirely different from the existingindirect taxation system in theStates.

� Support services to the Govern-ment taxation department(both State and Central) and tothe business establishmentsabout identification and classi-fication of the products/ser-vices.After GST comes into existence :

� Preparing or advising thepreparation of the self assess-ment forms of GST.

� Facilitation centers for regis-

tration and submission of re-turns.

� Helping small business in thecompounding scheme.

� Product classification, calcula-ting landed costs of the prod-ucts, determining selling priceand thereby arriving at thevalue addition.

� Special audits by the depart-ments.

� Services to the process of adju-dication and litigations arisingout of imposition/applicabilityof GST, rate of taxation, classifi-cation etc.

� Certification jobs like – non-applicability of GST, exemp-tions from GST, certifying cashsubsidies.

� Services in getting the cash sub-sidy in case of the States wherethe existing tax exemptions are

proposed to be given as cashsubsidy.In almost all the countries

where GST is in force, professio-nal accountants are playing amajor role in supporting thetax administration and thebusiness entity. In some countries,professional accountant certi-fications about tax liability areaccepted by the taxation depart-ment. In the Indian context, weenvisage there will be problemsin coordination between the Stateand Central government taxdepartments and the businesscommunity. Here, the role of theprofessional institutes and busi-ness federations come to play,to make a coherent existenceof Goods and Services Tax inIndia. ❑


Hearty Congratulations

Sh. Preet Mohinder Singh, a senior Associate Member of theInstitute has bagged a award for excellence from the CabinetSecretariat, Performance Management, Govt. of India in arecently concluded two days workshop on Results-Frameworkdocuments at the Mahatama Gandhi State Institute of Public

Administration, Chandigarh. He was the member of the winning group constitutingof senior bureaucrats and senior officers of the Punjab Govt. This is first timein the history of India that a concept titled Results-Framework Documents (R.F.D)had been introduced to bring transparency and accountability by the applicationof best international practices.

NoticeAttention of members is drawn to new guidelines on issuance of CEP hoursfor contribution of articles to Management Accountant. Credit of 2 hours isto be given for articles of upto 2 pages; 4 hours for articles of 3-5 pages and6 hours for 5 pages and above. This is with effect from May 21, 2009. CEPcertificate will continue to be issued by MDP Department, New Delhi.


A Road Map forCGST and SGSTCMA Sudarshan Maity*Summary

oods and Services Tax(GST) is a part of theproposed tax reforms that

center round evolving an efficientand harmonized consumption taxsystem in the country. Presently,there are parallel systems of indi-rect taxation at the central and statelevels. Each of the systems needsto be reformed to eventually har-monize them.

IntroductionAny modern economy, which

is not richly endowed with naturalresources, requires two broad-based taxes. The first is the indi-vidual income tax and corporateincome tax, and the other consump-tion tax on goods and services,variously called value added tax(VAT) or the goods and servicestax (GST).

Taxing both goods and servicesunder one tax is more revenueproductive, and more equitable asthe share of expenditure on ser-vices increases with householdincome than taxing goods alone,and selected services separately. Itis also more efficient as broad-basedtax, unlike excises, provides muchless room for distortions in house-hold and business decisions.

Several countries implementedthis tax mechanism followed byFrance, the first country whichintroduced GST. Goods and ser-vice tax is a new version of VATwhich gives a comprehensive setoff

for input tax credit and subsumingmany indirect taxes from state andnational level.

The Finance Minister in hisBudget speech in 2006 – 2007 hadsaid :

“It is my sense that there is alarge consensus that the countryshould move towards a NationalLevel Goods and Services Tax (GST)that should be shared between theCentre and the states. I proposethat we set April 1, 2010 as thedate of introducing GST. Worldover, Goods and Services attractthe same rate of Tax. This is thefoundation of GST. People mustget used to the idea of a GST. Wemust progressively converge theservice tax rate and Cenvat rate.I propose to take one step this yearand increase the service tax ratefrom 10 per cent to 12 per cent.Let me hasten to add that sinceservice tax paid can be creditedagainst service tax payable or exciseduty payable, the net impact willbe very small.”

The Empowered Committee ofState Finance Ministers has agreedto work with the Central Govern-ment to prepare a roadmap for theintroduction of the Goods andServices Tax (GST) with effectfrom 1st April 2010. In May 2007,Empowered Committee (EC) ofState Finance Ministers in consul-tation with the Central Government,constituted a Joint Working Group(JWG), to recommend the GSTmodel.

All these developments in the

Indian tax scenario, is quite evidentof the government’s incessant efforttowards the successful introductionand implementation of the GSTregime.

What is GST ?GST is a broad-based and a

single comprehensive tax levied ongoods and services consumed inan economy. GST is levied at everystage of the production-distributionchain with applicable set-offs inrespect of the tax remitted atprevious stages. It is basically a taxon final consumption. To put ata single place, GST may be definedas a tax on goods and services, whichis leviable at each point of sale orprovision of service, in which atthe time of sale of goods or pro-viding the services the seller orservice- provider may claim theinput credit of tax which he haspaid while purchasing the goodsor procuring the service.

This system is basically designedto simplify current level indirecttax system. It integrates the unionexcise duties, customs duties, ser-vice tax and state VAT into a singlelevy known as GST. GST may berightly termed as national level VATon goods and services with onlyone difference that in this systemnot only goods but also servicesare involved and the rate of taxon goods and services are generallythe same.

One of the main reasons of theintroduction of GST is to avoidcascading effect of taxes in India.For example, manufacturing of aproduct attract CENVAT. Themanufacturer pays CENVAT ongoods produced. So the CENVATelement is loaded on the product.According to VAT rules, the salestax is payable on the aggregateselling price which includeCENVAT. Here there is no set-off* M.Com. AICWA

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benefits available. Likewise,there are many situations in thenature of cascading effect forinstance, State VAT on CST, Entrytax on VAT etc. Now Governmenthas decided to abolish tax ontax effect by implementing GST.

Indirect taxes like luxury tax,entertainment tax, are yet to beincluded in the VAT. These taxesare still existing and payable.

The working of GST with re-spect to manufacture, dealer

Pharmaceuticals Manufacturingcompany has consumed thefollowing input materials and ser-vices while producing the finalproduct.

Inputs :Raw material – Rs. 40.00 LakhPacking Material – Rs. 10.00 LakhStore & Spares – Rs. 10.00 LakhServices – Rs. 10.00 Lakh

Output :Sale- Rs. 100.00 Lakh

single GST. India is a federal countrywhere both the Centre and the Stateshave been assigned the powers tolevy and collect taxes throughappropriate legislation. Both thelevels of Government have distinctresponsibilities to perform accord-ing to the division of powersprescribed in the Constitution forwhich they need to raise resources.Keeping in view the report of theJoint Working Group on Goodsand Services Tax, the views receivedfrom the States and Governmentof India, a dual GST structure withdefined functions and responsi-bilities of the Centre and the Statesis recommended. An appropriatemechanism that will be bindingon both the Centre and the Stateswould be worked out wherebythe harmonious rate structure—along with the need for furthermodification could be upheld, ifnecessary with a collectivelyagreed Constitutional Amendment.

The proposed Dual GST modelwill have two components:

1. CGST—Central goods andservice tax for levied by Centralgovernment.

2. SGST—State goods andservice tax levied by state govern-ment.

There would have multiplestatute one CGST statute and SGSTstatute for every State. The CentralBoard of Excise & Customs (CBEC)shall be responsible for implement-ing the CGST and the State Taxadministrations will be separatelyresponsible for implementing theSGST.

The Empowered Committee(EC) has recommended the fol-lowing Central taxes should besubsumed in the Central level GST1. Central Excise Duty2. Additional Excise Duty3. The Excise Duty levied under

●●●●● Input Tax paid by the manufacturer

Description Amount Tax Paid @ 12%

Raw Material Rs. 40 lakh Rs. 4.80 lakh

Packing Material Rs. 10 lakh Rs. 1.20 lakh

Stores & Spares Rs. 10 lakh Rs. 1.20 lakh

Services Rs. 10 lakh Rs. 1.20 lakh

Total Input Tax Rs. 8.40 lakh

● ● ● ● ● Output tax charged by the manufacturer

Description Amount Tax Collected@ 12%

Sale Rs. 120 lakh Rs. 14.40 lakh

Total Output Tax Rs. 14.40 lakh

● ● ● ● ● Net tax payable by the manufacturer

Description Amount

Total output tax Rs. 14.40 lakh

Total input tax Rs. 8.40 lakh

Net GST payable Rs. 6.00 lakh


and consumer can be seen in theillustrations given below :

The manufacturers will get theinput credit of all taxes paid bythem on the input materials andservices. Let, us assume the rateof GST at 12% and a Drugs and

The system is very much similarto the present system of VAT butthe implementation of this systemwill certainly have some uniqueproblems compared to VAT.

GST model in IndiaMany countries are following


the Medical and ToiletriesPreparation Act

4. Service Tax5. Additional Customs Duty (com-

monly referred to as ‘CVD’—Countervailing Duty)

6. Special Additional duty ofCustums—4% ( SAD)

7. Surcharges8. All Cesses.

The following State taxes andlevies would be, to begin with,subsumed under State level GST:1. VAT/Sales tax2. Entertainment Tax ( unless it is

levied by local bodies)3. Luxury tax4. Taxes on lottery, betting and

gambling5. State cesses and surcharges in


6. Entry tax not on in lieu of octroi.Since all taxes on goods and

services, levied by the Centre orthe States, should be subsumed inthe GST, the following other taxeslevied by the States on goods andservices should also be subsumed:a. Stamp duty;b. Taxes on Vehicles;c. Taxes on Goods and Passengers;

andd. Taxes and duties on electricity.

Purchase tax : Some of the Statesfelt that they are getting substantialrevenue from Purchase Tax and,therefore, it should not be subsumedunder GST while majority of theStates were of the view that no suchexemptions should be given. Thedifficulties of the foodgrain pro-ducing States was appreciated assubstantial revenue is being earnedby them from Purchase Tax andit was, therefore, felt that in casePurchase Tax has to be subsumedthen adequate and continuing com-pensation has to be provided tosuch States.

Tax on items containingAlcohol : Alcoholic beverageswould be kept out of the purviewof GST. Sales Tax/VAT could becontinued to be levied on alcoholicbeverages as per the existingpractice. In case it has been madeVATable by some States, there isno objection to that. Excise Duty,which is presently levied by theStates, may not also be affected.

Tax on Tobacco products :Tobacco products would be sub-jected to GST with ITC. Centre maybe allowed to levy excise duty ontobacco products over and aboveGST with ITC.

Tax on Petroleum Products :-As far as petroleum products areconcerned, it was decided that thebasket of petroleum products, i.e.crude, motor spirit (including ATF)and HSD would be kept outsideGST as is the prevailing practicein India. Sales Tax could continueto be levied by the States on theseproducts with prevailing floor rate.Similarly, Centre could also con-tinue its levies. A final view whetherNatural Gas should be kept outsidethe GST will be taken after furtherdeliberations.

Inter-State Transactions of Goodsand Services :

The Empowered Committee hasaccepted the recommendations ofthe Working Group of concernedofficials of Central and State Gov-ernments for adoption of IGSTmodel for taxation of inter-Statetransaction of Goods and Services.The scope of IGST Model is thatCentre would levy IGST whichwould be CGST plus SGST on allinter-State transactions of taxablegoods and services with appropri-ate provision for consignment orstock transfer of goods and services.The inter-State seller will pay IGSTon value addition after adjusting

available credit of IGST, CGST,and SGST on his purchases.

The input tax credit of SGST canbe utilized for the payment of SGSTonly and input tax credit on CGSTcan be utilized for the payment ofCGST only. This means that cross-utilization of input tax credit willnot be allowed. However, there isan exemption for the above in thecase of interstate transaction. Forinter-State transaction, IGST is pro-posed and would be implementedalong with CGST and SGST.

The Exporting State willtransfer to the Centre the credit ofSGST used in payment of IGST.The importing dealer will claimcredit of IGST while discharginghis output tax liability in his ownState. The Centre will transfer tothe importing State the credit ofIGST used in payment of SGST.The relevant information willalso be submitted to the CentralAgency which will act as a clearinghouse mechanism, verify the claimsand inform the respective govern-ments to transfer the funds.

The major advantages of IGSTModel are : a) Maintenance of uninterrupted

ITC chain on inter-State trans-actions.



d) Self-monitoring model.

Compensation package for StatesIt is difficult to estimate accu-

rately as to how much the Stateswill gain from service taxes andhow much they will lose on accountof removal of cascading effect,payment of input tax credit andphasing out of CST. In view of this,the States have demanded compen-



sation for any loss which might beincurred as a result of the shift fromthe existing indirect tax system atthe state level to the GST level. Tocompensate the states a GSTCompensation Fund should becreated under the administrativecontrol of the Council of FinanceMinisters. The Thirteenth FinanceCommission (TFC) has suggestedRs. 50,000 crore for the next fiveyears if, and only if, the States& Introduce the ‘flawless’ GST as

recommended by TFC; and & Follow the road map, as sug-

gested by TFC, for its introduc-tion; The amounts in the Fund should

be used only for the followingpurposes :& To compensate the states for any

revenue loss on account of theadoption of the ‘flawless’ GST;

& The balance, if any, in the Fund,to be carried forward to the sub-sequent year.The balance, if any remaining

at the end of the fifth year, to bedistributed amongst the States onthe basis of the same formula usedfor distributing resources in thedivisible pool.

The amount will be transferredin quarterly instalments. Theamounts shall be disbursed by theCouncil on the basis of the recom-mendations by a three memberCompensation Committee compris-ing of the Secretary, Departmentof Revenue, Government of India,Secretary to the Council and anyfiscal expert appointed by theCentral Government for this pur-pose. No contribution to the Fundshall be made by the CentralGovernment in any year in whichthe States fail to adhere to theroadmap for implementation of theGST. The methodology to be usedfor estimating the revenue loss and

the compensation shall be decidedby the Council.

In the grand bargain for imple-menting the goods and services tax(GST), the Centre can even con-sider a compensation package thatis higher than Rs 50,000 crore forstates, according to Vijay Kelkar,chairman of the Thirteenth FinanceCommission (TFC).

The empowered committee ofstate finance ministers had deman-ded Rs 1 lakh crore as the compen-sation package for introducing theGST. However, States will not beentitled to any compensation if theyadopted a model different from theone suggested by the TFC. States areexpected to commence fresh talkson the GST design this month,though no date has been finalisedyet. States would be the immediatebeneficiaries of the GST as they arelarge buyers of goods and services,Kelkar said. They would save sub-stantial taxes on these purchases.“For states it is budget-positive, noteven budget-neutral.”

Advantages/Benefits of GST1. Introduction of GST would re-

sult in abolition of multiple typesof taxes on goods and services.

2. It removes cascading effect oftaxation and removes distortionin the economy.

3. GST provide comprehen siveand wider coverage of inputcredit set-off, we can use servicetax credit for the payment oftax on sale of goods etc.

4. CST will be removed and neednot pay. At present there is noinput tax credit available forCST.

5. It reduces effective rates of taxto one or two floor rates.

6. Uniformity of tax rates acrossthe states.

7. Ensure better compliance dueto aggregate tax rate reduces.

8. Prices of goods are expected toreduce in the long run as thebenefits of less tax burden wouldbe passed on to the consumer.

9. Enhances manufacturing anddistribution efficiency.

10. Reduces cost of productionincrease demand and produc-tion of goods and services.

11. By reducing the tax burden thecompetitiveness of Indian prod-ucts in international market isexpected to increase and therebydevelopment of the nation.

12. As it is neutral business process,business models, organizationstructures, geographic locationand production substitutes, itwill promote economic effi-ciency and sustainable long-term economic growth, will givecompetitive edge in interna-tional market for goods andservices produced in India,leading to increased exports,reduces litigation, harassmentand corruption, will result inwidening tax base and increaserevenue to Centre and State andre-duces administrative cost forthe government.

13. Implementation of GST hadraised Canada’s GDP by 1.4 percent. In India, we can expect asimilar kind of positive impact.This means gains of about 15billion dollars annually.

Salient features of the GST modelSalient features of the proposed

model are :& GST is based on principle of

VAT.& The GST shall have two compo-

nents: one levied by the Centre(hereinafter referred to as Cen-tral GST), and the other leviedby the States (hereinafter re-ferred to as State GST). Thisdual GST model would beimplemented through multiple



statutes (one for CGST andSGST statute for every State).

& The Central GST and the StateGST would be applicable to alltransactions of goods and ser-vices made for a considerationexcept the exempted goods andservices, goods which are out-side the purview of GST and thetransactions which are below theprescribed threshold limits.

& The Central GST and State GSTare to be paid to the accounts ofthe Centre and the States sepa-rately. It would have to be en-sured that account-heads for allservices and goods would haveindication whether it relates toCentral GST or State GST (withidentification of the State towhom the tax is to be credited).

& The CGST and SGST should becredited to the accounts of theCentre and the States separately.Since the CGST and SGST are tobe treated separately, taxes paidagainst the CGST should beallowed to be taken as input taxcredit (ITC) for the CGST andcould be utilized only against thepayment of CGST. The sameprinciple will be applicable forthe SGST, taxes paid against theSGST should be allowed to betaken as input tax credit (ITC)for the SGST and could be uti-lized only against the paymentof SGST.

& Cross-utilization of credit ofCGST between goods and ser-vices would be allowed. Simi-larly, the facility of cross utili-zation of credit will be availablein case of SGST.

& Cross-utilization of ITC be-tween the Central GST and theState GST would not be allowedexcept in the case of inter-Statesupply of goods and servicesunder the IGST model.

& No provision for refund of unu-tilized credit of unuti-lizableSGST or CGST, except in case ofexport and supplies to SEZ.

& Full and immediate input creditshould be allowed for tax paid(both CGST and SGST) on allpurchases of capital goods (in-cluding GST on capital goods)in the year in which the capitalgoods are acquired. Similarly,any kind of transfer of the capi-tal goods at a later stage shouldalso attract GST liability like allother goods and services.

& To the extent feasible, uniformprocedure for collection of bothCentral GST and State GSTwould be prescribed in the re-spective legislation for CentralGST and State GST.

& The administration of the Cen-tral GST to the Centre and forState GST to the States would begiven. This would imply that theCentre and the States wouldhave concurrent jurisdictionfor the entire value chain and forall taxpayers on the basis ofthresholds for goods and ser-vices prescribed for the Statesand the Centre.

& Meanwhile, official sources saidthat the Centre continues tostickto its stand of having a commonthreshold for both State GSTand Central GST. Some Stateslike Madhya Pradesh want theEmpowered Committee to stickto its stand to keep electricityduty, stamp duty, motor vehicletax, entry tax and entry tax inlieu of Octroi outside GST.

& Keeping in view the compliancecost and administrative feasibil-ity, small dealers (including ser-vice providers) and manufac-turers should be exempted fromthe purview of both CGST andSGST if their annual aggregate

turnover (excluding both CGSTand SGST) of all goods and ser-vices does not exceed Rs.10lakh. Further, the threshold ex-emption limit should be uni-form for both CGST and SGSTand across States.

& In case of manufactured goods,presently, excise exemption upto Rs. 1.50 crore per annum isavailable. Keeping in view theinterest of small traders andsmall scale industries and toavoid dual control, the Statesalso considered that the thresh-old for Central GST for goodsmay be kept Rs. 1.5 crore and thethreshold for services shouldalso be appropriately high. Thesmall enterprises (SSI) withturnover less than Rs. 1.50 croreper annum will be exempt fromCGST but will be liable to paySGST after crossing thresholdlimit of Rs. 10.00 lakh.

& All persons with annual aggre-gate turnover of goods and ser-vices exceeding Rs.10 lakh (ex-cluding CGST and SGST)should be required to registerand obtain a GST registrationnumber. Persons with lowerturnover may be allowed anoption to register.

& The unit of taxation for the pur-poses of GST should be personsas defined under the IncomeTax Act. Consequently, for thepurposes of CGST, all produc-tion units/branches of a personlocated anywhere in the coun-try will be treated as a singletaxable entity eligible for CGSTinput credit across units/branches. Similarly, for the pur-poses of SGST, all productionunits/branches of a person lo-cated anywhere within the Statewill be treated as a single tax-able entity eligible for SGST



input credit across units/branches in that State.

& The Central Government shallestablish a common IT infra-structure which will serve theneeds of both CGST and SGST.

& The payment of tax and thetransaction reporting should bemade through a combined pay-ment and transaction reportingstatement in Form No. GST-I.This statement should detail allbusiness to business transac-tions relating to sales. This state-ment should be common forboth CGST and SGST compli-ance and it should be manda-tory to file this statement elec-tronically on a monthly basiswhile making payment of taxes.

& The taxpayer would need tosubmit periodical returns, incommon format as far as pos-sible, to both the Central GSTauthority and to the concernedState GST authorities.

& Each taxpayer would be allo-tted a PAN-linked taxpayeridentification number with atotal of 13/15 digits keeping inview the information require-ment of CBEC and the State taxadministration. The first ten dig-its should be the alpha-numericPermanent Account Number(PAN) followed by a space andtwo more digits indicating theState code. This number schemeshould be publicised widely andshould be self-generated afterobtaining a PAN. This wouldbring the GST PAN-linked sys-tem in line with the prevailingPAN-based system for IncomeTax, facilitating data exchangeand taxpayer compliance. TheTIN will be shared between theCentre and the States.

& The Task Force of TFC had rec-ommended a combined rate of

12 per cent GST comprising 5per cent central GST and 7 percent state GST on all goods andservice except few specificcategories.

& One common checkpost wouldbe implemented while crossingone border of exporting Statesand importing States or viceversa. Such an arrangement willsignificantly reduce travel timeand reduces administrative costfor the government. The FinanceCommission is prepared to sup-port creation of such checkpostsif the respective State govern-ments are willing to operatejointly.

& Exports would be zero-rated.Similar benefits may be given toSpecial Economic Zones (SEZs).However, such benefits willonly be allowed to the process-ing zones of the SEZs. No ben-efit to the sales from an SEZ toDomestic Tariff Area (DTA) willbe allowed.

& The list of exemption includedpublic services of Union, Stateand local governments, servicetransaction between an em-ployer and employee, unproc-essed food articles sold underthe public distribution system,educational and health servicesprovided by non-governmentschools, college and agencies.However, public services willnot include railways, post andtelegraph, services and prod-ucts provided by other commer-cial departments and public sec-tor enterprises, banks, insur-ance, health and educationservices.

& The GST will be levied on im-ports with necessary Constitu-tional Amendments. Both CGSTand SGST will be levied on im-port of goods and services into

the country. The incidence of taxwill follow the destination prin-ciple and the tax revenue in caseof SGST will accrue to the Statewhere the imported goods andservices are consumed. Full andcomplete set-off will be avail-able on the GST paid on importon goods and services.

& The computation of the CGSTand SGST liability should bebased on the invoice creditmethod i.e., allow credit for taxpaid on all intermediate goodsor services on the basis of in-voices issued by the supplier. Asa result, all different stages ofproduction and distribution canbe interpreted as a mere taxpass-through, and the tax willeffectively ‘stick’ on final con-sumption within the taxing ju-risdiction. This will facilitateelimination of the cascading ef-fect at various stages of produc-tion and distribution.

& Further, with a view to reduceadministrative and complianceburden, small dealers with an-nual aggregate turnover ofgoods and services between Rs.10 lakh to Rs. 40 lakh may beallowed to opt for a com-pounded levy of one percent,each towards CGST and SGST. However, no input credit shouldbe allowed against the com-pounded levy or purchasesmade from exempt dealers.

& Certain high value goods com-prising of (i) gold, silver andplatinum ornaments; (ii) pre-cious stones; and (iii) bullions(hereafter referred to as “highvalue goods”) are subject to thethreshold exemption but with-out the ceiling of Rs. 40 lakh, alsobe allowed to opt for the com-pounded levy of one percent,each towards CGST and SGST.



& The limit of Rs. 40 lakh isbased on the considerationthat dealers with turnover of Rs.40 lakh ( Revised limit Rs. 60 lakhas per Union Budget 2010-11 )or more are subject to tax auditunder the Income Tax Act, 1961,and, therefore, they would suf-fer from many additional bur-den in terms of documentationunder the GST.

& Keeping in mind the need of tax-payers convenience, functionssuch as assessment, enforcement,scrutiny and audit would be un-dertaken by the authority whichis collecting the tax, with infor-mation sharing between the Cen-tre and the States.

& The benefit to the poor from theimplementation of GST willflow from two sources : first,through increase in the incomelevels and, second, throughreduction in prices of goods con-sumed by them.

& There is empirical evidence tosuggest that the switchover fromthe present distortionary taxa-tion of goods and services to a‘flawless’ GST will, amongst oth-ers, increase productivity of allfactors of production and, hence,enhance GDP. The switchoverhas also been analysed to be pro-poor and, therefore, further thecause of poverty reduction. Fur-ther, in the Indian context, a dualVAT type tax concurrently lev-ied by both the Centre and theStates would enable the creationof a common market.

ConclusionThe world is more interdepen-

dent now than ever before. Multi-national companies manufactureproducts across many countries andsell to consumers across the globe.Money, technology and raw mate-rials have broken the international

barriers. Not only products andfinances, but also ideas and cultureshave breached the national bound-aries. The accountants are posted inmanagerial and senior positions inthe corporate world in the country.As a Professional Accountant a costaccountant in practice can helpbusiness establish a well knit ac-counting mechanism. Establishinternal controls and perform inter-nal audit—Cost Accountants beingexpert in the indirect taxes, valua-tion and input tax credit. Valuationbeing core area of expertise of costaccountants.

Employment of accountants andauditors is expected to grow by 22percent between 2008 and 2018,which is much faster than theaverage for all occupations. Anincrease in the number of busi-nesses, changing financial laws andcorporate governance regulations,and increased accountability forprotecting an organization’s stake-holders will drive job growth.

As the economy grows, thenumber of business establishmentswill increase, requiring more ac-countants and auditors to set upbooks, prepare taxes, and providemanagement advice. As these busi-nesses grow, the volume and com-plexity of information reviewed byaccountants and auditors regardingcosts, expenditures, taxes, and in-ternal controls will expand as well.The continued globalization of busi-ness will also lead to more demandfor accounting expertise and ser-vices related to international tradeand accounting rules and interna-tional mergers and acquisitions.Additionally, there is a growingmovement towards InternationalFinancial Reporting Standards(IFRS), which uses a judgment-based system to determine the fair-market value of assets and liabili-

ties, which should increase demandfor accountants and auditors be-cause of their specialized expertise.

As per the compulsory internalaudit of credit rating agencies/ directstockbrokers/trading members/clearing members to carry outcomplete internal audit on a halfyearly basis, SEBI has consideredCost Accountants along with CAsand Company Secretary for con-ducting internal audit. In a recentorder Government of Kerala per-mits utilization of the services ofcost accountants for adoption ofdouble entry accrual based systemof accounting implemented in Cor-poration and Municipalities. Asabove, many new opportunities arebeing opened for a cost accountantwho are in practice or in service.

The Institute may be careful fornew coming opportunities, so thatfifty thousand cost accountant allover the world may not be neglec-ted while implementing GST. Provi-sion for audit by Cost Accountantsneeds to be made in GST. We alsohope that in the near future a cost ac-countant also may get same rights asa chartered accountant.

Finance Minister PranabMukherjee asked to introduceGoods and Services Tax (GST) “asearly as possible”, amid specula-tions that the indirect tax reformmay not be implemented from thescheduled date of April 1, 2010.Some states, including MadhyaPradesh, Rajasthan, and TamilNadu, want the GST implementa-tion to be delayed as there are issuesrelating to preparedness. In fact,Mukherjee had also said that itmight not be possible to introduceGST from April 1, 2010. FinanceMinister Pranab Mukherjee said inthe Union Budget 2010-11 that hehoped to implement the GST fromApril 1 2011. ❏



* BA, AICWA, Sr. Manager,Corp. Taxation (Indirect Taxes) inAshok Leyland Ltd, Chennai.

Changing Phase ofIndirect Taxes�ChallengesAnd OpportunitiesCMA R Ganesh*

n the era the major reformsand development takingplace in our country, India,

the tax reforms is and has beenthe key to have the change of trackin the economic growth of thecountry. The various stake holdersfor these happenings are keenlyawaiting the tax reforms, namely,the introduction of Goods andServices Tax “GST”. This phaseof transition poses challenges forthe stake holders viz., Governmentboth Centre and States, the variousindustries involved in mining tomanufacturing and the now fasttracked service industry. To bringin place a unified indirect tax thatenables a standardized pricing ofthe product and services withoutany cascading effect of accumula-tion of all the indirect taxes, theGST is the answer that is muchawaited.

GST is a well designed valueadded tax on all goods and serviceseliminating distortions and taxingconsumption. Under this structure,all different stages of productionand distribution can be interpretedas a mere tax pass-through, andthe tax essentially sticks on finalconsumption within the taxingjurisdiction.

GST comprises of the followingelements :

1. It should be a dual levy concur-rently by the Centre and States,but independently to pro-mote cooperative federalism.

2. Both the Central Goods andServices Tax (CGST) and theState Goods and Services Tax(SGST) should be levied on acommon and identical base.

3. The Centre and the States shouldadopt a consumption-type GST,that is, there should be no dis-tinction between raw materialsand capital goods in allowinginput tax credit.

4. The tax base should comprehen-sively extend over all goods andservices up to the final consumerpoint.

5. There should be no classifica-tion between goods and servicesin law so as to ensure thatthere is no classification ofdispute.

6. The GST should be structuredon the destination principle. Asa result, the tax base will shiftfrom production to consump-tion whereby imports will beliable to both CGST and SGSTand exports should be relievedof the burden of goods andservice tax by zero rating.

7. The computation of the CGSTand SGST liability should bebased on the invoice creditmethod, i.e. allow credit for taxpaid on all intermediate goodsor services on the basis of

invoices issued by the supplier.This will facilitate eliminationof the cascading effect at vari-ous stages of production anddistribution.

8. The CGST and SGST should becredited to the accounts of theCentre and the Stagesseparately. Since the CGST andSGST are to be treated sepa-rately, taxes paid against theCGST should be allowed to betaken as input tax credit (ITC)for the CGST and could beutilized against the payment ofCGST. The same principle willbe applicable for the SGST.Cross-utilization of ITC betweenthe CGST and SGST should notbe allowed.

9. Full and immediate input creditshould be allowed for tax paid(both CGST and SGST) on allpurchases of capital goods (in-cluding GST on capital goods)in the year in which the capitalgoods are acquired. Similarly,any kind of transfer of the capi-tal goods at a later stage shouldalso attract GST liability like allother goods and services.

10. The consignment sales andbranch transfers across Statesshould be subject to treatmentin the same manner as if it wasa inter-state transaction in thenature of sale between twoindependent dealers.To put straight in a simplified

note, before a final product andservice is put in place, there arevarious stages and value additionin the production of the manufac-tured goods which also needprofessional service coming withinthe ambit of service tax. As the taxis on an ad valorem basis, the costingof the value addition at each stagehas to be derived in a professionaland standardized, manner based

I



on the technology, size of operationand the price of the basic rawmaterial. This standardized work-ing of the value addition at eachstage before it passes on to the nextlevel of value addition in the chainof operations is to be done in aprofessionalized manner so thatconsistency and uniformity is main-tained.

The industry forums like theCII, FICCI, and professional bodieslike Chartered Accountants, CostAccountants are gearing up toget the derived advantage of theGST Regime. The Governmentwould want that there are norevenue leakages in the GSTregime. The need is, therefore, tohave the enabling agents who canensure that all these are done inthe correct manner. Here lies theopportunity for the Cost Accoun-tants to rise and be the change-manager.

� GST—Role and Scope for CostAccountantsGST implementation will leadto immense scope for CostAccountants who — with expertknowledge about manufac-turing, costing and pricing — canplay an important role once GSTis implemented.

� For Industry1. Cost Accountants — with their

good knowledge on manufactur-ing, costing and pricing —caneducate the suppliers/vendorsabout GST and ensure input taxcredit is availed correctly.

2. Help in arriving at the costof the product correctly by con-sidering/availing input tax creditas per the provisions of GST.

3. Cost Accountants — with theirexpert knowledge on manufacture— can ensure tax compliance,monthly returns, e-filing , availingof credit and payment of taxes.


4. Cost Accountants can ensuretax planning and interpretation ofthe Act correctly and educating thevarious departments like strategicsourcing, payables, supply chainmanagement, marketing etc.

5. There will be dual structurefor GST, there will be levy bythe Central Government known asCGST, and levy by the State Gov-ernment known as SGST. CST rateat present is 2% against Form Cand CST will be phased out onceGST is implemented and there willbe another levy on stock transfersand consignment transfers knownas IGST. The set-off against theseCGST, SGST and IGST will be acomplex model which is notclearly spelt out by the Govern-ment. Once the same is imple-mented, Cost Accountants withtheir vast knowledge on Costing,Finance and indirect taxation —can ensure proper set-off againstthese three levies — CGST, SGST,and IGST.

6. CGST will be levied by theCentral Government and everyState will have its own SGST. Tounderstand the complexity of eachmodel of SGST, only Cost Accoun-tants can guide the industry.

7. There are several CentralTaxes which are not presentlyCENVATable, viz., additionalexcise duty, countervailing duty etcand CGST would, therefore, sub-sume the following :a) Central Excise Dutyb) Additional Excise Dutyc) Additional Excise Duty on me-

dicinal and toilet preparationsd) Countervailing dutye) Additional Duty under Section

3(5) of the Customs Tariff Actf) Service Taxg) Cessesh) Surcharges.

Cost Accountants can ensure

set-off for all Central levies as perprovisions of GST when imple-mented.

8. In the present system, CentralExcise is levied at the manufac-turing level whereas, in theGST, tax will be levied on the valueaddition in the supply chain afterthe manufacturing level. CostAccountants — with their knowl-edge of Finance, Costing and SCM—will be able to compute the taxescorrectly under the GST.

9. In the present VAT system,there is no provision to levy VATon services. However, GSTproposes to levy SGST and CGSTon services and Cost Accountantscan ensure tax compliance onservices — both for Central andStates.

10. In the present VAT system,even though input tax credit (ITC)is allowed, it does not include othertaxes levied by the State Govern-ment, viz., Luxury Tax, Entertain-ment Tax and Entry Tax not in lieuof octroi. Under GST, all these levieswould be subsumed in the SGST.Cost Accountants can ensure set-off for all State levies as perprovisions of GST when imple-mented.

11. In the present system, allinter-state transactions are coveredby CST Act and administered bythe respective State Government.The present rate is 2% CST againstForm C or scheduled rate of VATwithout Form C. The amountpaid as CST is not available forset-off. Under the GST, IGST willbe levied on all inter-state trans-actions like stock transfers andconsignment transfers. The scopeof IGST Model is that the Centrewould levy IGST which would beCGST plus SGST on all inter-Statetransactions of taxable goodsand services. The inter-State seller


will pay IGST on value additionafter adjusting available credit ofIGST, CGST and SGST on hispurchases.

The major advantages of IGSTModel are :a) Maintenance of uninterrupted

ITC claim on inter-State trans-actions.



d) Self-monitoring model.e) Model can take ‘Business to

Business’ as well as ‘Businessto Consumer’ transactions intoaccount.The process of paying IGST and

claiming set-off can only be doneby a professional Cost Accountantwith his immense knowledge onFinance & Accounting, computer,and knowledge of GST.

12. In the present system, noVAT or excise duty is payable onimports. Under GST, SGST andCGST is payable on imports andset-off can be taken. This can bedone by the Cost Accountants.

13. Under GST, tax exemp-tions, remissions etc related toindustrial incentives should beconverted — if at all needed intocash refund schemes aftercollection of tax, so that the GSTscheme on the basis of a continuouschain of set-offs is not disturbed.In such cases, the Central and StateGovernments could provide reim-bursement after collecting GST.This scheme of payment of GSTand reimbursement from Centralor State Governments can beadministered by a Cost Accoun-tant who is well-versed withFinance & Accounting and indirecttaxation.

For GovernmentCost Accountants with their

knowledge on Finanace & Accoun-ting and indirect taxation canensure :

1. Taxpayers under GST needtosubmit periodical returns — incommon format as far as possible— to both the CGST authority andto the concerned State GST authori-ties. All registered dealers to makethe payment by electronicallyfur-nishing the return, which wouldbe a combined monthly paymentand return form for all intra-stateand inter-state transactions.

2. CGST and SGST should becredited to the accounts of theCentre and States separately. SinceCGST and SGST are to be treatedseparately, taxes paid against theCGST should be allowed againstthe payment of CGST. The sameprinciple will be applicable for theSGST. Cross of utilization of ITCbetween the CGST and the SGSTwill not be allowed.

3. Full and immediate inputcredit should be allowed for taxpaid (both CGST and SGST) on allpurchases of capital goods in theyear in which the capital goods areacquired. Similarly, any kind oftransfer of the capital goods at alater stage should also attract GSTliability like all other goods andservices.

4. Small dealers with annualaggregate turnover of goods andservices between Rs.10 lakh to Rs.40lakh may be allowed to opt for acompounded levy of one percenteach towards CGST and SGST.However, no input credit will beallowed against the compoundedlevy or purchases made fromexempt dealers.

For Cost Accountants1. For practicing Cost Accoun-

tants there is immense potential inthe form of tax compliance, filing

of returns, interpretation of law,advising dealers about the correctprocedure for availing ITC, annualaudit etc.

2. For Cost Accountants therewill be immense opportunities inthe industry as they can ensure that all the complexity in GST canbe understood and implemented inthe industry where they are em-ployed.

3. Under the GST, new sectors arelikely to be covered like real estatesector, power sector, transportationby road, rail, air and sea which willhave vast scope and opportunities forCost Accountants.

The GST will be a world-classmodel which will consist of :1. The base should extend to all

goods and services includingimmovable property.

2. There should be a single low rate.3. The tax should be destination

based.4. The tax should be designed on

invoice-credit method.5. Full and immediate input tax

credit in respect of capital goods.6. The GST must replace all trans-

action based taxes on goods andservices and factors of produc-tion.

7. There should be seamless flowof the tax through all stagesof production and distribu-tion so as to stock on “final”consumption.

8. The exports should be zero ratedand imports should be fullytaxed.

9. There should be a threshold ex-emption for small dealers.

10. Full computerization of thecompliance and administra-tive system.GST will overcome all the

present inefficiencies and inadequacies of the indirect taxes.This will be a win-win situationfor all the stake-holders. ❑



Goods and Service Tax(GST) in India :An OverviewDr. Kartik Chandra Nandi*

Backdrop

ntroduction of the ValueAdded Tax (VAT) at theCentral and the State level

has been considered to be a majorstep an important break throughin the sphere of indirect tax re-formsin India.

If the CENVAT and VAT are amajor improvement over the pre-existing Central excise Duty at thenational level and the sales taxsystem at the State Level, respec-tively, then the Goods and ServicesTax (GST) will indeed be a furthersignificant improvement — the nextlogical step towards a comprehen-sive indirect tax reforms in thecountry encompassing bothcommodity and services tax undera full — fledged destination basedVAT regime.

The central focus of the transi-tion to GST is to introduce anefficient, effective and tax payer-friendly system of taxation ofgoods and services in the country,in line with international bestpractices as well as the specialcharacteristics of the Indianeconomy. Keeping this objective inview, an announcement was madeby the Union Finance Minister inthe context of Budget 2007-08 to

the effect that GST would beintroduced w. e. f. 1st April 2011.

The Union Finance MinisterMr. P. Chidambaram has givenindication that the country willhave Goods and Service Tax (GST)regime in 2011. With successfulintroduction of VAT in almost allthe States and continuous increasein number of services under theservice tax net, nobody shouldhave any doubt of the FinanceMinister’s seriousness about GST.The Finance Minister in his Budgetspeech in 2006 had said: “It is mysense that there is a large consen-sus that the country should movetowards a National Level Goodsand Services Tax (GST) thatshould be shared between theCentre and the States. I proposethat we set April 1, 2011 as thedate of introducing GST. Worldover, Goods and Services attractthe same rate of tax. This is thefoundation of GST. People mustget used to the idea of a GST. Wemust progressively converge theservice tax rate and Cenvat rate.I propose to take one step this yearand increase the service tax ratefrom 10 per cent to 12 per cent.Let me hasten to add that sinceservice tax paid can be creditedagainst service tax payable orexcise duty payable, the net impactwill be very small.”

Concept of GSTGoods and Services Tax is a tax

on goods and services, which isleviable at each point of sale orprovision of service, in which atthe time of sale of goods orproviding the services the seller orservice provider can claim theinput credit of tax which he haspaid while purchasing the goodsor procuring the service.

Goods and service tax is a newversion of VAT which gives acomprehensive set-off for inputtax credit and subsuming manyindirect taxes from state andnational level.

GST is a comprehensive valueadded tax on goods and services.It is collected on value added ateach stage of sale and purchase inthe supply chain without Stateboundaries. In GST structure,different stages of production anddistribution are interpreted as amere tax pass-through, and theincidence of tax is essentially borneby the final consumer within ataxing jurisdiction.

If GST in its real form is imple-mented in the Indian context, itwould integrate all taxes currentlylevied in India by Central andState Governments on goods andservices like excise duty, servicetax, entry tax or octroi, state excise,countervailing customs duty,telecom license fee, luxury tax, taxon consumption/sale of electricity,entertainment tax etc.

Reasons for the development ofGoods and Services tax

i) Avoid cascading effect oftaxation : One of the main reasonsof the introduction of GST is toavoid cascading effect of taxes inIndia. For example, manufacturingof a product attracts CENVAT. Themanufacturer pays CENVAT on

* Assistant Professor in Commerce& Life Member of Indian Accoun-ting Association, Midnapore Branch(MNP-37)

I



goods produced. So the CENVATelement is loaded on the product.According to VAT rules, the salestax is payable on the aggregateselling price which includesCENVAT. Here there is no set-offbenefits available. Likewise, thereare many situations in the natureof cascading effect — for instance,State VAT on CST, Entry tax onVAT etc. Now Government hasdecided to abolish tax on taxeffect by implementing GST.

ii) Shortfall of ExistingVAT : Indirect taxes like luxurytax, entertainment tax are yet tobe included in the VAT. These taxesare still existing and payable.

iii) Shortfall of ExistingCENVAT : Several taxes likeadditional customs duty, sur-charges are not included underCENVAT. Input tax and service taxset-off is out of reach to themanufacturer and dealers.

Why GST is a preferred taxstructure?

i) G.S.T. is a quite simple taxstructure because under GST justone or two rates are charged onall goods and services and it is auniform single tax across the entiresupply chain.

ii) GST increases tax revenuedue to wider base and bettercompliance. GST allow full creditfor all input taxes across supplychain and across States within atax jurisdiction.

iii) GSTstructure promotesexports on account of its zero ratingand refund of tax paid on inputsused in export production andservices exports.

iv) It ensures better complianceas aggregate tax rate reduces.

v) It reduces distribution costas there is no tax barrier in GSTfor inter-State movement of goods,which encourages state-wise

branches and depots involvingadditional supply chain cost.

vi) GST is unbiased tax as itis neutral to business processes,business models, organizationstructure, product substitutes andgeographic locations.

vii) It brings uniformity of taxrates across the States.

viii) It reduces the overall taxcompliance cost for governmentand can concentrate the on GST.

Goods and Services Tax Modelfor India

It is important to take note ofthe significant administrativeissues involved in designing aneffective GST model in a federalsystem with the objective ofhaving a harmonious market.Together with this, there is a needfor preserving the sovereign powersof Central and State Governmentsin their taxation matters. To fulfillthese objectives there is a need topropose a model that would beeasily implementable, while beinggenerally acceptable to all thestake-holders.

Salient features of the GSTModel being worked out by theEmpowered Committee

Keeping in view the reportof the Joint Working Group onGoods and Services Tax and theviews received from the Statesa dual GST with defined functionsand responsibilities of the Centreand the States is re-commended.

Salient features of the proposedmodel are :

i) The GST shall have twocomponents : one levied by theCentre (hereinafter referred to asCentral GST), and the otherlevied by the States and UnionTerritories (UTs) (herein afterreferred to as State GST). Ratesfor Central GST and State GST

should be prescribed separately,reflecting revenue considerationsand acceptability.

ii) The Central GST and theState GST should be applicable toall transactions of goods andservices. HSN classification forgoods should be used both for theCentral GST and the State GST.A classification for services shouldbe evolved by examining interna-tional practices, keeping, at thesame time, in view the particularcharacteristics of India’s servicessector.

iii) The Central GST and the StateGST should be credited to theaccounts of the Centre and statesseparately.

iv) Since the Central GST andState GST are to be treated separate-ly, taxes paid against the CentralGST shall be allowed to be takenas input tax credit (ITC) for theCentral GST and could be utilizedonly against the payment of CentralGST. The same principle will beapplicable for the State GST.

v) Cross-utilization of ITCbetween the Central GST and theState GST should not be allowed.

vi) Ideally, the problem relatedto credit accumulation on accountof refund of GST — in the particularcases where input tax exceedsoutput tax — should be avoidedboth by the Centre and the States.

vii) Procedures for collectionof both the Central GST and StateGST should be uniform.

viii) Under the proposedmodel, the productive/distributionchain for goods with regard tomanufactures having gross turn-over of more than Rs. 1.5 croreswould belong to both the Centreand the State. However, keepingin view the prevailing tax payerbases and the availability of theadministrative machinery with



the Centre and States, the remain-ing tax payers for goods will beassigned exclusively to the Statesfor the purposes of registration,collection, ITC matters etc for boththe Central GST and the State GST.

ix) The present thresholdsprescribed in the State VAT Actsbelow which VAT is not applicable(which varies from State to State),may also be adopted under theGST.

x) The taxpayer would need tosubmit one periodical return (i.e,the same document), with one copygiven to the Central GST authority,the other to the State GST authorityconcerned.

xi) Each taxpayer should beallotted a PAN based taxpayeridentification number, with twoadditional digits to distinguishbetween States, and another digitto distinguish between the CentralGST and the State GST, i.e. a totalof 13 digits. This would bring theGST PAN based system in linewith the prevailing PAN basedsystem for Income Tax, ExciseDuty and Service Tax, facilitatingdata exchange and tax payercompliance.

xii) Keeping in mind theneed of tax payers’ convenience,functions such as assessment,enforcement, scrutiny and auditshould be undertaken by theauthority which is collecting tax,with information sharing betweenthe Centre and the States.

xiii) Composition /Compoun-ding Schemes for the purpose ofGST should be designed keepingin view the present thresholdlimits followed by different Statesunder VAT.

Central and State Taxes to besubsumed under GST

The various Central, State andLocal levies were examined to

identify their possibility of beingsubsumed under GST. Whileidentifying, the following principleswere kept in mind :

i) Taxes or levies to be subsumedshould be primarily in the natureof indirect taxes, either on thesupply of goods or on the supplyof services.

ii) Taxes or levies to be sub-sumed should be part of thetransaction chain which commen-ces with import/manufacture/production of goods or provisionof services at one end and theconsumption of goods and servicesat the other.

iii) The subsumation shouldresult in free flow of tax credit atintra and inter State levels.

iv) The fees that are not specifi-cally related to supply of goodsand services should not besubsumed under GST.

v) Revenue fairness for both theUnion and the states individuallywould need to be attempted.

(a) On application of the principle,it is recommended that thefollowing Central Taxes shouldbe subsumed under the Goods andServices Tax :i) Central Excise Dutyii) Additional Excise Dutiesiii) Service Taxiv) Additional customs duty,

commonly known as counter-vailing duty (CVD)

v) Surchargesvi) Special Additional duty of

custums 4% ( SAD)vii) Ideally, Cesses should also

be merged with the GST.However, keeping in viewthe specific needs of theconcerned Ministries, it wasdecided that for the time beingthese levies may not beincluded in the GST.

(b) Following State taxes and leviesshould be subsumed under GST :i) VAT/Sales taxii) Entertainment tax (unless it is

levied for the local bodies)iii) Luxury taxiv) Taxes on lottery, betting and

gamblingv) State Cesses and Surcharges in


vi) Entry tax not in lieu of octroivii) Purchase tax ( this is not sure

— still under discussion).

State Taxes proposed to be keptoutside the preview of GST

Some of the States are levyingpurchase tax, octroi or entry taxin lieu of octroi. Ideally, all theseshould also be subsumed underGST. However, keeping in view thespecific requirements of the concer-ned States and the interest of thelocal bodies, it was decided thatfor the time being these taxes maynot be included in the GST.

i) Tax on items containingAlcohol : Considering the require-ments of several States, alcoholicbeverages may not be broughtunder the GST.

ii) Tax on Tobacco products :Tobacco products should besubjected to GST with ITC. Centremay be allowed to levy excise dutyon tobacco products over and aboveGST without ITC.

iii) Tax on Petroleum Products :In view of the require-ments of theStates as well as the Central, outof the basket of petroleum products,Crude, Motor Spirit (includingATF) and HSD may be kept outsideGST, as is the prevailing practicein India.

iv) Taxation of Services : Withregard to taxation of services, itis proposed that the States shouldbe given the power to levy taxeson all services. Regarding the



collection of services taxes, theStates may collect taxes on servicesof intrastate nature both for CentralGST and State GST. Similarly, theCentre may collect tax for servicesof inter-State nature both for CentralGST and State GST. An arrangementto transfer the Central portion ofGST on inter-State services to theCentre, and the State portion of theGST on the inter-State servicescollected by the Centre to theStates, may be worked out basedon the destination principle.

Number of Tax RatesConsidering the economic

reality of the country and the factthat certain categories of goodsand services may need to be taxedat a rate lower than the standardrate, it is recommended that thereshould be standard and a lowerrate. A significant lower rate couldbe assigned for precious metals,jewellery, stones and diamonds :

(i) Rates of Central GST andState GST : Rates of Central GSTand State GST : The required rateof tax has to be worked out inaccordance with the tax base. Thecalculations would have to be doneseparately for the Centre and theStates on the basis of a transparentmethodology jointly worked outby the Centre and the States.

(ii) Zero Rating of Exports:Export should be zero-rated. Similarbenefits may be given to SEZs.However, such benefits should onlybe allowed to the processing zonesof the Special Economic Zones(SEZ). No benefit to the sales madefrom a SEZ to Domestic Tariff Area(DTA) should be allowed.

Inter-State Transaction of GoodsThe following mechanism has

been proposed to be put in placeto deal with inter-State transac-tions of goods, based on theexisting vast banking network

that widely utilizes informationtechnology (IT) :

a) The seller in the exportingState (say State A) collects GST forinter-State GST transaction fromthe importer, i.e. the purchasingdealer in the importing State (sayState B). This GST is collected atthe applicable rates for both theCentral and the State GST.

b) The seller makes a monthlydeposit of the GST collected forinter-State transaction in a desig-nated bank to the credit of therespective State Government, i.e.State B in present case. The sellerwould provide details of alltransactions — including details ofpurchasing dealers — to the bank.

c) This information would beavailable also to the State B Govern-ment automatically through a GSTportal where the bank of State Auploads the information.

d) The purchasing dealer in StateB claims ITC on the basis of adigitally signed (by the bank of StateA) invoice/challan when he fileshis tax return. The State B grantsITC on the basis of the creditreceived by it from the bank.

e) The Central and Stateauthorities can access informa-tion regarding all inter-Statedealers/transactions and taxpayment from the GST portal.

f) If the State B purchaser is anon-dealer, then the money depo-sited in the State B Governmentaccount will remain with thatGovernment since ITC will not beclaimed by the purchaser.

The advantages of this systemare : (1) there is no paper declara-tion forms; (2) cross- checking bythe administration is not required;(3) there is a safe transactionwith little possibility of revenueloss for the importing or exportingStates; (4) fund transfers from oneGovernment to another is not

required; and (5) revenue of theimporting State is not subject tocontrol of the exporting State.

Tax ExemptionsVarious tax exemptions have

been granted both by the Centreand States to achieve objectives ofpromoting a particular sector or toreduce tax burden on a particularsegment of society in the interestof fairness or to promote a parti-cular economic activity etc. Taxexemptions have the effect ofnarrowing the tax base and increa-sing the administrative and compli-ance cost of GST. Therefore, it isfelt that exemptions should beminimized. Direct and transparentsubsidies, instead of tax exemp-tions, are more efficient ways toachieve the targeted objective. Itis recommended that apart froma dual rate GST structure at theCentral and the State levels, thereshould be a common exemptionlist. Further, specific provisionsto provide limited flexibility to theStates within a set of prescribedcriteria may need to be incorpo-rated, as in the prevailing VATstructure, in order to accommo-date exemption of goods of localimportance. Similar limited flexi-bility would need to be providedto the Centre to address excep-tional situations such as naturaldisasters.

Drawbacks of GSTSome of the important draw-

backs of the proposed GST aresummarized :

i) First, it does not specify thelist of exempted goods and services.The list of exempted goods andservices is yet to be finalised andit is quite likely that some discre-tion may be allowed to individualStates. This is a matter relating tothe fiscal autonomy of the States,but to the extent that there is no



uniformity, both administrativeand compliance costs will be higher.

ii) Second, two rates areproposed for the SGST – one a lowrate for essential items, andanother — a standard rate for theremaining goods and services. Italso advocates a similar approachto CGST. This increases bothadministrative complexity andcompliance costs, besides creatingclassification disputes. Indeed,there is considerable evidenceacross the world to show that levy-ing a GST at multiple rates doesnot improve equity. First, theclassification of goods and servicesis done according to judgments onincome elasticity of demand. Evenif they are correct, in generalequilibrium terms, employmentintensity of a good or service maybe different from income elasticityof demand. Thus, taxing goods andservices at multiple rates insteadof a single rate (in addition toexemption) may decrease ratherthan increase employment. Surelythis is a socio-political choiceexercised by governments, but itis necessary to know the economiccost of this decision.

iii) At the State level, the pro-posal still leaves open the possibi-lity of levying entry tax in lieu ofoctroi as also octroi. Similarly, itdoes not include stamp duties andregistration fees. Furthermore,entertainment tax, if levied bylocal bodies (Kerala) will continue.Thus, while the proposal goes a longway in unifying multiple taxes, itstill leaves out some taxes. Indeed,it is important to ensure thatrevenue sources of local bodies areprotected. The more rational coursewould be to add an additionalpercentage point to SGST as a locallevy and distribute the proceeds tourban and rural local governmentsbased on their consumption shares.

Maharashtra — the only State inwhich municipal corporations areallowed to levy octroi — too canabolish it.

iv) This is the opportune timeto correct some of the design faultsthat exists in the prevailing StateVAT. One of the problems with thepresent design is the distinc-tionmade between inputs and outputsand levying the tax on the formerat 4% and the latter at 12.5% evenas it is well known that the essentialprinciple of VAT is providing creditfor input taxes. First, taxing inputsand outputs at different rates isunscientific for, what is input inone use can be an output in another.Sugar, for example, is an input fora restaurant whereas it is an outputfor households. Second, an 8.5 per-centage point margin of differencein the rates provides sufficientincentive to evade the output tax.Thus, a manufacturer of steelfurniture, for example, will buy hisinput – steel – and pay the tax at4%, but can suppress his outputof steel furniture and evade payingthe tax at 12.5% of the output value.The fact that most States do notyet have reliable information systemto match input and output transac-tions reduces the probability ofdetection. In any case, no taxadministration can match eachtransaction and when South Koreatried to do it, it created a chaoticsituation. If the inputs too are taxedat the same general rate of 12.5%,the incentive to evade will be muchless because the tax saved fromevasion will be only on the valueadded at that stage. Hopefully, thisdesign fault will be corrected inthe GST.

v) For the reasons explainedabove, under GST, the concept of“declared goods” in the Goods ofSpecial Importance Act, does nothave a place and the only criterion

for rate differentiation to be follo-wed, if at all, is on the basis of in-come elasticity of demand. As men-tioned above, even this need notensure overall equity in the generalequilibrium sense; but tax designis less of a science and more ofexercising socio-political judg-ments. Since, under GST, input taxwill get the credit, there is no needto maintain a special treatment for“goods of special importance”.

Justification of GST in IndianContext

Despite the success with VAT,there are still certain shortcomingsin the structure of VAT both at theCentral and the State levels. Thedeficiency in CENVAT of theGovernment of India lies in non-inclusion of several Central taxesin the overall framework ofCENVAT, such as, additionalcustoms duty, surcharges, etc; andthus keeping the benefits ofcomprehensive input tax andservice tax set-off out of reach formanufactures/dealers. Moreover,no step has yet been taken to capturethe value-added chain in thedistribution trade below themanufacturing level in the existingscheme of CENVAT, resulting ina significant loss of opportunityof revenue gain for the Centre.The introduction of GST at theCentral level will not only includecomprehensively more indirectCentral taxes and integrate goodsand service taxes for the purposeof set-off relief, but may also leadto revenue gain for the Centrethrough widening of the dealer baseby capturing value addition in thedistributive trade.

In the existing State-level VATstructure, there are, even now,several taxes which are in thenature of indirect tax on goods suchas luxury tax, entertainment tax,




etc. and yet not subsumed in theVAT for set-off relief. Moreover,in the present State-level VATscheme, CENVAT load on the goodsremains included in the value ofgoods to be taxed under State VAT,and contributing to that extent acascading effect on account ofCENVAT element. This CENVATload needs to be removed. Further-more, any commodity, in general,is produced on the basis of physicalinputs as well as services, and thereshould be integration of VAT ongoods with tax on services at theState level as well. This is the essenceof GST, which will be a furtherimprove-ment on goods-based VATin the State. However, for this GSTto be introduced at the State-level,it is essential that the States shouldbe given the power of levy oftaxation of all services. This powerof levy of service taxes has so longbeen only with the Centre. AConstitu-tional amendment will benece-ssary for giving this poweralso to the States. The GST at theState-level is, therefore, justified for(a) comprehensive set-off relief(invol-ving goods as well asservices) for trade, industry andagriculture, (b) removal ofcascading effect of CENVAT load,and (c) additional power of taxationof services of the States.

The GST at the Central and State-level will thus give more relief totrade, industry and agriculturethrough a more comprehensiveand wider coverage of input taxand service tax set-off relief, furtherremoval of cascading effects andmore powers of taxation to theCentral and the States. If this GSTis pro-perly formulated with appro-priate calculation of rates, thenthere may eventually be revenuegains for both the Central and theStates. If the potentiality of theserevenue gains is significant, there

may also be a likelihood of reduction of the overall incidence oftaxes from the existing level, andyet retaining the revenue gains.This possibility of reduction ofthis overall incidence of taxesmay mean a gain to trade, industryand consumers. In other words,there is a possibility of a collectivegain for the Centre, the States,trade, industry, agriculture, andalso the common consumers.

GST : The Global ScenarioMore than 140 countries have

introduced GST/National VAT insome form. While countries suchas Singapore virtually taxeseverything at a single rate, somecountries have more than one rate(a zero rate, certain exemptions, andhigher and lower rates). In somecountries, it is recoverable only ongoods used in the productionprocess and specified services. Thestandard GST rates in most of thecountries ranges between 15% to20%. In Scandinavian countries(North Europe) where socialsecurity coverage is higher, itranges between 22 to 25%.

In India, the standard rate ofexcise duty is 16% on manu-facturer’s sale price. In addition,there is a state VAT at 4% and 12.5%.Therefore, the aggregate peak rateof taxes works out to 22% on retailsales price or at consumption levelwith standard rate of excise duty.At a lower end, with 4% VAT, itworks out to 13.5%. It is therefore,feasible to fix tax neutral GST rateof 20% (less, if existing dutyexemptions are reduced).

ConclusionsThe implementation of GST in

India in the form of a comprehen-sive value added tax is contingenton several key decisions. Whilethere is clarity that the tax would

be in the form of a dual VAT, thatis the only detail about the tax thatis available in the public domain.Presuming that the country isgoing to witness considerable taxreform, it is only fair on the tax-payers that the details are workedout well in advance so thatpreparations for a smooth transitioncan be made. The success of GSTwill largely depend on the deter-mination of ideal rate at Centrallevel as well as State level whichshould be acceptable by public andrevenue neutral toGovernment. Allefforts should be made to keep theGST rate as low as possible. Thestandard rate of 16% adopted forCENVAT along with residuary rateof VAT 12.5% brings the overallrate to 28.5%, which is too higha rate compared globally. Ideally,GST rate may be kept at about 18%.We may say that if coming GSTwill fulfill our expectations it willturn out to be good and servingtax. ❑❑❑❑❑

References� Govinda Rao, M. (2009): “Goods

and Services Tax: Some Progress to-wards Clarity”, Economic andPolitical Weekly (December), Vol.XLIV, No- 51, pp. 9-10.

� Halakhandi, S. (2007): “Goods andService Tax — An IntroductoryStudy”, The Chartered Accountant(April), p. 1595.

� Kabita Rao, R. (2008): “Working Pa-per on Goods and Services Tax forIndia”, National Institute of Public Fi-nance and Policy, New Delhi (No-vember).

� Poddar, S. & Ahmad, E. (2009): “GSTReforms and Intergovernmental Con-siderations in India”, Department ofEconomic Affairs, Ministry of Finance,Govt. of India (March).

� www.finmin.nic.in� www.taxguru.in� www.bdoindia.co.in


Role of Cost andManagement Accountantsin GST RegimeDr. Sukamal Datta*Tamal Taru Roy**

he Constitution of Indiadelegates power to the Cen-tral as well as State Gov

ernments to levy tax on variouseconomic activities. Central Gov-ernment is empowered to levy taxon manufacture of goods (exceptalcoholic beverages) and serviceswhereas State Governments are em-powered to levy taxes on sale ofgoods. Presently, tax on manufac-ture of goods i.e. CENVAT, is leviedunder the Central Excise Actwhereas service tax is levied underthe Finance Act on provision ofservices for a consideration. As wehave parallel systems of indirecttaxation at the Central and Statelevels, each of the system needsto be reformed to eventually har-monize them. In the Union Budgetfor the year 2006-2007 the FinanceMinister proposed that India shouldmove towards national level Goodsand Services Tax that should beshared between the Centre and theStates. The Goods and Service Tax(GST) is proposed to be a compre-hensive indirect tax levy on manu-facture, sale and consumption of

goods as well as services at a na-tional level. World over, goods andservices attract the same tax rate.About 120 countries follow the GSTmodel. Integration of goods andservice taxation would give Indiaa world class tax system and im-prove tax collections. The proposedtax system would end the longstanding distortions of differentialtreatments of manufacturing andservice sector. The introduction ofGST would lead to abolition ofmultiple indirect taxes such Octroi,Central Sales Tax, State level SalesTax, Entry Tax, Stamp Duty,Telecom License Fees, TurnoverTax, Taxes on transportation atgoods and services, Tax on con-sumption of Electricity with a singletax and eliminate the cascadingeffects of multiple layers of taxa-tion. The proposed change wouldaddress the problems of the currentsystem arising from the complexityof multiple taxes with their respec-tive compliance requirements andthe issue of tax credits not follow-ing seamlessly across States andthe value chain. The GST seeks toremedy those anomalies byallowing a continuous and unin-terrupted chain of credits throughthe supply chain eliminating theburden of cascading effects of taxes.

In 2007, committees consistingof bureaucrats from different States

and the Centre worked on to framea road map for GST under theoverall guidance of the then specialadvisor to the Finance Minister, SriParthasarathy Some. In December2007, State Finance Minister,reached a consensus on the basisof discussion of road map suggestedby the committees of bureaucratsthat India would move to a dualGST: a Central GST for Centre anda State GST for States. The bigchange is that the States wouldcharge a uniform GST rate, asopposed to the existing practice ofmultiple rates. At present oureconomy is having a hybrid taxstructure, narrow base, prone toevasion and fraud, un-integrated,multifarious status like customsduty, additional customs duty,excise duty, additional excise duty,surcharge, service tax, VAT, CST,lottery tax, entry tax, octroi, luxurytax, entertainment tax, stamp duty,property tax, toll tax, road tax, housetax etc. Today, it seems easier tofly in air, easier to swim in wateras compared to walking on landdue to such a complex tax struc-ture.

The globalization and liberal-ization in the world economy hasnecessitated the upgradation in ourtaxation policies and tax laws aswell. Our economy has been grow-ing @ 8% on an average for thelast 6 years which is a rate far abovethe average rate of world economy.At this juncture we need a robustdevelopment—specifically in thefields of infrastructure, educationand, more specifically integrationof our tax laws with e-governance.

The Finance Secretary of HonKong Government, Mr. Tang YingYen, said at the time of describingthe significance of the GST regime,“The GST offers us the best optionto broaden our tax base and we

* Principal, Naba Ballygunge Maha-vidyalaya (C.U.), Kolkata.** AICWA, Asst. Professor in CommerceNaba Ballygunge Mahavidyalaya(C.U.), Kolkata.

GST – A Step towards IndirectTax Reforms in India

T



should grasp this opportunities tointroduce it when the circumstancesare favourable and while theeconomy is enjoying steady growthwith only mild inflation.” Mr. VijayKelkar also said similarly almostin the same line “GST will helpIndia to achieve economies of scaleby becoming a common market,and help India score in the globalmarket for labour intensive manu-facturing”.

The then Union Finance Min-ister Shri P. Chidambaram an-nounced at the time of presentingUnion Budget 2007-08 that the GSTwould be introduced from 1st April2010. He also said “It is my sensethat there is a large consensus thatthe country should move towardsa national level Goods and ServicesTax (GST) that should be sharedbetween the Centre and the States.I propose that we set 1st April 2010as the date of introducing GST.World over, Goods and Servicesattract the same rate of tax. Thisis the foundation of GST”.

He further said that the Empow-ered Committee of State FinanceMinisters, on his request, wouldwork with the Central Governmentto prepare a road map for intro-duction of GST in India. After thisannouncement, the EmpoweredCommittee of State Finance Min-isters decided to set up a JointWorking Group (May 10, 2007),with the then Advisor to the UnionFinance Minister and the Member–Secretary of the Empowered Com-mittee as Co-Convenor and theconcerned Joint Secretaries of theDepartment of Revenue of UnionFinance Ministry and all FinanceSecretaries or the States as itsmembers. This Joint WorkingGroup, after intensive internaldiscussions as well as interactionwith experts and representatives

of Chamber of Commerce andIndustry, submitted its report tothe Empowered Committee (No-vember 19, 2007).

This report was then discussedin detail in the meeting ofEmpowered Committee (Novem-ber 28, 2007). On the basis of thisdiscussion and observations of theStates, certain modifications weremade and a final version of theviews of the Empowerment Com-mittee at that stage was preparedand was sent to the Governmentof India (April 2008). The commentsof the Government of India werereceived on December 12, 2008 andwere duly considered by theEmpowered Committee (December16, 2008). It was decided that aCommittee of Principal Secretar-ies/Secretaries of Finance/Taxationand Commissioners of Trade Taxesof the States would be set up toconsider these comments andsubmit their views. These viewswere submitted and were acceptedin principle by the EmpoweredCommittee (January 21, 2009).Consequently, a working group,consisting of the concerned officialsof the State Governments wasformed which, in close associationwith senior representatives of theGovernment of India, submittedtheir recommendations in detail onthe structure of the GST. The Centreand the States have agreed uponthe basic structure in keeping withthe principles of fiscal federalismenshrined in the Constitution. TheCentre and the States together fundon equal basis, a nationwide com-puterization project called “Tax In-formation Exchange System(TINXSYS)” to enable exchange ofcritical data on inter-State. Govern-ment of India has sanctioned fi-nancial assistance for projects inthe North Eastern States, Himachal

Pradesh and Jammu & Kashmir.To provide financial support tocomputerization needs of the Com-mercial Taxes Departments of Statesthe Union Budget for 2009-10 madea provision of Rs. 408 crore for aMission Mode Project.

The much awaited White Paperon the dual GST, officially calleda ‘First Discussion Paper on Goods& Services Tax in India’, wasreleased on November 10, 2009. TheDiscussion Paper sets out in anauthoritative fashion the back-ground and the context for theintroduction of the GST, the natureof the dual GST that is proposedand annexure on answers to fre-quently asked questions thereon fordiscussions with industry, trade,agriculture and people at large. Theproposed GST regime is expectedto be successful in removing thedistortions in the form of exemp-tions. The First Discussion Paperenunciates the broad objectives thatGST has set out to achieve.

The Discussion Paper opens thewindows before finalization of theregime and provides an opportu-nity to business to participate andprepare before GST hits them. Theexisting Joint Working Group hasbeen mandated to prepare a reporton the Constitutional Amendmentsnecessary for GST, the changes re-quired for levy of GST on imports,a draft legislation for Central GSTa draft for common legislation forState besides a draft for rules andprocedures that may be requiredto administer the GST.

The Finance Minister ShriPranab Mukherjee at the time ofpresenting the Union Budget forthe year 2010-2011 on 26th Febru-ary, 2010, regarding taxation frontmedicated that all the eyes are onany important declaration withrespect to the Goods and Services



Tax and Direct Tax Code. He said“On Goods and Services Tax, wehave been focusing on generatinga wide consensus on its design. InNovember 2009 the EmpowermentCommittee of the State FinanceMinisters placed the First Discus-sion Paper on GST in the publicdomain. The Thirteenth FinanceCommission has also made anumber of significant recommen-dations relating to GST, which willcontribute to the ongoing discus-sions. We are actively engaged withthe Empowered Committee tofinalize the structure of GST as wellas the modalities of its expeditiousimplementation. It will be myearnest endeavor to introduce GSTalong with the DTC from April 1st

2011”. So the implementation ofthe GST pushed from 1st April 2010to 1st April 2011.

The Chairman of EmpoweredCommittee, Finance Minister ofWest Bengal, Shri Asim Dasguptatold that under the proposed GSTregime the preparation of IT in-frastructure is essential, especiallyfor tracking the movement of goodsand services and the Committeetried to complete the scheme withinAugust 2010. The Central FinanceMinister promised the EmpoweredCommittee on 21st May 2010 thatCentral Government is ready tocompensate the State Governmentsmore than the recommendations ofthe 13th Finance Commission in re-spect to proposed GST. A landmarkdecision was taken by the CentralGovernment regarding GST. It hasbeen resolved to amend the Con-stitution to enable States to havethe same powers as the Centre inadministering the proposed GST.For this, a new Fourth List isproposed to be created in theSeventh Schedule of the Constitu-tion. The proposed GST, an ambi-

tious bid to reform the indirect taxregime, aims to streamline themovement of goods and servicesacross India with a uniform coun-trywide tax structure. There willbe a common annual minimumturnover threshold for both theCentre and States, likely to be Rs.10lakh covering Rs. 50 lakh businessestablishments. On the assumed taxbase, a revenue-neutral GST ratecould be 16%. This 16% tax couldbe shared by the Centre and theStates at 8% each, or the States couldhave a percentage point more.

Basic Objectives of Tax Reformstowards GST

The basic objectives of reformof indirect tax are :� The basic objective to introduce

the new tax system is to estab-lish a tax system which is eco-nomically efficient, neutral in itsapplication, widely distributedand simple to comply and ad-minister.

� Revenue considerations suggestthat the tax base should bebroad, comprise all items in theconsumer basket, includinggoods, services as well as realproperty.

� The tax system should containthe principles of neutralitywhich may comprise :— the tax be a uniform percent-

age of the final retail price of aproduct, regardless of the supply-chain arrangements for its manu-facturing and distribution;

— the tax on inputs be fullycreditable to avoid tax cascading;

— the tax be levied on the basisof the destination principle, withall of the tax on a given product/service accruing in the jurisdictionof its final consumption;

— simplification of tax admin-istration and compliance;

— the tax design like minimum

classifications and minimum taxrates;

— the information technologyto enhance the quality of serviceand to ensure greater transparencyin administration and enforcement;

— the harmonization amongstthe taxes levied by the Centre andthe States.

Current Tax System and its Pit-falls

The pitfalls of existing tax systemmay be discussed as :� The Bagchi Report (1994) stated

that the system prevalent beforeintroduction of VAT was “ar-chaic, irrational and most com-plex in the world”.

� The CENVAT is levied on goodsmanufactured which gives riseto differential issues as to whatconstitutes manufacturing andvaluation issues for determiningthe value on which the tax is tobe levied, moreover, manufac-turing itself forms a narrow-base for taxation. It is for thisreason that most of the compa-nies have adopted multipointtaxation system extended to re-tail level.

� The States are precluded fromtaxation of services. Interpreta-tional problems arose whethera particular activity is an intan-gible good or a service like –copyright, software, telephonicservices, leasing of an equip-ment etc. In the contemporarymarket, goods, services andother types of supplies are be-ing as composite bundles andoffered for sale to consumersunder varieties of supplying-chain arrangements. At present,neither the Centre nor the Statescan tax such transaction in aseamless manner.

� At present, tax cascading occursunder both Central and State



taxes. This is due to the reasonthat inter-chain and inter-chaininput credits are not availableand also some items are keptoutside the ambit of CENVATlike oil and gas production, min-ing, real estate sector, exemptedsector, retail trade etc. Cascad-ing not only increases the costof production but it also keepsIndian business as a competitivedisadvantage in internationalmarkets. In spite of the improvements

made in the tax design and ad-ministration for the past few years,the system—both at Central andState level—remains complex. Themost significant cause of complex-ity is, of course, policy related andis due to the existence of exemp-tions, multiple rates and the irra-tional structure of levies. Thecomplexities under the State VATrelate primarily to classification ofgoods to different tax rate sched-ules. Another source of complexityunder the State VAT is determiningwhether a particular transactionconstitutes a sale of goods. Thisproblem is more acute in the caseof intangible items like softwares,right to distribute/exhibit moneysor time slots for broadcasting ad-vertisements.

Now we may turn our dis-cussions towards existing indirecttax system and logical steps to betaken in favour of GST.

GST — next Logical Step toCentral VAT System

Despite the success of VAT, thereare still certain shortcomings in thestructure of VAT both at the Centraland the State level. The shortcom-ing in CENVAT of the Governmentof India lies in the non-inclusionof several Central taxes in the overallframework of CENVAT, such asadditional customs duty, sur-

charges etc and this keeping thebenefits of comprehensive input taxand service tax set-off out of reachof manufacturer/dealers. More-over, no step has yet been takento capture the value-added chainin the distribution traded below themanufacturing level in the existingscheme of CENVAT. The introduc-tion of GST at the Central level willnot only include comprehensivelymore indirect Central taxes and in-tegrated goods and service taxesfor the purpose of set-off relief, butmay also lead to revenue gain forthe Centre through widening of thedealer base by capturing valueaddition in the distributive tradeand increased compliance.

State’s VAT SystemIn the existing State-level struc-

ture, there are also certain short-comings. There are, for instance,several taxes which are in the natureof indirect tax on goods and ser-vices, such as luxury tax, entertain-ment tax, etc and not yet subsumedin the VAT. Moreover, in the presentState-level VAT scheme, CENVATload on the goods remains includedin the value of goods to be taxedunder State Vat and contributingto the extent of cascading effect onaccount of CENVAT element. ThisCENVAT load needs to be removed.Furthermore, any commodity, ingeneral, is produced on the basisof physical inputs as well as serviceand there should be integration ofVAT on goods with tax on servicesat the State levels as well as at thesame time there should also be theremoval of cascading effect ofservice tax. In the GST, both thecascading effects on CENVAT andservice tax are removed with set-off and a continuous chain of set-off from the original producer’spoint and service provider’s pointup to the retailer’s level is estab-

lished which reduces the burdenof all cascading effects. This is theessence of GST and this is why GSTis not simply VAT plus service taxbut an improvement over the pre-vious system of VAT and disjoinedservice tax. However, for this GSTto be introduced at the State-level,it is essential that the States shouldbe given the power to levy taxationof all services. This power to levyservice taxes has so long been onlywith the Centre. A ConstitutionalAmendment will have to be madefor giving this power to the States.Moreover, with the introduction ofGST, burden of Central Sales Tax(CST) will also be removed. TheGST at the State-level is, therefore,justified for :(a) additional power to levy taxa-

tion of services for the States,(b) system of comprehensive set-

off relief, including set-off forcascading burden of CENVATand service taxes,

(c) subsuming of several taxes inthe GST, and

(d)removal of burden of CST.Due to removal of cascading

effect, the burden of tax under GSTon goods, in general, will fall.

Widening of Tax Base The GST at the Central and

the State level will thus give morerelief to industry, trade, agricultureand consumers through a morecomprehensive and wider cover-age of input tax set-off and servicetax set-off, subsuming of severaltaxes in the GST and phasing outof CST. With the GST being prop-erly formulated by appropriatecalibration of rates and adequatecompensation whenever necessary,there may also be revenue/resourcegain for both the Centre and theStates, primarily through widen-ing of tax base and possibility ofa significant improvement in tax-



compliance. In other words, the GSTmay usher in the possibility of acollective gain for industry, trade,agriculture and common consum-ers as well as for the CentralGovernment and the State Govern-ments. The GST may, indeed, leadto the possibility of collectivelypositive-sum game.

Abolition of Multiple PointsTaxation

At present, Central Governmentis charging Central Excise Duty atthe point of removal of goods fromthe place of production. The Cen-tral Excise Duty is to be depositedirrespective of payment, againstgoods removed from the place ofproduction. Service Tax is chargedon the date of rendering servicesor the date of receipt of payment,whichever is earlier. The State VATis chargeable at the time of saleof goods irrespective of receipt ofpayment against such sale. The in-troduction of GST will obviouslybe a solution to it. GST would bechargeable on each transactionlike sale of goods, incorporation ofgoods in an individual contract,hiring a taxi, hiring equipment, leaseof premises, consultation by achartered accountant, import andexport of goods of any service ormay be a transfer of immovableproperty etc. Since GST chargeableon each transaction, it issome time called ‘transaction tax’.Now a vital question may arise –How would the GST work? On thebasis of proposed road map GSTwould work as such – suppose afan company produces a fan. TheCentral Government charges exciseduty on the fan as it leaves thefactory. At the retail level the Statecharges VAT, where the outlet islocated. Different States chargedifferent rates of VAT—being theirown tax policy. The State does not

give credit on the excise duty leviedearlier i.e. State VAT is levied ontop of a Central tax. In the GSTsystem, both Central and State taxeswill be collected at the point of sale.Both the components, i.e. the Cen-tral GST and State GST, will becharged on the manufacturing cost.The result obviously will lower theincidence of tax and reduce prices.

Service Tax under GST RegimeAt present, service tax is charged

by the Central Government onlyon about 106 services. Out of thesethe State Governments get full shareon about 33 services and on re-maining service about 30.5% sharegoes to the States. This arrange-ment may continue until implemen-tation of GST i.e., up to 1st April2011. At present, service tax col-lections are about Rs. 55,000 croreas compared to the budget estimateof about Rs. 50,000 crore. Servicetax under the new regime may beimposed on all services barringhaving a small negative- list ex-empting new service like publiceducation, health and exports. Sincethe GST will extent to all goodsand services, no distinction will bemaintained between goods andservices. A dealer will be requiredto collect taxes on every invoiceirrespective of whether the supplyis for goods or services. Therefore,no classification of goods and ser-vices should be provided for in law.This will, of course, eliminate allclassification disputes.

Taxation on Inter-State Trans-action of Goods and Services

Taxation on inter-State transac-tion of goods and services wouldbe governed by the Integrated GST(IGST) model. The EmpoweredCommittee accepted the recom-mendations of the Working Groupof Central and State Governments

for adoption of IGST model for taxa-tion on inter-State transaction ofgoods and services. The Centre willlevy IGST which would be aggre-gate of Central GST (CGST) andState GST (CGST) on all inter-Statesupplies of taxable goods andservices with appropriate provi-sions for consignment or stocktransfers of goods and service. Theinter-State seller will pay IGST onvalue addition after adjustingavailable credit of IGST, CGSTand SGST on his purchases. TheExporting State will transfer to theCentre the credit of SGST used inpayment of IGST which, inturn, will be taken as credit by theimporting dealer while discharg-ing the output tax liability in theImporting State. The Centre willtransfer to the importing State thecredit of IGST used in payment ofSGST. This would be effected bya Central Agency acting as a clear-ing house which will verify theclaims and inform the respectiveGovernments to transfer the funds.Since all inter-State dealers will bee-registered and correspondencewith them will be by e-mail, thecompliance level will improvesubstantially.

Exemption of GST for ExportsIn GST regime, all exports will

be zero rated and similar benefitswill be allowed to special EconomicZones (SEZs). However, suchbenefits will be extended only tothe processing zones of the SEZs.No benefit will be allowed for salesfrom a SEZ to Domestic Tariff Area(DTA).

GST on ImportsBoth the CGST and SGST will

be levied on import of goods andservices into the country withnecessary Constitutional Amend-ments. The incidence of tax will



follow the destination principle. Thetax revenue in case of SGST willaccrue to the State where the im-ported goods and services areconsumed. Full and complete set-off will be available on the GSTpaid on import of goods andservices.

Treatment of Current IndustrialIncentives

After the introduction of GSTin April 2011, the tax exemptions/remission etc. related to industrialincentives would be converted intocash refund schemes after collec-tion of tax. So the GST scheme onthe basis of a continuous chain ofset-offs is not to be disturbed.

Constitutional Amendments,Legislations and ComplianceProcedures of GST

Constitutional Amendments areessential for empowering the Statesfor levy on service tax, GST onimports and consequential issuesas well as corresponding Centraland State legislations with associ-ated rules and procedures. The JointWorking Group prepares draftlegislation for ConstitutionalAmendment, draft legislation forCGST, a suitable Model Legislationfor SGST and rules and proceduresfor CGST and SGST. In the respec-tive legislations, uniform procedurefor collection of both CGST andSGST would also be prescribed.

The taxpayer would need tosubmit periodical returns for boththe CGST and SGST authorities incommon format. The need forCentre-State and inter-State harmo-nization is paramount under thedual GST, the ultimate goal wouldbe a uniform base and one set oflaws for the two taxes.

While implementing any newtax regime like GST our bureau-crats must look into the need of

good tax administration and soundtax policy. Since an electronicallyequipped tax administration de-signed to faster voluntary compli-ance can yield higher revenue thana sound tax policy administeredby an inefficient tax administration.Indeed, the GST has the potentialto be the single most important ini-tiative in the fiscal history in India.It can pave the way for modern-ization of tax administration makesit simpler and more transparent andsignificant enhancement in volun-tary compliance.

The new GST regime is at ourdoorstep. The proposed amend-ment is also in line with the demandsof trade and industry, whichwanted certainty and uniformityacross the country on the newindirect tax structure. The proposedGST ambitious bid to reform theindirect tax regime aims to stream-line the movement of goods andservices across India with a uni-form countrywide tax structure. Atthis juncture of indirect tax reformthe Cost and Management Accoun-tants have to play an important rolebefore and after the new GSTregime.

Role of Cost and ManagementAccountants relating to GST re-gime

The Cost and ManagementAccountants with expertise knowl-edge of applied indirect taxes arenot expected to keep themselvesset aside from the GST regime. Theyare well-conversant with all theareas of indirect taxes like CentralExcise, Customs Laws, Service Tax,Central Sales Tax Act and VAT Actand practical problems and casestudies under Indirect Tax Laws.As the GST regime will be intro-duced in April 2011 abolishing thecurrent scheme of multiple indirecttaxes they have to be updated them-

selves with all the pros and consof the GST. Since they possessexpertise knowledge of existingIndirect Tax Laws it requires veryshort period and minimum effortto grasp all the tax provisions ofGST. The ICWAI may arrangeWorkshops, Seminars, andSymposiums on GST for the Costand Management Accountants.

To encourage the manufacturesand generate the goal of ‘TaxReduction’ and ‘Avoidance of TaxEvasion’ the Cost and ManagementAccountants will have to play anadvisory role for formulating thestrategy for implementation of thistax system throughout the country.In one hand, total cost of the finalproduct will be minimized and itwill ensure the Government regard-ing recovery of revenue from trans-fer transaction. Indian economy isworking up again after recoveryfrom the global meltdown and tobecome a successful global playerin industry, trade and commerce,the acceptance of tax reforms is in-evitable. Not only to initiate thetax reform strategy but also to attractFDI in various sectors of the in-vestment, the Cost and Manage-ment Accountants have a signifi-cant role for reducing cost burden,to make the product acceptable ata comparative price in internationalmarket, to encourage the foreigninvestors to participate in India tomake it a productive doorstep andto create a positive balance of pay-ment situation. The role of Cost andManagement Accountants is nolonger will be played just as theCost and Management Accountantsbut it will encourage the Indianeconomy a faster growth withstructural reforms in the tax cul-ture.

At the GST is an indirect taxand being a new legislation there



is a great scope for professionalslike Cost and Management Accoun-tants to advice and assist the taxpayers. With their expertise knowl-edge, training and experience theycan play a significant role as anadvisor and tax consultant for duecompliance of GST provisions.

The natures of services thatcan be performed by them in thisarea are :

1. Consulting Services : As theGST is to be levied on goods andservices in lieu of all existing indirecttaxes, a great deal of expertise isrequired to interpret and under-stand the law and give advise tothe clients about the applicabilityof the GST and its related issues.The Cost and Management Accoun-tants are the most competent toprovide advice in this field.

2. Procedural Requirements:The Cost and Management Accoun-tants can help their clients to complywith the following proceduralrequirements :(a) Registration(b) Payment of tax(c) Filing returns including e-fil-

ing(d) Maintenance of books and

records.3. Constant updatation of Law

and Provisions: The GST is to be

administered more by way of tradenotices to be issued by Commi-ssionerates. There is a need to keepthe client abreast of the latestnotifications and trade notices inaddition to the changes in law soas to meet the clients’ expectations.

It is revealed from our discus-sion that the Cost and ManagementAccountants have to play a signifi-cant role in the new GST regimew.e.f. 1st April 2011 for the benefitof their clients on the one hand aswell as for the Central and StateGovernments on the other i.e. forboth the parties who are involvedin the new GST regime. ❏

References� Ahmed Ehtisham (2008) “Tax

Reform and the Sequencing of Inter-governmental Reform in China.Precondition for a Xiaokary Soci-ety” in Lou Jiwei and Wang Shiulin.(ech) Fiscal Reforms in China. TheWorld Bank.

� Empowered Committee of State Fi-nance Ministers (2008), A Modeland Road Map for Goods andServices Tax in India, New Delhi.

� Dr. Girish Ahuja & Dr. Rabi Gupta(2010), Systemic Approach toIncome Tax – Service Tax & Vat,Bharat Law House Pvt. Ltd.,New Delhi.

� Poddar Satya & Amresh Bagchi

(2007) “Revenue—neutral ratefor GST”, The Economic Times, No-vember 15, 2007.

� Poddar Satya & Erich Hutton(2001) : “ Zero Rating of Inter-State Sales Under a SubnationalVAT : A new Approach, paper pre-sented at the National Tax Asso-ciation, 94th Annual Conference onTaxation, Baltimore, November 8-10, 2001.

� Rao, H. Govinda (2001) : Reportof the Expert Group on Taxationon Services, Government of India,March 2001.

� The Economic Times, New Delhi,10th December 2007.

� The Economic Times, New Delhi,15th January 2007.

� Business Standard, February9, 2009.

� The Hindu Business Line, August23, 2009.

� Ananda Bazar Patrika, Kolkata,May 22, 2010.

� The Times of India, Kolkata,May 28, 2010.

� www.businessstandard.com� www.linemint.com. August 21,

2009.� www.cra.gc.ca� http://www.goodsandservice

tax.in/� www.gstindiaexperts.com/� http://firmin.nic.in/


1. Shri Jaikant Singh, Director, MCA. Room No. 535, Shastri Bhawan, R.P. Road, New Delhi-110001.email : [email protected].

2. Ms Nandana Munshi, Principal Director of Commercial Audit & ex-official Member, Audit Board—I,1, Council House Street, Kolkata-700 001. email : [email protected]

3. Shri Munesh Kumar, Director (TPL-2), MOF, Dept. of Revenue, North Block, New Delhi-110001.email : [email protected]

4. Shri P. K. Jena, General Manager, RBI, 6 Sansad Marg, New Delhi-110001. email : [email protected]. Shri D. S. Chakrabarty, Vice President (Finance), Haldia Petrochemicals Ltd, 1 Auckland Place, Kolkata-700017.

email : chakrabarti@ hpl.co.in

●●●●● Details of Government Nominees of ICWAI ●●●●●


Role of Cost andManagement Accountantsin GST RegimeEla Sen

Introduction

he Government of India, inits major initiative towardstax reform has announced

to introduce a well designed sys-tem of value added tax on all goodsand services commonly called asGST. The new regime will becomeeffective since October 2010.

Much hue and cry has beenraised thereafter. The Governmentclaims that it would remove allinherent inefficiencies in the exist-ing tax system, encourage volun-tary compliance, and ensure betterresource allocation. States fear thatthey might lose their fiscal au-tonomy as well as their legitimateshare in revenue. Traders and busi-nessmen are apprehensive whetherthe new system will complicate theprocedure further. Even some criticsargue that the new GST regime willbe nothing but “old wine in newbottle”.

Many issues are yet to beresolved. States and Centre willhave to reach a consensus—par-ticularly on the sharing pattern ofthe total revenue. A constitutionalamendment has to be made toimplement the GST in its proposedform. Nevertheless, implementa-tion of the new system, sooner orlater, is sure.

Any major tax reform process

is generally accompanied by anumber of compliance issues as-sociated with audit, inspection,filing of return etc. This opens upa new field for all finance profes-sionals including cost and manage-ment accountants. At this junctureit is necessary for all practicing CMAto get themselves acquaintedwith the new regime and its in-tricacies, blend it with their pro-fessional skills so that they can offervaluable advice to make best useof this new system implemented.

What is GSTGoods and Services Tax, or GST

in short, is a broad-based multi levelvalue added consumption taximposed on all goods and servicesexcept where specific exemptionsare allowed.

The concept of a value addedtax was first mooted by Germanindustrialist Dr. Wilhelm vonSiemen in 1918. Maurice Laure, jointdirector of French tax authority, wasfirst to introduce it in 1954. Sincethen many of the countries world-wide has introduced GST systemincluding the European countries,Australia, New Zealand, Canadaand many south-east Asian coun-tries. An exception is USA wherethe federal system of taxation isstill in vogue.

The structure of GST, more orless, remains same everywhere.

There is a uniform rate throughoutthe country. The incidence of taxa-tion is solely on consumption basis.All interim parties are entitled toget refund of their input tax. Thereis no tax on tax itself. Coverageis broad. Exemptions are as fewas possible. Government of Indiain past few years has entered intofree trade agreement with manycountries. Once the agreements areoperational, it is necessary to makeour industries competitive—espe-cially by removing the distortionsinduced by any incompetent taxsystem. Hence there is an urgentneed to reform the same by adopt-ing a flawless goods and servicestax system.

GST in IndiaGST in India, as proposed by

the Empowered Committee of Thir-teenth Finance Commission, willhave these salient features :a. It will be a dual levy imposed

concurrently by Centre [CGST]and State [SGST] on a commonand identical base.

b. All major Central taxes includ-ing excise duty, service tax willbe subsumed in CGST while allmajor State taxes including salestax, stamp duty etc will be sub-sumed in SGST.

c. The GST will be structured ondestination principle wherebytax base will shift from produc-tion to consumption. As a result,all international import will beliable to GST while export willbe relieved of GST by zero rating.Similarly, all inter-State trans-action in goods and services willbe zero rated —the revenuebeing accrued to the State wherethe final consumption will takeplace.

d. The computation of CGST andSGST will be based on invoicecredit method, i.e., credit for tax

T


* AICWA, Senior Manager, AllahabadBank.


paid on all intermediaries goodsor services will be allowed onthe basis of invoice issued bythe supplier.

e. The tax will extend over allgoods and services, except a fewexempt sectors like unprocessedfood items, healthcare and edu-cational service and those whichfall below the threshold limit.

f. All enterprises with aggregateannual turnover [excludingCGST and SGST] above Rs.10lakhs will have to registerthemselves for GST. The exist-ing exemption up to Rs 1.5 croresof turnover for small scaleindustries is withdrawn.

g. The area based exemption forCENVAT [i.e tax holiday forcertain economically backwardstates] and exemption for unitsin special economic zone willnot be continued.Any tax reform process can be

said to be a success only if it isable to earn more revenue withoutbeing regressive. This implies thatwhile the tax administration willhave to be effective on one handto ensure collection of expectedrevenue, on the other hand thebusiness community in general willhave to be well aware of the newpolicies to reap the most benefitout of it. Here a CMA will haveopportunity to play roles both asan auditor on behalf of the author-ity and as a management consult-ant on behalf the tax paying or-ganization. We will examine thepositions one by one.

CMA as an auditorGST is a self-assessing tax. The

tax payer’s own declaration sup-ported by invoice credit are the onlydocuments required to be submit-ted to the authority. If these docu-ments are not bona fide our gov-ernment will face large value of

tax evasion not only by way of non-receipt of legitimate taxes but alsothrough payment of input creditfraudulently claimed. GST auditwill become an important tool ofthe tax administration in ensuringno underpayment of GST in thisregard. Institute of cost and Man-agement Accountant has an impor-tant role to play here. It should takeup the issue with the authority inan appropriate way so that themembers of our institute can utilizefull potential of this new avenue.It may be pointed out here thatthe draft plan prepared by task forcementions that “levy of GST willbe on the basis of audited accountsonly” but it does not make anydistinction between GST audit andstatutory audit. In fact, a statutoryaudit seldom serves the purposeof GST audit.

A GST audit is essentially thescrutiny of all sales invoices withall purchase invoices, matching theinput value with output values andensures reasonability of the outputtax paid or input tax claimed. Thisrequires typical professional knowl-edge for ascertaining, analyzing andthen tracking down the variousinput costs to its final end products.

The task becomes even moredifficult in case of a manufacturingor service type industry, particu-larly those of multi-product, multi-unit category—where the inputcosts are not readily identifiablewith the corresponding output.Only a person with thoroughunderstanding of the system andprocesses in business organizationand well-conversant with differenttools and techniques of costing andvarious modern concepts like tar-get costing, activity based costing,lean accounting etc will be able toperform the job efficiently and,thereby, restrict tax evasion.

Incidentally, evasion in GSTregime in EU and many othercountries is a matter of concern.Public attitude towards evasion isrelevant in the occurrence as wellas the estimation of evasion. A UKsurvey showed that 70% of thesample did not consider it morallywrong to pay a trader in cash whovolunteered not to charge VAT and65% appeared to consider it asacceptable behavior to take cashfor work performed to evade VATor income tax.

Some common practices ado-pted by the businesses to evadetaxes are :a. Non-disclosure of sales

actually madeb. Under- invoicing of sales value

and to recover the expensesotherwise

c. Production of false purchasebills or purchase bills of a non-registered sister concern forclaiming input credit

d. Raising service bills to overseascustomer [and thus making thesupply zero rated] when theservice has actually been con-sumed within the country.

e. Input tax credit claimed inrespect of material or serviceswhich have actually been usedto produce goods of exemptedcategory.

f. Submission of purchase bills forwhich input tax has not beenpaid.In recent past, treasuries of many

EU countries have become thevictim of carousel type fraud. Herea company originating from onemember country exports large valueitems to another member countryand takes the benefit of input taxcredit while the importer com-pany—called “the missingtrader”—goes bankrupt withoutpaying any tax.



As a consequence, internationaltrend now shows a sharp increasein the frequency of GST audit. Anyirregular trend in GST refund claim,filing late return or payments isattracting their attention. Even thesmall and medium sized enterprisesare not spared. And they are gettingthe benefit definitely. An examplemay be cited from the annual reportof inland revenue authority ofSingapore which claims that it hasrecovered 103 million dollars fromtheir GST audit—an 18% increaseover previous year’s revenue.

A major impetus behind intro-ducing GST regime is to earn morerevenue by widening tax net. Thetask force estimates potential GSTbase to be Rs. 39,49,907 crores andthe expected collection to be Rs.31,25,325 crores after giving allow-ance for exempted categories andtaking compliance level same asprevious year’s. However withbroader tax net it is quite naturalthat the compliance level will fall.Unless some timely measures aretaken it will be quite difficult toachieve the target.

A GST audit can be taken eitheron case-to-case basis or by makingit mandatory for all cases beyonda certain level of activities. Whilea mandatory GST audit will cer-tainly have a larger coverage itseffectiveness is likely to be lesscompared to a surprise audit.

Another point is worth mention-ing here. With the lowering ofthreshold limit to Rs. 10 Lakhs andwithdrawal of exemption for SSIunits with turnover below Rs. 1.50crores, many small enterprises willnow come under the purview ofGST. A separate GST audit is neitheradvisable nor cost effective. How-ever, their books of accounts couldbe subject to inspection but onlyby State Government officials, as

proposed. But GST inspectionrequires special knowledge forwhich in-house training programmay be necessary. Since our insti-tute is already in the line of de-veloping professional skills andexpertise they can explore theground and organize suitable train-ing program for those officials.

CMA as a Management Consul-tant

GST is expected to bring changeof significant proportion for thebusinessmen in India which willnecessitate more proactive steps tobe taken beyond a mere alterationin the tax rate and accountingrecords. Henceforth, no tax conces-sion will be available for settingup a unit in economically backwardState or in Special Economic Zone.Any sales tax differentiation be-tween States will be abolished. Thebusiness organizations, particularlythose hailed from large corporatesector, which were hitherto makingtheir location planning on the basisof tax incentives will now have torevise their strategy. New businessset up plan will now be driven bylogistic cost only. Proximity tomarket or resources will be theprime criteria. Supply chain man-agement will get deserved impor-tance.

Entire India will now be inte-grated into a single market. Thiswillencourage the companies to availeconomies of large-scale operationby building one big mother ware-house to handle countrywide dis-tribution. Most modern technologyfor inventory management has tobe adopted. With the introductionof GST, tax exemption on manygoods will be withdrawn. Again,for those in exempted category,input tax credit will not be avail-able. Now the companies will haveto select their product line in a more

realistic manner. One innovativefeature of the new GST rules is totreat capital goods like any othergoods for claiming input tax credit.This will surely influence acom-pany’s “make-or-buy” deci-sion”. All these would require adetailed cost benefit analysis atevery stage to arrive at an optimalcost structure. This is the man-agement con-sultant’s job. A CMAwill be the most apt person to handlesuch cases.

Even the entrepreneurs fromsmall and medium categories willbe in the need of their professionaladvice. An efficient use of GSTprovisions may help them to re-duce their cost of operation andbecome competitive. GST registra-tion will generally tend to increasethe price of a product. But if theproducer makes selective purchasefrom GST registered dealer he couldget refund of substantial sum inform of input tax credit and hisprice may actually come down.Moreover, if his customers are alsomostly GST registered dealers thehigher price would be easily ac-cepted. This provision will beparticularly useful for those withannual turnover. between Rs. 10lakhs to Rs. 40 lakhs who will haveto make a choice between full GSTpayment with the benefit of inputtax credit and payment of lowerGST without any input tax creditbenefit. Even a non-registereddealer could avail this facilitythrough voluntary registration.Besides, many of these smallentrepreneurs—with their usuallack of awareness—are prone to as-sessment risk. Errors may occur bywrongfully claiming input creditfor production of goods fromexempted category [for which noinput tax credit is allowed] or byintermixing CGST input credit with


Contd. to Page 590


posed which shall have two com-ponents, Central GST (CGST) andState GST (SGST). Inter-State sup-ply of goods and services wouldbe covered under the Inte-gratedGST (IGST) which would be CGSTplus SGST. This will be applicableto all transactions of goods andservices except the exemptedgoods/services, goods outside thepurview of GST, viz., Crude oil,Petrol, diesel & ATF, and thetransactions below the thresholdlimit which is likely to be Rs. 10lakhs.

While under the present regu-lations, the point of taxability andpayment taxes are different (i.e. forCentral Excise it is on manufacture,Additional Customs Duty onimport, Service Tax on realization,VAT & CST on sales on accrualbasis) whereas under GST it ap-

pears (although this has not beenspecifically spelt out) that the pointof taxability and payment of taxeswill be on sales effected/servicesprovided possibly on an accrualbasis.

This aspect in itself will changethe Commercial and Cash Flowdynamics of every business.

The change in the timing of tax-ability and payment of taxes willimply major adjustments/docu-mentations/reporting require-ments to be ensured with respectto carry over balances etc., as onthe implementation date as eachof these balances will be restingin different records and with dif-ferent authorities, with some ofthem also being under dispute.

Thus, while a lot is being spokenon the possible challenges in theimplementation of the GST regu-lations from a Government perspec-tive, not much is being said aboutthe challenges which businesses areexpected to face in the changingcircumstances.

Thus the role of CMA as partof senior management team has tofully gear himself along with histeam and other stakeholders inorder to meet various challengesin the changed regime.

ProcessFor organizations to address

various challenges and to enableseamless changeover, a substantialamount of preparedness and struc-tured planning/analysis of thevarious key elements/aspects etcinvolved needs to be done inadvance.

It is here that the need of takinginitiative by the senior Manage-ment, especially by the CMA, tohave an Internal GST Steering Com-mittee (GSTSC) which will spear-head and lead on the initiativebecomes imperative.

Introductionhe proposed Goods & Ser-vices Tax (GST), slated forintroduction from 1 April

2011, is an ambitious bid to reformthe indirect tax regime, aims tostreamline the movement of goodsacross India with a uniform coun-trywide tax structure. It brings insweeping changes as implementa-tion of GST would cover some ofthe major indirect tax regulations— Central Excise, AdditionalCustoms Duty, Service Tax, StateVAT & CST, surcharges and cesswhich, presently, have differentpoints for liability to arise andmake the payments.

A dual GST structure is pro-

Role of Cost andManagement AccountantsIn Regime-Strategies toManage ChangeCMA Nilakanta Shastry Tata *Introduction of GST is inevitable in order to have uniform tax rates andseamless movement of Goods & Services across India with prior knowledgeof taxability of such goods or services within any part of India. This, in away, is a dynamic legislation bringing all the indirect taxes under one umbrellaand goes with ONE INDIA concept.While the Government is trying its best to bring in varying States to agreeon the formulae laid down by various Committees/commissions in this regard,the industry needs to look inward to meet the challenges of sweeping changesin the indirect tax regime.In this context the role of the Cost & Management Accountant, as an importantdecision maker in the senior management team, is pivotal and he needs toequip himself, his team members and other stakeholders to have effective strategiesin place to manage the change.

* B.Com., LL.M., AICWA, FCS,Managing Director, Chennai Operations,RSM Astute Consulting (Chennai) Pvt.Ltd.

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The Key Result Areas (KRA) ofthe said group would be identi-fying the possible organizationalchallenges and appropriately cat-egorizing and prioritijing them,doing a mock impact study, iden-tifying possible strategies to addressthe related issues, etc.

Identification of Business func-tions

The first and foremost respon-sibility of the GSTSC should be toidentify the various business func-tions and team members whowould be affected in the new GSTRegime. After the above analysis,each of the business functionswould need to be studied in depthto gauge the challenges which theorganization shall face. The aboveanalysis can be undertaken eithersimultaneously or in a phasedmanner as detailed hereunder :

Phase 1 — Challenges in Taxationand Finance FunctionsGST, being a major indirect taxreform, is bound to have a signifi-cant impact on the Taxation andFinance Functions of anyorganization. Some of the initialsignificant challenges would in-clude :& Determining whether the exist-

ing goods/services fall undertaxable/exempt category in GSTRegime

& Determining the rate of GSTapplicable

& Impact of Composition/variousConcession Schemes (beingavailed)

& Impact of withdrawals of con-cessions to SEZ, EOU, STPI,EHTP, etc.

& Impact of withdrawals of ex-emptions and deferral schemes

& Determination of TaxableEvents for sale of goods andprovision of services

& Impact on Inventory (at factory,depots)

& Impact of certain transactionmodels such as sales in transit,high sea sales, penultimate salesfor exports, Impact on existingInput Tax Credit (ITC) — underExcise, Service Tax, VAT etc

& Tax Impact on supply of goods/provision of services to off-shorelocations such as Mumbai High(eg. sales to oil rigs situated be-yond territorial waters of India).

& Impact on supply of goods/provision of services to SEZ,EOU, EHTP, STPI etc. locations

& Impact on of inter-State, inter-unit transfers, consignmenttransfers, transfer on returnablebasis (i.e. on lease or for repair)etc

& Impact of GST on cost associ-ated with packing, labeling, etc

& Impact on Work in Progress —Goods, Long Term Contracts forconstruction, lease, etc,provision of services alreadyunder progress.

Phase 2 — Challenges in Opera-tional Business vis-A-vis theFinance FunctionsAcross the world, it is generallyseen that the introduction of GSTreduces the tax burden on theultimate consumer and, hence, re-duction in general prices of goods.Accordingly, it is imperative thatoperational business functions suchas procurement, sales and market-ing etc shall be impacted under theGST Regime.& Procurement of Goods and

Services — Domestic (local vis-a-vis inter-State) and Imports,centralized and decentralized

& Remodeling of the ProductCosting

& Determination of pricing of theFinished Goods

& Need to develop new Sales

Model—ITC impact on accountof Inter State Sales/Transfer toDepots, restructuring of supplychain distribution aspects etc

> Planning for Capital expendi-tures during cut-off stage.

Phase 3 — Challenges in Docu-mentation and Compliances

As the GST would replaceCentral Excise, Service Tax andValue Added Tax, the same shallhave a significant impact on thedocumentation being used in com-mercial, accounting and compli-ances functions. Accordingly, theGSTSC will have to revamp thedocumentation, accounting andcompliances related function. Thesame would include:& Format of Purchase Orders and

Contracts& Format of Register for Raw

Materials, Finished Goods& Format of Register for allocation

of inputs and ITC to taxableGoods/Services and exemptGoods/Services

& Formats for input and outputregister (taxable/exempt)

& Format of Price Lists& Format of Invoices& Format of delivery challans& Policies for approving input

documents& Accounting for GST Charged

(i.e. SGST, and CGST/IGST)& Accounting for ITC Paid (i.e.

SGST and CGST/IGST)& Accounting for SGST, CGST,

IGST (charged or set-off) onaccount of purchase/salesreturns, discounts etc

& Systems of Determination oftimely payment SGST, CGSTand IGST Liability

& Filing of Returns and refundclaims

& Amendment to the StandardOperating Manuals—Policiesand Procedures



& Revamping of existing account-ing systems to suit the aboveGST requirements.

Phase 4 — Challenges in Infor-mation & Technology system

As most organizations todaywork on ERP/Real Time OperatingSystems, changes emerging canhave far reaching impact onorganizations. In this regard thereis a need to strategize/identifyon —& Significant areas where GST can

impact the Information Techno-logy system (own systems andintegrated systems with otherstakeholders like Vendors/Customers etc).

& Evaluation of the possibleimpact and strategies to addressthe same with minimal changesin the system.

& Considering continued legacysystems operating for some timeidentifying and addressing therelated challenges.

& Examine the need for a possiblerework on areas and formulat-ing a possible strategy for theorganization to enable achieveseamless migration.

& Working on methods to get thechange over IT strategy readyfor implementation.

Phase 5 — Challenge to upgradethe knowledge by continuoustraining

The GST Regime will need thatevery employee in the organizationis well aware of the im-pact of GSTon his day-to-day work. Accord-ingly, training would be an essen-tial ingradient in the initial stagesof the GST Regime :& In-depth training to the various

functional heads who willmonitor day-to-day work

& Initial training to all the em-

ployees whose routine day-to-day work shall be impactedwith the introduction of GST.

& Need to ensure appropriatelevel of awareness of otherstake holders like vendors,service providers/customers etcin case of companies wheresubstantial systems integra-tions are there with Vendors/Customers systems.Considering that GST shall be

altogether a new regime for theAdministrative Authorities, theregulations are bound to undergovarious changes based on thepractical experiences/difficultiesfaced during the implementationprocess. Accordingly, the GSTSCshould ensure that there are sys-tems of continuous training to theemployees/key stake-holders etcso as to enable to up-date theirknowledge at regular intervals.

Phase 6 — Challenge to mitigaterisk

Any migration will have itsaccompanying challenges. WithGST encompassing a number ofregulations covering both Centraland State regulations, the challen-ges are also significant. Everychallenge will bring with it finan-cial and legal exposure and liabili-ties. Some of the key tasks in thisarea would be to —& Ascertain some of the major

and significant impact areasconsidering the specific re-quirements of the business or-ganization where there is, orcan be, subjectivity and lack ofclarity which would result inpotential litigations with thevarious stakeholders, namelyVendors, Customers, Tax autho-rities etc.

& Categorize these impact areas

based on criticality/possiblefinancial impact.

& Work on addressing the issuesbought out by a more focusedstudy/interpretation of regula-tions and/or taking cues fromhow the industry in general isresponding to the same.

Phase 7 — Challenge to have effec-tive control mechanism

Day-to-day advisory in respectof the GST so as to ensure that theGST team in the organization isupdated with the latest changeswhich could have an impact onthe Establishment of an internalcontrol in line with the GST re-quirements :& Establish an internal control

environment that effectivelysupports GST processing >Review of the effectiveness/deficiencies in the GST modelimplemented

& Regular Reporting of the tran-sition to GST regulations

& Reporting of the impact of GSTon the costing, pricing, profit-ability

& Ensuring control and monitor-ing the regulatory changes un-dertaken having an impact onthe business organization

& The switchover regulations needto be carefully analyzed includ-ing the impact and the require-ments for the transition—

& Considering continued legacysystems operating for some timeidentifying and addressing therelated challenges.

Present scenarioThe draft GST Bill proposing

constitutional amendment to haveFourth List in the Constitution. Forthe purpose, a new Fourth List isproposed to be created in theSeventh Schedule of the Constitu-



tion. Designed to deal exclusivelywith GST, the Fourth List visual-izes a governing council headedby Union Finance Minister andcomprising State finance ministersas its members. The council willhave overriding powers on issuesof indirect taxes — neither Parlia-ment nor State legislatures can takean independent view. As of nowthere are three Lists — Union, Stateand Concurrent.

ConclusionIntroduction of GST being cer-

tain, strategies to meet the chal-

lenge and able to meet the desiredobjective one needs to have thor-ough understanding of the struc-ture of GST and be able to planwell in advance considering alldepartments in the Organisationto meet the change with properunderstanding and confidence.It is imperative that the CMA—being a senior member of theManagement—take the necessaryinitiative in educating and givingappropriate training to all con-cerned in the organisation to con-fidently face the challenge of im-plementing GST.

While GST is a welcomechange which aims to simplifythe regulations and makingbusinesses more tax efficient andwould be heralded as one ofthe significant Tax Reforms hap-pening in India in the recenttimes, the road ahead on imple-mentation is a turbulent one. ThusCMA’s role as a senior manage-ment personnel along with otherstakeholders in the business entityshould target to address thischallenge and effectively managethe change.❏


CANCELLATION OF REGISTRATIONUNDER REGULATION 25(1) OF CWA ACT, 1959

REGISTRATION NUMBERS CANCELLEDFOR DECEMBER 2010 EXAMINATION

UPTO

ERS/001320NRS/001792, 1800-1803, 1851-1987, 2071-2200, 2411-2423, 2441-2447

SRS/004483, WRS/004079, RSW/076209, RAF/005837

RE-REGISTRATION

The students whose Registration Numbers have been cancelled (inclusive of the studentsregistered up to 30th June 2003) as above but desire to take the Institute’s Examination in December2010 must apply for DE-NOVO Registration and, on being Registered DE-NOVO, Exemption fromindividual subject(s) at Intermediate/Final Examination of the Institute secured under their formerRegistration, if any, shall remain valid as per prevalent Rules.

For DE-NOVO Registration, a candidate shall have to apply to the Director of Studies in prescri-bed Form (which can be had either from the Institute’s H.Q. at Kolkata or from the concernedRegional Offices on payment of Rs.5/-) along with a remittance of Rs. 2,000/- (Rupees Two Thousand)only as Registration Fee through Demand Draft drawn in favour of THE I C W A OF INDIA, payableat KOLKATA.

Arnab Chakraborty,Date : 21st June 2010 Director of Studies


A Study on GST SystemPrevailing in Some OtherCountries of the WorldSujit Sikidar*

Kaveeta Maheswari*

* Research Scholar, Department ofCommerce, Gauhati University,Guwahati 14.

IntroductionGST—Goods and Service Tax is

catching attention of every personbelonging to the concerned govern-ment departments, business com-munity and apex bodies of tradeand commerce in India. India isplanning to implement a Dual GSTSystem where a Central Goods andService Tax (CGST) and a StateGoods and Service tax (SGST) willbe levied on the taxable value of thetransaction. The implementation ofGST in the country as proposed willlead to the abolition of other indi-rect taxes such as Octroi, CentralSales Tax, Central VAT, State VAT,Entry Tax, Stamp Duty, TurnoverTax, Tax on consumption or sale ofelectricity, etc. thus avoiding mul-tiple layers of taxation that cur-rently exist in the country. There-fore, the implementation of GST isexpected to bring a great change inthe indirect tax structure of thecountry.

Keeping this in mind,the present article has beendeveloped with the following ob-jectives :

i) To know the mechanism ofGST and how the GST system op-erates.

ii) To examine the existing sys-tem of GST in some other countriesof the world.

iii) To analyse the rates of taxesprevailing under GST in someother countries of the world.

MethodologyConsidering the objectives

stated above, the methodologyfor the study has been adopted asfollows :

Collection of DataThe primary data have been col-

lected through personal interviewswith tax officials, tax consultants,registered dealers, registeredassesses, etc.

The sources of secondary dataare the data available with variousdepartments, at websites, and thepublished data in newspapers andjournals.

Information from SecondarySource for International Study

To examine the structure of GSTand the tax rates prevailing acrossthe world, data have been collectedfor many countries, namelyCanada, Australia, China, Austria,Germany, New Zealand andSingapore.

GST – its MeaningGST – Goods and Services

Tax— is a Tax on goods and ser-

vices, which is leviable at eachpoint of sale or provision of service,in which at the time of sale ofgoods or providing the services,the seller or service provider canclaim the input credit of taxwhich he has paid while purchas-ing the goods or procuring theservice.

Having discussed the meaningof GST, it would be pertinent atthis point to examine the operatingsystem of GST as discussed here-under :

Levy of GSTThe dealers registered under

GST Act (manufactures, traders,service providers) are required tocollect GST at the specified rate oftax on goods & services that theysupply to customers. The GST pay-able is included in the price paidby the recipients of the goods andservices. The supplier must depositthis amount of GST with the Gov-ernment.

Input Tax CreditIf the recipient of goods or

services is a registered dealer,he will be able to claim a creditfor the amount of GST he haspaid to the supplier of goods orservice provider provided he holdsa proper tax invoice. Thus “inputtax credit” : is set-off against anyGST paid by dealer to the Govern-ment.

Ultimate burden of taxation onFinal consumer

The dealers under GSTcollects the tax from the consumerand makes payment to theGovernment. This means that thedealers act as collecting agentsfor the Government. The ultimateburden of the tax falls on thefinal consumer of goods andservices.



Compulsory Registration underGST

Dealers shall have to registerthemselves compulsorily withGST. These dealers will includesuppliers, manufactures, whole-salers, retailers and the serviceproviders, if a dealer is not regis-tered, he cannot charge GST andcannot claim Input Tax Credit.

No distinction between goods &services

Goods and Service Tax – GST—is a comprehensive tax levy onmanufacture, sale and consump-tion of goods & services. All goodsand services, barring a few excep-tions, will be brought into GSTbase. There will be no distinctionbetween goods and services.

GST in other countries of theworld

More than 140 countries ofthe world have implemented theGST system. Most of the countrieshave unified GST system. Braziland Canada follow a dual GST sys-tem where GST is levied by bothUnion and State Government.Indian Government is proposing toimplement Dual GST in India. Un-der Dual GST, the States will getpower to levy taxes on services.Presently the States have the powerto levy taxes only on Commoditiesunder the constitution.

Power to levy GST in some coun-tries

The division of taxation powersbetween federal and provincial

Government in Canada provides abright example for our adoption.Under the Canadian Constitution,the Federal Govt. can levy any taxand the provinces have the powerto levy any direct tax within theprovince. Thus, it includes allforms of income and wealth taxes.A sales tax or VAT is also viewedas direct if it is levied on the buyer/consumer but not on the vendor.The vendor acts as an agentbetween the Govt. and the con-sumer. As a result, there are twolevels of concurrent powers for alltypes of taxes, subject to the condi-tion that the provincial taxes canonly be levied on persons withinthe geographical boundary of thatprovince.

The Australian constitutionalsituation is that both the States andCommonwealth (Federal Govern-ment) have power to tax suppliesof goods and services. The Consti-tution prevents laws interferingwith inter-State trade and gives thepower to collect customs and excisetaxes exclusively to the provinces’Government. It is forbidden to theCommonwealth to tax State prop-erty.

In China, the GST laws andadministration are centralized, butthe revenues are shared with theprovinces.

In Austria and Germany, taxdesign is controlled by the Centre,but States collect the taxes.

In USA, the case is just oppo-site. Here the GST is levied by theStates only. The Centre collects rev-enue by levying income tax, cus-toms duty and excise duties on se-lected products mainly on motorfuels. It has reduced the depen-dence of the States on the Centre.

In New Zealand, there is a uni-fied GST system where only the

An example showing How GST System Operates on Goods &Services :

(Let us assume GST rate to be 10%)The cost of various goods purchased or services procured while

constructing a house are :

GST included in thepurchase Value

Purchase of Goods :Cost of Land 40,000 (10% of 40,000) = 4,000Cost of Material 20,000 (10% of 20,000) = 2,000

Purchase of Goods :Architect’s Fees 10,000 (10% of 10,000) = 1,000Labour Contractor Charges 20,000 (10% of 20,000) = 2,000

Total Value of the Building 90,000 Total GST = 9,000

Value Addition 10,000By the Builder

Sale Value 1,00,000

Now GST payable by the Builderat the time of sales 10% of Rs.1,00,000.00 = Rs. 10,000(–) Input Tax Credit = Rs. 9,000(GST included in the purchaseof goods or procurement of service)

Net GST payable = Rs. 1,000(10% of Value Addition,i.e. 10% of Rs. 1,000.00)



Centre has power to levy GST andthe States collect the GST formpeople.

GST rates prevailing in somecountries

Under the Canadian model ofHarmonized Sales Tax (HST), thetax is levied at a combined federaland provincial rate of 13% (5% fed-eral rate and 8% provincial rate).Tax design and collection arecontrolled by the Centre, but prov-inces have some flexibility to varytheir tax rates. The revenue fromthe tax are shared among the par-ticipating provinces on the basis ofconsumer expenditure data for theprovinces.

Successful GST models adop-ted by other countries have a verybroad base and a relatively modesttax rate, especially at the time ofinception. For example, NewZealand GST was introduced @10% with a base consisting of al-most all the goods and services.

The Singapore GST was intro-duced @ 3%, but the rate has nowbeen raised to 7% as inefficient ex-cises and custom duties have beenprogressively eliminated.

Findings :Rates of Tax Under GST

It has been observed during thestudy that most of the countrieshave adopted a moderate tax rateat the initial stage of implementingGST. The combined GST rate sug-gested by the empowered commit-tee in India for VAT is around 14%to 16% which is quite higher thanthe GST rate prevailing in othercountries of the world. But whenwe compare this rate with thepresent rate of taxation in India, itis comparatively low—Currentlythe combined indirect taxes onmost of the goods is around 20%.

Hence the GST rate, if it remainsbelow 15%, then the prices of thegoods are expected to fall in thelong run.

Tax Base under GSTMost of the countries have

adopted GST with broad tax basewhere almost all the goods and ser-vices are brought under the tax net,excluding some food items. There-fore, a broad tax base can be sug-gested while adopting a new GSTmodel.

Power to Levy GSTAs observed during study,

except Brazil and Canada, most ofthe countries have adopted unifiedGST where either the Union or theStates have the power to levy GST.In case of India, the proposedmodel of GST as suggested by theEmpowered Committee is the dualGST model where both the Centreand the States will be going the levyGST.

Conclusion Successful implementation of

GST in India is a challenging taskfor the government. This will needconstitutional amendments givingpower to the states to levy tax onservices, fixation of GST rates forvarious items, issues like sharingthe revenue between the Centreand the States, issues like inter-State movement of goods andservices, development of properinformation & technology systemand other administration in-frastructure required for success-ful implementation of GST. Infact, with multiplicity of tax re-gimes in India, it is the second-most complex country in the world—after Brazil—as noted by An-thony Mc-Clenaghan, the globalindirect tax leader. Therefore, for

successful implementation ofGST, the country should take les-sons from other countries of theworld. The comparative picturedepicted above would guide us toadopt a system which is most be-fitting for our federal polity and, atthe same time fulfilling the regionalfiscal aspirations in finally regionalgrowth of fiscal revenue.

1. There will be dual GSTnamely : Central GST (CGST) andState GST (SGST). GST would coverall types of goods and services.There will be no distinctionbetween goods and services,both of them will be treated as acomposite unit for levy of tax.

2. For inter-State transactionsthrough which the GST paid by theselling dealer in one State will be-come input tax credit for the buy-ing dealer in the other State.

3. The tax paid in exportingState will be transferred to thecoffers of the importing State.

4. The GST regime would trans-form and be changed from pro-ducer based to consumer basedtax framework. Hence the tax willtravel with goods and servicesfrom selling state to the buyingstate; from the producer point tothe consumer point.

5. All other indirect taxes likeoctroi, and entry tax, electricityduty, stamp duties on financialservices and real estate would besubsumed in GST. There will beuniformity in classification ofgoods and services and processes.❏

References■ Service Tax Weekly, Taxmann

Publications, New Delhi.■ www.gmail.com

■ www.yahoo.com

■ Discussion paper of Empoweredcommittee on GST



Taxation Awarenessof MBA students �Role of professionalsCMA Shilpa Parkhi*

Abstract

his paper is an outcome ofan exploratory researchcarried out by the researcher

to understand the awareness oftaxation in India amongst the stu-dents of Master of Business Ad-ministration (MBA) with special ref-erence to Nasik city. MBA gradu-ates enter into business world inthe management cadre where theyare expected to take lot of businessdecisions which have financial im-plications. When the decisions arein Indian context, taxation struc-ture in India is an integral part ofit. Sound knowledge about thecountry’s tax policy helps in de-cision making. Keeping the objec-tive in mind to understand thecurrent level of awareness and somemeasures to improve it the researchwas carried out.

Business managers with inad-equate tax knowledge may sufferin business decisions and, as, whole—the economy of the country inturn. The direct taxes are influenc-ing income earners but indirecttaxes are influencing every com-mon citizen of the country and havegreat social impact. Cost Accoun-tants—as experts in the Indirecttaxes—can take lead and dissemi-

nate the knowledge of taxationacross the country. Understandingthe forthcoming GST tax regimeand Direct Tax Code; CostAccountants have a very vital roleto play which will facilitate thebetter tax administration.

1. IntroductionMaster of Business Administra-

tion (MBA) is the course offeredby many institutes under the guide-lines of All India Council forTechnical Education (AICTE) andUniversity Grants Commission(UGC) in India. The students whoqualify in this examination nor-mally follow either of the routes—one is employment in businessworld, and second is entrepreneur-ship.

Business decisions necessarilyinvolve various financial decisions.Taxation is one of the importantareas which affect the profitabilityof the business when it comes toreturns on investments. Researcherwas interested in understanding thelevel of awareness of these MBAgraduates in the field of taxation.Normally, for those who studyfinance as specialization, it iscovered in their curricula but thestudents of other specializationsalso should know about the taxa-tion policy of India.

Every citizen of the countryearning income in India is liable

* Fellow member of ICWAI and aCompany Secretary. AssociateProfessor, Symbiosis Institute ofOperations Management, Nasik

to pay Income Tax after the basicexemption limit is crossed. Simi-larly, every consumer of productor service covered under respec-tive tax laws is indirectly payingthe tax on it.

Business activity or renderingof service in India, exporting andimporting product(s) or service(s)in India attract different types oftaxes at different points of time.There is no single point tax pro-vision in India; due to this, un-awareness of taxes may lead to taxavoidance or tax evasion. Howso-ever unintentional it is; it will attractpenal provisions and variousenforcement actions. In order tosafeguard from these aspects onemust possess basic understandingof taxes even though advance levelof tax provisions and procedurescan be complied with the help oftax practitioners.

The MBA graduates—who arethe business policymakers downthe line—must have adequateknowledge of taxation as theirdecisions not only affect theirbusiness but also the society at large.The direct taxes may affect incomeearners only but the indirect taxesare influencing the life of every com-mon citizen of the country. In thiscontext, first understanding thepresent knowledge level and sug-gesting the measures for the en-hancing it are attempted in thisresearch. Professional institutesneed to take active part in this socialawareness program which will helpthe profession and also the countryas a whole. Cost Accountants arealways instrumental in indirect taxfiled and considered as experts inthese taxes which form the majorpart of the economy of the country.ICWAI can contribute towards thissocial motto and also impact thebusiness in more efficient way.

Recent Developments in Finance

T


2. Literature ReviewThe experts and tax consul-

tants are always available but abusiness decision maker needs tounderstand whom to approachand at what time with his tax-problem. Many a times it is ob-served that the experts are consul-ted in crisis situation ratherthan following the fundaments ofthe law. Understanding of taxes isnot a luxury but a necessity ofbusiness decision makers (RafiMohd, 2009).

There are two types of users oftaxes—one who pay taxes i.e.citizens, and one who guide fortaxes, i.e. tax professionals(Govindan, N.S., 2008). Both theset of people need tax awarenessat different levels (Vaitheeswaran,K., 2008), Professionals follow thestringent guidelines of the taxes(Jain, R. K. 2007), whereas thefundaments are adhered to(Raghuraman V. & Hiregange.,2007), Managers are required totake decisions—that is not the timeto go back to books (Kohli, D. N.,2007); in this scenario the funda-mentals of taxes do play significantrole (Sarangi, G., 2007) These viewsare supported by many tax experts(Nagarajan, Viswanathan., 2005),(Datey, V .S., 2004), (Popat, R. B.,2002).

Researcher reviewed the articleabout the economic awareness ofadults made by Barlow, W. andC. Kaufman, 1975—Increasing theeconomic understanding of adults.Public Relations Review 1 (Sum-mer) : p14-22. In American context,Caplan, B. 2001—What makes peoplethink like economists? Evidence fromthe Survey of Americans and Econo-mists on the Economy. Journal of Lawand Economics, 44:395-426. Co.relation of MBA students in Indiaand economic literacy was studied

by Koshal, Rajindar K. & Gupta,Ashok K., 2008—Assessing EconomicLiteracy of Indian MBA Students,American, Journal of Business,vol.23, no.2, p 44-50. Finance re-lated subject warrant sound knowl-edge of taxes for investment pur-poses; this is evident from researchwork of Volpe, R. P., H. Chen andJ. J. Pavlicko, 1996—Personal invest-ment literacy among college students:A survey. Financial Practice andEducation 6(2):86-94. The need forthe study can be established un-derstanding the gap that existsbetween expected bare minimumknowledge and the actual knowl-edge.

3. Objective and Scope of thestudy

Objectives of the study were :1. To understand the awareness

level of MBA students aboutIndian Taxation system as futurebusiness managers and decisionmakers.

2. Identify the gap between theexpected level of understand-ing and the actual level gaugedthorough the answers collectedfrom MBA students.

3. To suggest the remedial mea-sures to bridge the gap—if itexists.Considering the above objec-

tives the scope of the study isextended only for the students ofthe management institutes in theselected geography. The studentsof second year of study withspecialization other than Financeare covered for sample.

4. Research MethodologyThe research is an exploratory

research and the data collection isdone through the questionnairesdistributed to students of MBAsecond year. According to MBAcurricula across Indian universi-

ties, it is a two year course wherespecialization is studied in thesecond year. This is the reasonwhy the sample as per stratifiedrandom sample method is se-lected—one from MBA institutewhich does not provide Financespecialization, and one Instituteas a representative where Financespecialization is offered. Thusthe sample consists of all the stu-dents who have not studiedFinance as a special subject. As-suming the same level of under-standing, no gender specific infor-mation is collected so as to inferabout taxation awareness. Theaverage age of the respondents is25 years.

5. Data Analysis and Interpreta-tion

The geographical boundary ofthe study is restricted to Nasik citywhere there is only one MBAinstitute which does not offer fi-nance specialization and for thesample design one institute whereit is offered are selected. Consid-ering the population of 180 students,both institutes taken together thesample size is restricted to 100numbers of respondents.

The questionnaire was circu-lated amongst all 180 students ofthe institutes and around 120 werereceived back. From that, 18 wereincomplete in nature. 100 amongstthe collected one were chosenrandomly and the data analysis andinterpretation was carried out.

The method followed was :researcher visited the institute anddistributed the set of questionnairesin respective class. The concept andthe objective of the study wereexplained to respondents. Theconfidentially of the data so col-lected and also pure academic useof information derived was assuredto the respondents.



A questionnaire consisting ba-sic level question on taxation wasprepared and circulated amongstthe students. The questions werecovering the direct and indirecttaxes such as Income Tax, ExciseDuty, VAT, Service Tax, andCustoms Duty. Considering theattri-butes of the sample of MBAstudents the questions weremore focusing on the present un-derstanding, the willingness andattitude to gain knowledgeabout taxation and also tounderstand whether the partici-pants are aware of the sources ofinformation which are availablenow about taxes in India. Dataanalysis is done with the help ofdescriptive statistics such asmean, frequency etc.

Major findings of the study : Thequestionnaire for the purpose ofanalysis was divided in four groups.Considering the difficulty level ofquestions it was expected that morethan 85% of sample will respondaccurate answers.

1. Basic Understanding/Aware-ness about Indian Taxation:Questions of this category were :1.1. What type of tax structure isfollowed in India?—Flat rate tax struc-ture or Progressive tax structure.

Only 72 percent of the respon-dents could answer it correctly.This indicates that reasonablyeducated students still need to knowabout the taxation structure of thecompany.

Incorrect Correct

28% 72%

1.2. Classify taxes as Direct tax orIndirect tax. List of taxes was givenas Income Tax, Service tax etc.

On an average 69 percent couldgive correct answers while 31per-cent were wrong in even classify-ing the tax as Direct or Indirect.Difference between the direct andindirect tax is not very clear to thestudents. This may lead to unin-tentional tax evasion or avoidance.

Incorrect Correct

31% 69%

1.3. Who levies and collect taxesin India?

Central Government, StateGovernment etc.

71 percent students could an-swer it correctly whereas 29 per-cent wrote wrong answers. Thefederal tax structure followed inIndia is required to be explainedto the students who are futurebusiness managers in order tosystematizing the revenue collec-tion for government.

Incorrect Correct

29% 71%

2. Specific tax related questions:this category covered questionsrelated to Excise Duty, VAT, SalesTax, Customs Duty, Service Taxetc.2.1. When Central Excise duty isapplicable?

48 percent students could an-swer it correctly whereas 52 per-

cent wrote wrong answers. Studentswere not aware about the appli-cability of Central Excise Duty.

Incorrect Correct

52% 48%

2.2. Who is liable to pay CentralExcise Duty?

64 percent students could an-swer it correctly whereas 36 per-cent wrote wrong answers. Who isliable for excise duty payment isvery vital in manufacturing busi-ness and the managers of futureare required to be trained about it.

Incorrect Correct

36% 64%

2.3. When is VAT payable?67 percent students could an-

swer it correctly whereas 33 per-cent wrote wrong answers. Whenliability under the respective taxesarises should be known to thebusiness managers in order to avoidthe non-compliance.

Incorrect Correct

33% 67%

2.4. Who is liable to pay Sales Taxto Government?

64 percent students could an-swer it correctly whereas 36 per-



cent wrote wrong answers. Studentswere not informed about the con-cept of State Sales Tax and CentralSales Tax with difference betweenthe two.

Incorrect Correct36% 64%

3. Attitude and willingness to learnand acquire knowledge about thetaxes. This category of questionswas on understanding of willing-ness to learn and gain moreknowledge abut taxes.3.1. Do you feel that all MBAgraduates must know basics of taxesin India irrespective of area ofspecialization?

90 percent of the studentsconsented that yes it is essentialwhereas 10 percent were havingother view on the question. Thisshows that the willingness andattitude to know about the taxesis there which can be well attendedby proper training workshops.

No Yes

10% 90%

3.2. The views were collected tounderstand the willingness to learnmore about taxes by attending aworkshop.

90 percent of the students con-sented that yes it is essential whereas10 percent were having other viewon the question. The gap betweenthe need to know and currentknowledge needs to be bridged.

No Yes

10% 90%

4. This set of questions was lookingfor the awareness in terms ofresources available to get knowl-edge about taxes.4.1. Question asking to name theresources to obtain tax informa-tion.

General answers such as Internetor News etc were received. It hasbeen observed that the studentswere not aware of the governmentofficial sites where all authenticateinformation on taxes is availablesuch as www.cbec. gov.in,www.incom etaxindia. gov.in etc.

4.2. When asked about ways toimprove knowledge some of thestudents suggested the inclusion ofthe subject in curriculum whilesome suggested that this topicshould be made mandatory forMBA as a whole.

4.3. The views were collectedto understand the willingness tolearn more about taxes by attend-ing a workshop.

90 percent of the studentsconsented that yes it is essentialwhereas 10 percent were havingother view on the question.

Considering the views andanswers collected through thequestionnaire circulated amongstthe sample respondents it wasevident that the awareness level—specially related to specific taxessuch as direct and indirect taxes—was considerably low.

The citizen may be a part ofany trade or business or an entre-preneur of the country who is an

integral part of the economy andcontributes towards the nationalGDP; is expected to be reasonablyaware of tax structure of thecountry. Taking forward this pointthe remedial measures can bedevised. In the opinion of theresearcher there can be a founda-tion course for such topics duringthe MBA program, which mayimpart the fundamental cross—functional inputs. The detailedstructure of this foundation courseis explained in the conclusions andrecommendations.

6. Conclusions and Recommen-dations

The fundamental knowledgesof taxes is inevitable for anyperson staying in the country andcontributing in the businessworld. The assistance from theexperts or consultants can be soughtat the later stage where one un-derstands whom to approach andfor what.

One of the questions in thequestionnaire was to gauge theawareness amongst the studentsabout forthcoming tax i.e. GST;hardly twenty percent studentswere aware about it while eightypercent were not.

To bridge the gap betweenwhat is expected and what exactlyis known the training workshopsare recommended. The structureof the workshop can be a two-daytraining with basic and interme-diate level of knowledge. Thespecific objective of the workshopis to create awareness abouttaxes in the country in businessperspective.

Global recession has helped theenterprises to survive on the basisof effective cost and managementstrategies. The tax structure in theproduct costing plays a vital rolewhich gives a competitive edge in




the present era. Studying theproposed Direct Tax Code (Section29) it is evident that the plant-wise profitability is required tobe furnished, which can be calcu-lated only based on Costing prin-ciples.

The CMAs have great role toplay in this regime. Similarly, Goodsand Services Tax (GST) is approach-ing fast which is based on theprinciples of VAT and CENVATof indirect taxes. All these are goingto impact the business to a largeextend. Looking at the future theCMAs are expected to lay the pathby walking it.

The professional institutessuch as ICWAI, ICSI and ICAIcan take the initiative with thehelp of the well spread chapteroffices and offer the trainingmodules in taxation for variousmanagement institutes in respec-tive jurisdictions to offer the pro-posed programs. This will facilitatethe growth of the profession andcontribute towards growth of thecountry as well. ❏

References and Bibliography1. Datey V .S., 2004, Indirect Tax

Law and Practice, New Delhi,Taxmann Publication.

2. Govindan, N.S., 2008, IndirectTaxes Made Easy: Central Excise,Customs and Service Tax, Chennai,C. Sitaraman & Co. Pvt. Ltd.

3. Jain R. K., 2007, Central Excise Tariffof India : with Service Tax ReadyReckoner, New Delhi, CentaxPublication

4. Kohli, D N., 2007, Manual of CentralExcise, Law & Procedure in India,Noida, CEN-CUS Budget Publica-tions.

5. Nagarajan, Viswanathan., 2005,Indirect Taxes: Central ExciseCustoms & Service Tax, Hyderabad,Asia Law House.

6. Popat, R.B., 2002, Master Guide toIndirect Taxes, Mumbai, ShreejiPublishers.

7. Rafi Mohd., 2009, Indirect Taxes:Containing Central Excise Customs,Service Tax VAT & CST, New Delhi,Bharat Law House.

8. Raghuraman V. & Hiregange., 2007,Central Excise law & procedure,New Delhi, Centax Publication.

9. Sarangi G., 2007, Central Exciseguide for small scale industry, NewDelhi, Centax Publication.

10. Vaitheeswaran, K., 2008, StudentHand Book on Indirect taxes:Central Excise, Customs & Servicetax, Mumbai, Snow White Publi-cation.

Journal Articles1. Barlow, W. and C. Kaufman. 1975.

Increasing the economic understand-ing of adults. Public Relations Re-view 1 (Summer) : p 14-22.

2. Caplan, B. 2001. What makespeople think like economists? Evi-dence from the Survey of Americansand Economists on the Economy.Journal of Law and Economics,44 : 395-426.

3. Koshal, Rajindar K. & Gupta, AshokK., 2008, Assessing Economic Literacyof Indian MBA Students ,AmericanJournal of Business, vol. 23. no. 2,p 44-50.

4. Volpe, R. P., H. Chen and J. J.Pavlicko. 1996. Personal investmentliteracy among college students: Asurvey. Financial Practice andEducation 6(2):86-94.

SGST sales, or vice versa. In anycase if any short payment is de-tected it will attract penalty. Therewill be chances of payment of highertaxes as well. Filing a GST returncorrectly will be a real hard taskfor them. Internationally, manyconsultancy firms are assistingthese groups by checking theirsales and expense statements andhelping to maximize recoveryunder VAT. They have developedspecial software force for thepurpose which would cater to theneed of many at a time. To reachthese category our institute mayinteract with various small andmedium industries associations

and organize workshop or seminaron voluntary basis. This will notonly help to improve the imageof the institute but also ensureregular inflow of business for itsmembers.

ConclusionsToday’s commercial world is

changing fast. With every changeit is offering new challenges for thefinance professionals who are aninseparable part of this world. Acost and management accountanthas got every qualification to acceptthis challenge and assert his po-sition. It is certain that he will beable cope up with the changescoming along with GST regime and

render his valuable services tovarious interested parties and tothe nation as a whole. ❏

References :■ Report of the Task Force on

GST, Thirteenth Finance Commis-sion—15/12/2009

■ Articles—Sukumar MukhopdhyaBS

■ Articles on HST/GST—CyndeeTodgman

■ GST audit/ can GST cut cost —Kor Bing Keong

■. FAQ on GST/how GST affects or-ganization

■ News report on GST/VAT■ Wikepedia on GST/VAT practices

in various countries

Contd. from Page 578


Testing the Beta Stabilityof Banking Sector overvarious phases in IndianStock MarketCMA Roopam Kothari*

Narendra Sharma**

Abstract

resulted in the emergence of theIndian stock market as one of theleading and well-built stock mar-kets in the global economy. Theother prominent impact of finan-cial sector reforms has been on theimprovement of the financialhealth of the commercial banks.(AK Purwar, Chairman , SBI Ltd.,2001-02).

Lot of emphasis has been laiddown by the investment managerson the sectoral performances in theprocess of creating an optimalportfolio for an investor. The ef-fectiveness of a portfolio is reflectedin the over — or under-performanceof the portfolio vis-a-vis the marketportfolio. Research results can bedifferent for portfolio effectivenessin long run and short run. Our studyaims at creating a stock portfoliowhich represents all the bankingstocks traded on the BSE at anypoint of time, testing the beta stabi-lity and evaluating the abnormalreturns on the banking portfoliowith respect to Sensex. The sameanalysis is done for the public andprivate sector banking portfolios.

Review of LiteraturePerformance evaluation to a

large extent depends upon the field

of application, goals and method-ologies used (Bana Abuzayad andPhilip Molyneux, 2009). Accoun-tants are concerned more aboutbook value, economists are inter-ested in finding out the fair value,whereas an investor is keen toknow the excess return which thestock or portfolio is generatingover and above some benchmark— generally the market portfolio.

Lot of research studies have beenconducted to evaluate the long runefficiency of banking sector usingaccounting data and the initial stockreturns to isuue (Megginson et al,2000). Several studies have beenconducted to study the impact ofprivatization on the efficiency ofthe banking sector. Levis (1993),Menyah et al (1995) and Menyahand Paudyal (1996) found signifi-cant positive abnormal returnsin the long run for UK SIP’s(Share Investment Privatization).Aggarwal et al (1993) found an in-significant negative return for aperiod of three years for ChileanSIP’s.

T T Ram Mohan(2003) exam-ines the long term returns to stocksof public and private sector banksin India. The research results provedthat PSB stock’s performance onthe average was not significantlydifferent from that of SENSEX orfrom that of private sector bankingstocks.

Risk and return are two impor-tant parameters to determine theperformance of the portfolio. Themeasure of systematic risk is knownas beta. It quantifies the expectedreturn of the security based uponthe actual return of the market port-folio. Evaluation of the factor sen-sitivity (beta) can be done in manyways depending upon the assump-tions of the model (Black 1993). Themost widely used method is linearregression, which assumes the con-

ur study aims at creatinga banking stock portfoliowhich serves as a repre-

sentative of all the banking stockstraded on Bombay Stock Exchangeand testing the beta instability ofthe banking sector stock portfolioover various phases in the Indianstock market. We also evaluate themonthly stock price returns of thebanking portfolio vis-a-vis themarket portfolio from the periodranging from July 1994 to Decem-ber 2008. The journey of Sensex dur-ing the span of past fourteen yearsin the post liberalization period hasbeen divided into three phasesbased upon technical analysis. Anattempt is made to evaluate the un-der/over performance of the bank-ing stock portfolio returns undervarious phases.

IntroductionEquity Investment has evolved

as one of the most preferable in-vestment options amongst theinvestor fraternity in India. Gradualreforms in the financial sector have* AICWA, Sr. Assistant Professor,International College for Girls, TheIIS University, Jaipur.

** Faculty Member, Jaipuria Instituteof Management, Jaipur.

O



stancy of the parameters over thehistorical sample period.

Baesel (1974) studied the impactof the length of the estimation in-terval on stability of beta estimatedwhere betas were estimated usingestimation intervals of one year,two years, four years, six years, andnine years. It was found that betastability is directly proportional tothe length of the estimation inter-val. Theobald (1981) found that thetime period used for the estimationof beta with increased functionaffects stationarity.

In a very relevant study to ourpresent research, Allen et al (1994)have compared the stability of betacoefficients for individual securi-ties and portfolios. The general per-ception is that the portfolio betasare more stable than those for in-dividual securities. Because of wideapplication of beta, the issue of sta-bility of beta takes the center stage.The stability of beta estimates basedon historical returns has foundimportance both in the investmentindustry as well as academic world.They argue that if the portfolio betasare more stable than those forindividual securities, greater con-fidence can be placed in portfoliobeta estimates over longer periodsof time. But, their study concludesthat greater confidence in portfoliobetas is not justified.

The studies of Sunder (1980),Collins et al (1987), Brooks et al(1992, 1994, 1997) advocates thatthe instability in beta is driven bymacroeconomic factors. Shan andAlles (2000) examined the stabilityof the Australian industry beta, inrelation to the variation of key mac-roeconomic factors. Betas of sev-eral industries were found to besensitive to at least one or two mac-roeconomic factors. The exchangerate factor was observed to be in-

fluential on the beta variability ofmost industries, while current ac-count balance, trade balance, in-terest rates, and unemploymentwere influential in the case of someindustries. Brooks et al (1998) ex-plored the issue of beta instabilityin the Singaporean stock marketover the period 1986 to 1993. Theanalysis revealed a very high oc-currence of beta instability. Theresults of the study were insensi-tive to whether the betas are mea-sured through OLS or Dimson(1979). Further, the results werealso insensitive to the Marketindex chosen for measuring themarket rate of return.

Chawla (2001) examined thestability of beta using monthly dataon returns for the period April 1996to March 2000. The stability of betawas tested using two alternativeeconometric methods such as in-corporating time variable in theregression and dummy variablesfor the slope coefficient. Both themethods reject the stability of betain majority of cases. Moonis andShah (2002) tested the hypothesisof constant beta which was rejectedfor 26 of 50 stocks. They found thatthe Indian stock market exhibitssymptoms of time-varying betasand the tendency of beta to be meanreverting, and show little evidenceof beta as a random walk process.Odabasi (2003) studied the betainstability in the Istanbul StockMarket, where it has been foundthat betas are time varying.

Secondly, the incidence of betainstability at about 80% for the fulleight-year interval is a high scorecompared to the scores for similarlength periods in the studies madeearlier. Similar statement can beput forward for the score of about65% in the case of four-year sub-periods. Third, the incidence of in-

stability gets lower as the estima-tion sub-period shortens.

Haddad (2007) investigated thedegree of return volatility persis-tence and time-varying behaviorof systematic risk of two Egyptianstock portfolios. He used theSchwert and Seguin (1990) marketmodel to examine the relationshipbetween market capitalization andtime varying beta for a sample ofinvestable Egyptian portfolios dur-ing the period January 2001 to June2004. According to the findings ofHaddad, the small stocks portfolioexhibits difference in volatility per-sistence and time variability. Thestudy also suggests that there areevidences that the volatility per-sistence of each portfolio and itssystematic risk are significantlypositively related. Because of that,the systematic risks of different port-folios tend to move in a differentdirection during the periods of in-creasing market volatility.

Objective and rationale of thestudy

Objective of the study :1. To study the trend of move-

ment in SENSEX in the post-liberalization era.

2. To test the beta stability ofthe banking sector portfolio overvarious phases in the market.

3. To compare the beta sta-bility of public sector bankingportfolio and the private sectorbanking portfolio over the variousphases.

4. To compare the residualreturns of public sector bankingportfolio and the private sectorbanking portfolio over the variousphases.

The rationale behind selectingthe banking sector lies in thefollowing facts :

Economic reforms initiated in1991. During the period 1991-2000,



Banking sector as well as Indianstock market was experiencingnew dimensions of the growth.That was the consolidation phasefor both banking sector as well asthe stock market. Our study com-prises of the growth cycle ofSensex. The log normal returnsof both the SENSEX and Bankingportfolio are plotted on the linegraph. The movement of returnsin the quadrants appears to be samefor both the SENSEX and the bank-ing portfolio (Figs. 1 and 2).

Phase 3 : January 2008 –December 2008

tify 29 portfolios in all, represent-ing almost the 90% of the totalmarket capitalization of the bank-ing stocks on BSE. On the similarparameter, we further createpublic and private bank portfolio.

Though the Sensex and the shareprices shows the non-stationaritybut log normal returns of the Sensexof the banking portfolio depicts thestationarity (Refer figs. 1 and 2).Assuming the homoscedasticity ofthe error variances in the variousphases, we apply the dummyvariable regression model to testthe beta stability as well the sta-bility of alpha (á).

Following regression model isused for our analysis :

Rp =a1 + a2D1 + a3D2 + b1Rm +b2(D1Rm) + b3(D2Rm) + ut

whereRp = return on banking portfolioRm = return on SensexD1 = 1 for phase 2 (January 2004–December 2007)D1 = 0, otherwiseD2 = 1 for phase 3 (January 2008–December 2008)D2 = 0, otherwiseut = error term/residual returna1, a2, a3, 1, b2 and b1 are coefficientsto be estimated.Therefore, the equation for phase1 will be :Rp =a1 + b1Rm + ut

Fig. Graph prepared on the basis of lognormal returnscalculated on the closing Sensex values and closing

prices collected from www.bseindia.com

This graph states that thereshould be high correlation in thesetwo portfolios. The Pearson corre-lation coefficient was calculated.There was high degree of corre-lation in both the portfolios at 1%significant level.

MethodologyOn the basis of 12-months’

Exponential Moving Average(EMA) of Sensex , the entire periodranging from 1994 to 2008 has beencategorized into three phasesPhase 1 : July 1994 – December

2003Phase 2 : January 2004 –

December 2007

Portfolio revision is done after everysix months. We were able to iden-


In this paper, banking sectorcomprises of the portfolio consist-ing of the banks listed on BSE. Sinceour study is based upon the post-liberalization period which coin-cide with the period when thebanking sector was in its nascentphase and not many banks werelisted on BSE.

The asset allocation strategyfollows following steps :

Firstly, based upon the datacollected from Prowess Database,the banking portfolio has beencreated which represents almost90% of the market capitalizationof all the banking stocks listed andtraded on the BSE during the timespecific. Secondly, Weights to beassigned to each security in theportfolio is based upon its marketcapitalization. Thirdly, perfor-mance of banking portfolio isevaluated in three phases, with asix monthly rebalancing strategyto optimize the portfolio. Fourthly,the average monthly returns of thebanking portfolio have been cal-culated on the basis of weightedaverage market capitalizationmethod.

In 1994, there was no specificsector index for the banking sector.Very few banks were traded onBSE. Hence, initially the bankingportfolio consists of only two banks(representing 90% of total marketcapitalization of banks on BSE).

Source : Graph prepared on the basis of monthly Sensex values collected from www.bseindia.com


Equation for phase 2 will beRp = a1+ a2D1+ b1Rm + b2 (D1Rm)+ut

Equation for phase 3 will beRp= a1 + a3D2+ b1Rm + b3 (D2Rm)+ut

The beta would be stable overthe three phases if the terms b2 andb3 are insignificant. The significanceof b2 and b3 can be tested usingeither the t statistic or the corre-sponding p value. If both b2 andb3 or any one of the two terms(b2 and b3 ) are significant, then thebeta of the portfolio is deemed tobe unstable over time.

The same process is repeatedto check the stability of beta of thepublic as well as the private sectorbanking portfolio.

Data Collection: Data regardingmonthly closing prices of the bankshaving the scrip codes with BSE,Closing Monthly values of BSE Sensexand the Monthly Market Capitaliza-tion of the banks have been collectedfrom Prowess data base. SPSS soft-ware has been used for the purposeof Analysis and Graphs.

Result and Analysis1.Testing the Beta stability of

the banking sector portfolio, PublicSector banking Portfolio and Pri-vate sector Banking Portfolio overvarious phases in the market :Beta stability is tested using thedummy variable regression analy-sis. The results are summarized inTable 2 :

The above results of beta valuesshow that b2 and b3 are insignifi-cant at 5% confidence level. There-fore we accept the null hypothesisthat the beta values of the bankingsector portfolio, Public SectorBanking Portfolio and PrivateSector Banking Portfolio does notexhibit the time varying behaviorover various phases in the stockmarket. These results support theview that the variability in betamay be reduced through diversi-

over various phases in the Indianstock market.

ConclusionThe above study reveals that the

banking sector has been an aggres-sive sector as the beta value of BSP,PubBSP and PvtBSP is greater thanone and is significant at 5% con-fidence level. Further, when wecompare the beta values of PubBSP

fication. Hence, in order to assessthe abnormal or residual returnson the banking portfolios, wemay consider the regression equa-tion obtained from static betamodel.

2. Residual Return AnalysisThe average residual returns of

the banking sector portfolio havebeen summarized in Table 3. The

Table 2 BETA VALUES

Static Beta Asymmetric Beta

b b1 b2 b3

Banking Stocks Portfolio 1.105 1.065 0.134 0.147

0.000 0.000 0.420 0.435

Public Sector Banking Portfolio 1.102 1.095 0.116 0.063

0.000 0.000 0.561 0.782

Private Sector Banking Portfolio 1.078 1.005 0.125 0.256

0.000 0.000 0.574 0.31

Source: Result of Regression Analysis

results of t statistics shows that theresidual returns of BSP, PubBSPand PvtBSP in all three phases areinsignificant at 5% confidence level.Therefore, we accept the nullhypothesis that the BSP, PubBSPand PvtBSP performed fairly vis-a-vis the benchmark index Sensex,

and PvtBSP, it is found that thePublic sector banks are moreaggressive as compared to thePrivate sector banks. The betavalues of banking sector portfoliodoes not exhibit the time varyingbehavior. We may thus concludethat the beta of banking sector in


Table 3 Average Residual Returns

Phase 1 Phase 2 Phase 3

Banking Stock Portfolio -0.0028 0.0043 0.0139

Sig. Value (at 5% confidence level) 0.631 0.605 0.52

Public Sector banking Stock Portfolio -0.0034 0 0.0286


Private sector banking Stock Portfolio -0.0014 0.0049 -0.0077



Indian stock market has demon-strated a stable behavior overvarious phases. This conclusionmay not be applicable on theindividual banking stocks. Re-searches show that the beta ofportfolio is more stable than theindividual stock betas; hence, fur-ther research may be conducted totest the beta stability of individualbanking stocks.

We restrict our study to test thebeta stability and the abnormalreturns of the banking sector as awhole in the Indian stock marketin the post-liberalization period.The residual returns analysis of thebanking sector further reveals thatall the three portfolios did notgenerate any significant abnormalreturns at 5% confidence level, overthe various phases in the Indianstock market. ❏

References� Sunder, S. (1980), “Stationarity of

market risks: Random coefficienttests for individual stock.” Journalof Finance, vol. 35, pp. 883-896.

■ Alexander, G. J. Benson, P.G. (1982),“More on beta as a random coef-ficient” , Journal of Financial andquantitative Analysis, Vol.17, pp.27-36.

■ Baesel, J. B. (1975), “ On the Assess-ment of Risk: Some Further Con-

siderations”, Journal of Finance,vol. 29, pp. 1491-1494.

■ Theobald, M. (1981), “ BetaStationarity and Estimation Period:Some Analytical Results”, Journalof Financial and QuantitativeAnalysis, vol. 16 , pp. 747 – 757.

■ Chen, S. and J. D. Martin (1980),“Beta Nonstationarity and PureExtra-Market Covariance Effects onPortfolio Risk”, Journal of Finan-cial Research, Fall 1980, pp. 269-282.

■ Levis, M. (1993), “The long–runperformance of initial public offer-ings: the UK experience”, FinancialManagement, vol. 22, pp. 28-41.

■ Menyah, K., Paudyal, K. andInyangete, C. (1995), “Subscriberreturn, underpricing and long termperformance of UK privatizationinitial public offers”, Journal of Eco-nomics and Business, Vol. 47(5),pp. 473-495.

■ Menyah, K. and Paudyal, K.(1996), “ Share issue privatizations:the UK experience”, in Levis, M.(Ed.), Empirical Issues in RaisingCapital, Elsevier, Amsterdam, pp15-48.

■ Purwar A. K. (2003), Annual Capi-tal Market Review 2003, Availableat :http://www.bseindia.com/downloads/BankingSector.pdf

■ Carbó, Santiago & Humphrey,David & Maudos, Joaquín &Molyneux, Philip (2009), “Cross-

country comparisons of competi-tion and pricing power in Euro-pean banking,” Journal of Interna-tional Money and Finance, Elsevier,vol. 28(1), pp 115-134.

■ Aggarwal, R., R. Leal, and F.Hernandez (1993). “The Aftermar-ket Performance of initial Offeringsin Latin America”, Financial Man-agement, vol. 22, pp. 42-53.

■ Ram Mohan, T. T.(2003), Long-runPerformance of Public and PrivateSector Bank Stocks in India”,Economic and Political Weekly,vol. 38(8) , pp. 785-788.

■ Gregory-Allen, R., C. M. Impson,and I. Karafiath (1994), “ AnEmpirical Investigation of BetaStability: Portfolios vs. IndividualSecurities” Journal of BusinessFinance & Accounting, vol. 21, pp.909-916.

■ Moonis S. A. and Shah A (2002),“Testing for Time Variation inBeta in India”, Money andFinance Conference 2000 at IGIDR,Mumbai.

■ Shan, W. C and Alles, L (2000),“The Sensitivity of AustralianIndustry Betas to MacroeconomicFactors”, School of Economics andFinance, Curtin University ofTechnology.

■ Chawla D (2001), “Testing Stabilityof Beta in the Indian Stock Market”,Decision, Vol. 28, No. 2.

■ www.bseindia.com


OBITUARYWith profound grief we inform that Mr. E S Ranganathan, member of ourInstitute has passed away on 29/05/2010. He was 89 years old and is survived byhis 2 daughters and grand children. He was working as Accounts Officer in theAG’s Office , Chennai and at the time of his superannuation he was the ActingDirector (Audit) posted for Pondicherry Region. He has served as the ViceChairman of the Pondicherry Chapter for 14 years from 1992.


IAS 27, Consolidatedand Separate FinancialStatements �A Closer LookCMA K. S. Muthupandian*

and Interpretation issued underprevious Constitutions continuedto be applicable unless and untilthey were amended or withdrawn.On December 18, 2003, the IASBissued the revised version of IAS27, effective from January 1, 2005.On June 25, 2005, the IASB issuedthe Exposure Draft of ProposedAmendments to IFRS 3 and IAS27. On January 10, 2008, the IASBissued the revised IAS 27 (2008),effective from July 1, 2009. TheJanuary 2008 revisions to IAS 27are closely related to the revisionsto IFRS 3, Business Combinations.

On May 22, 2008, IAS 27 wasamended for Cost of a Subsidiaryin the Separate Financial Statementsof a Parent on First-time Adoptionof IFRSs. On the same day, IAS 27was also amended for Annual Im-provements to IFRSs 2007 relatingto measurement of investments heldfor sale under IFRS 5, Non-currentAssets Held for Sale and Discontin-ued Operations, in separate finan-cial statements. The effective dateof these two May 2008 amendmentswas fixed as January 1, 2009.

ObjectiveThe objective of IAS 27 is to

enhance the relevance, reliability,and comparability of the informa-tion contained in :

● consolidated financial state-

ments that a parent-company pre-pares for the group of entities itcontrols; and

● separate (non-consolidated)financial statements that a parent-company, investor, or venturerelects to provide, or is required bylocal regulation to provide.

IAS 27 specifies the circum-stances in which consolidatedfinancial statements are required,as well as providing guidanceon the required accounting forchanges in ownership levels, in-cluding changes that result in theloss of control of a subsidiary. IAS27 also includes requirements fordisclosure of information to allowfinancial-statement users to evalu-ate the nature of the relationshipbetween the parent entity and itssubsidiaries.

IAS 27 requires parent under-takings to provide financial infor-mation about the economic activi-ties of their group in consolidatedfinancial statements. These consoli-dated financial statements shouldpresent the financial informationof the group as a single economicentity. IAS 27 defines subsidiariesand prescribes the circumstancesin which a parent-company is re-quired to prepare consolidatedfinancial statements. It also pre-scribes the rules for the preparationof consolidated financial statementsand the separate financial state-ments of a parent-company, andprescribes disclosure requirementsin respect of investments in sub-sidiaries.

Scope and ApplicationIAS 27 shall be applied in the

preparation and presentation ofconsolidated financial statementsfor a group of entities under thecontrol of a parent-company. Inaddition, when an entity presentsseparate financial statements (bychoice or to comply with localregulations), the standard must be

nternational Accounting Stan-dard (IAS) 27, Consolidatedand Separate Financial State

ments, provides guidance on thepreparation and presentation ofconsolidated financial statementsfor a group of entities under thecontrol of a parent-company. Thestandard also provides guidanceon the presentation of investmentsin subsidiaries, jointly controlledentities and associates in separatefinancial statements.

In September 1987, the Inter-national Accounting StandardsCommittee (IASC) issued theExposure Draft E30, ConsolidatedFinancial Statements and Account-ing for Investments in Subsidiaries.In April 1989, the IASC issued IAS27, Consolidated Financial State-ments and Accounting for Invest-ments in Subsidiaries, effective fromJanuary 1, 1990. In 1994, the IASCreformatted IAS 27. In December1998, IAS 27 was amended by IAS39, Financial Instruments: Recog-nition and Measurement, effectivefrom January 1, 2001.

In April 2001, the InternationalAccounting Standards Board(IASB) resolved that all Standards

*M.Com., FICWA, and Member ofTamil Nadu State Treasuries andAccounts Service, presently workingas Treasury Officer, RamanathapuramDistrict, Tamil Nadu.

I



applied in accounting for the in-vestments in subsidiaries, jointlycontrolled entities, and associates.

IAS 27 does not deal with themethods for accounting for busi-ness combinations and their effectson consolidation, including thetreatment of goodwill arising fromthe business combination (see IFRS3, Business Combinations).

Key DefinitionsParagraph 4 of IAS 27 provides

definitions for the following keyterms (among others):

Consolidated financial state-ments are the financial statementsof a group presented as those ofa single economic entity.

Control is the power to governthe financial and operating policiesof an entity so as to obtain benefitsfrom its activities.

A group is a parent-companyand all its subsidiaries.

Minority interest is that portionof the profit or loss and net assetsof a subsidiary attributable to equityinterests that are not owned, di-rectly or indirectly, through sub-sidiaries, by the parent-company.

Non-controlling interest is theequity in a subsidiary not attrib-utable, directly or indirectly, to aparent.

A parent-company is an entitythat has one or more subsidiaries.

Separate financial statementsare those presented by a parent-company, an investor in an asso-ciate or a venturer in a jointlycontrolled entity, in which theinvestments are accounted for onthe basis of the direct equity in-terest rather than on the basis ofthe reported results and net assetsof the investees.

A subsidiary is an entity, includ-ing an unincorporated entity suchas a partnership, that is controlledby another entity (known as theparent). Note: a subsidiary may

have dissimilar business activitiesfrom those of the other entitieswithin the group.

Presentation and scope of consoli-dated financial statements

IAS 27 requires the preparationand presentation of consolidatedfinancial statements that include allsubsidiaries under the control ofa parent. Control is the principalconcept which underpins this stan-dard. There are exceptions to therule if subsidiaries that, on acqui-sition, meet the criteria to be clas-sified as held for sale in accordancewith IFRS 5.

These subsidiaries shall beaccounted for in accordance withIFRS 5. In addition, a parent neednot present consolidated financialstatements if and only if:

● the parent is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of another entityand its other owners, includingthose not otherwise entitled to vote,have been informed about, and donot object to, the parent not pre-senting consolidated financial state-ments

● the parent’s debt or equityinstruments are not traded in apublic market ( a domestic or foreignstock exchange or an over-the-counter market, including local andregional markets)

● the parent did not file nor inthe process of filing, its financialreports with a securities commis-sion or other regulatory organiza-tion, for the purpose of issuing anyclass of instruments in a publicmarket

● the ultimate parent (or anyintermediate parent) of the parentproduces consolidated financialstatements available for public usethat comply with IFRSs

If a parent meets these criteria,consolidated financial informationis being provided at a higher level

by either the ultimate parent or anintermediate parent; consequently,it is not needed at the entity’s leveland the reporting entity can electnot to present consolidated finan-cial statements. The entity wouldthen present only separate finan-cial statements in accordance withthe guidance for separate state-ments.

Consolidation involves● line-by-line adding together

like items of assets, liabilities, equity,income and expenses of the finan-cial statements of the parent andits subsidiaries

● elimination of the carryingamount of the parent’s investmentin each subsidiary and the parent’sportion of equity of each subsidiary

● elimination in full of intra-group balances and transactions(e.g. profits and losses resultingfrom sale of inventory within thegroup), and including income,expenses and dividends; note—intragroup losses may indicate animpairment that requires recogni-tion in the consolidated financialstatements

Note: IAS 12, Income taxesapplies to temporary differencesthat arise from the elimination ofprofits and losses resulting fromintragroup transactions :

● identification of minority in-terests in the profit or loss and netassets of consolidated subsidiariesfor the reporting period

● if a subsidiary has outstand-ing cumulative preference sharesthat are held by minority interestsand classified as equity, the parentcomputes its share of profits orlosses after adjusting for the divi-dends on such shares, whether ornot dividends have been declared

● losses applicable to the mi-nority in a consolidated subsidiarymay exceed the minority interestin the subsidiary’s equity, the excess



is allocated against the majority in-terest except to the extent that theminority has a binding obligationand is able to make an additionalinvestment to cover the losses

● on ceasing to be a subsidiary,an investment in an entity shall beaccounted for in accordance withIAS 39, Financial instruments:recognition and measurement usingits carrying value at that date asthe cost on initial measurement,unless it becomes an associate orjointly controlled entity which havededicated applicable accountingstandards that apply.

Dissimilar Reporting Dates andAccounting Policies

IAS 27 requires the financialstatements of the parent and itssubsidiaries to have the samereporting date. If the reporting datesof the parent and subsidiaries differ,the subsidiary must prepare ad-ditional financial statements forconsolidation purposes with thesame reporting date as the parent.If it is impracticable to prepareadditional financial statements, thesubsidiary’s financial statementsused for consolidation purposeswith a different reporting date isacceptable provided:

● its financial statements areadjusted for the effects of signifi-cant transactions or events thatoccur between the subsidiary’sreporting date and that of its parent

● the difference between thereporting dates is no more thanthree months

Consolidated financial state-ments must be prepared usinguni-form accounting policies for liketransactions and other events insimilar circumstances. If a memberof the group uses dissimilar ac-counting policies, appropriateadjustments shall be made to thefinancial statements before consoli-dation.

Separate Financial Statements ofa Parent

When a parent prepares sepa-rate financial statements, invest-ments in subsidiaries, jointly con-trolled entities and associates thatare not classified as held for salein accordance with IFRS 5 are tobe accounted for either at cost orin accordance with IAS 39. Theaccounting treatment must beconsistently applied to each cat-egory of investments. Investmentsclassified as held for sale in accor-dance with IFRS 5 are accountedfor in accordance with that Stan-dard. Investments in jointly con-trolled entities and associates thatare accounted for in accordancewith IAS 39 in the consolidatedfinancial statements shall be ac-counted for in the same way in theparent entity’s separate financialstatements.

Identification of SubsidiariesConsolidated financial state-

ments are required to include allof the parent’s subsidiaries.

Subsidiaries are identified basedon control by the parent. Controlover an entity is presumed to existwhen the parent entity has director indirect ownership of more thanhalf of the voting power of an entityunless, in exceptional circum-stances, it can be clearly demon-strated that such ownership doesnot constitute control.

Control also exists when theparent owns half or less of thevoting power of an entity whenthere is :

● power over more than halfof the voting rights by virtue ofan agreement with other investors

● power to govern the financialand operating policies of the entityunder a statute or an agreement

● power to appoint or removethe majority of the members of theboard of directors or equivalent

governing body and control of theentity is by that board or body.

● power to cast the majority ofvotes at meetings of the board ofdirectors or equivalent governingbody and control of the entity isby that board or body

Factors to be considered whendetermining the existence of con-trol include :

● substance rather than form● the effect of potential voting

rights that are currently exercisableor convertible.

Note : This excludes potentialvoting rights which lack economicsubstance e.g. the exercise pricewhich is set in a manner that makesthe conversion commercially un-realistic.

● the role of dominance can bepassive and not necessarily activelyexercised; majority ownership in-terest in an entity is not necessaryfor control to exist (e.g. in theabsence of another entity dominat-ing the composition of the boardof directors, voting rights of lessthan 50 per cent held by the re-porting entity may constitute con-trol)

● the power to govern may bedirect or indirect

● whether the parent derivesbenefit from the actions of thesubsidiary.

● a loss of control may occurwithout selling an ownership in-terest in the subsidiary

Prescribed DisclosuresIAS 27 requires disclosure of

information regarding the natureof the relationship between theparent entity and its subsidiaries.Disclosure requirements are di-vided into three categories :

Disclosures required in consoli-dated financial statements

● the nature of the relationshipbetween the parent and a subsid-



iary when the parent does notdirectly or indirectly own more thanhalf of the voting power (forexample, explaining how controlhas been determined)

● justification in cases where anentity directly or indirectly throughsubsidiaries owns more than halfof the voting or potential votingpower of an investee but this owner-ship does not constitute control

● the reporting date and periodof the financial statements of asubsidiary when they are using areporting date or period that isdifferent from that of the parent,along with the reason for the useof different dates (for example,justifying why it was impracticableto prepare all statements as of thesame date)

● the nature and extent of anysignificant restrictions (e.g. result-ing from borrowing arrangementsor regulatory requirements) on asubsidiary’s ability to transfer fundsto the parent in the form of cashdividends or to repay loans oradvances

● a schedule showing theeffects on the equity attributableto owners of the parent of anyownership changes that do notresult in a loss of control

● if control of a subsidiary islost,specific details on the gain or loss

Disclosures required in sepa-rate financial statements that areprepared for a parent that ispermitted not to prepare consoli-dated financial statements :

When separate financial state-ments are prepared for a parentthat meets the criteria in paragraph10 of IAS 27 and elects not to pre-pare consolidated financial state-ments, those separate financialstatements must disclose

● the fact that the exemptionfrom consolidation has been usedand the financial statements areseparate rather than consolidated

● the name and country of in-corporation or residence of theentity (that is, the ultimate orintermediate parent) whose IFRS-compliant consolidated financialstatements have been produced forpublic use, and the address wherethose consolidated financial state-ments are obtainable

● a list of significant invest-ments in subsidiaries, jointly con-trolled entities, and associates,including the name, country ofincorporation or residence, propor-tion of ownership interest, and (ifdifferent) proportion of votingpower held

● a description of the methodused to account for the investmentsdisclosed

Disclosures required in theseparate financial statements ofa parent, investor in a jointly con-trolled entity, or investor in anassociate :

When a parent (other than aparent that is permitted not toprepare consolidated financialstatements), a venturer with aninterest in a jointly controlled entity,or an investor in an associateprepares separate financial state-ments, those separate financialstatements must disclose

● the fact that the statements areseparate rather than consolidated,and the reasons why those state-ments are prepared (if the reasonis other than legal requirements)

● a list of significant investmentsin subsidiaries, jointly controlledentities, and associates, includingthe name, country of incorporationor residence, proportion of own-ership interest, and (if different)proportion of voting power held

● a description of the methodused to account for the investmentsdisclosed.

Because the separate financialstatements do not meet the entity’sreporting requirements (the disclo-sure requirements in paragraph 43

relate to entities that are not exemptfrom filing consolidated state-ments), the entity must also iden-tify the consolidated financialstatements that have been preparedto meet IAS 27 (or IAS 28 Invest-ments in Associates or IAS 31Interests in Joint Ventures, as thecase may be).

InterpretationsThe Standards Interpretations

Committee (SIC) of the IASC andthe International Financial Report-ing Interpretations Committee(IFRIC) of the IASB has issued thefollowing three Interpretationsrelating to IAS 27:

● SIC 12, Consolidation—Special Purpose Entities (issuedin November 1998, effective fromJuly 1, 1999, and amended byIFRIC in November 2004 to re-move the equity compensationplans from the scope of SIC 12)

● SIC 33, Consolidation andEquity Method — Potential VotingRights and Allocation of Owner-ship Interest (SIC 33 was super-seded by 2003 revision of IAS 27)

● IFRIC 17, Distributions ofNon-cash Assets to Owners (issuedin November 27, 2008, effectivefrom July 1, 2009)

SIC 12: This interpretationaddresses when a special purposeentity should be consolidated bya reporting enterprise under theconsolidation principles in IAS 27.Under SIC 12, an entity mustconsolidate a special purpose entity(SPE) when, in substance, the entitycontrols the SPE.

The control of an SPE by an entitymay be indicated if :

* The SPE conducts its activitiesto meet the entity’s specific needs

* The entity has decision-mak-ing powers to obtain the majorityof the benefits of the SPE’s activities

* The entity is able to obtainthe majority of the benefits of the



SPE’s activities through an ‘auto-pilot’ mechanism

* By having a right to the majorityof the SPE’s benefits, the entity isexposed to the SPE’s business risks

* The entity has the majorityof residual interest in the SPE.

Examples of SPEs include en-tities set up to effect a lease, asecuritisation of financial assets, orR&D activities. The concept ofcontrol used in IAS 27 requireshaving the ability to direct or domi-nate decision-making accompaniedby the objective of obtaining ben-efits from the SPE’s activities.

Some enterprises may also needto separately evaluate the topic ofderecognition of assets, for ex-ample, related to assets transferredto an SPE. In some circumstances,such a transfer of assets may resultin those assets being derecognisedand accounted for as a sale. Evenif the transfer qualifies as a sale,the provisions of IAS 27 and SIC12 may mean that the enterpriseshould consolidate the SPE. SIC 12does not address the circumstancesin which sale treatment shouldapply for the reporting enterpriseor the elimination of the conse-quences of such a sale upon con-solidation.

IFRIC 17: This interpretationapplies to the entity making thedistribution, not to the recipient.It applies when non-cash assets aredistributed to owners or when theowner is given a choice of takingcash in lieu of the non-cash assets.IFRIC 17 clarifies that:

* a dividend payable should berecognised when the dividend isappropriately authorised and isno longer at the discretion of theentity

* an entity should measurethe dividend payable at the fairvalue of the net assets to be dis-tributed

* an entity should remeasurethe liability at each reporting date

and at settlement, with changesrecognised directly in equity

* an entity should recognise thedifference between the dividendpaid and the carrying amount ofthe net assets distributed in profitor loss, and should disclose itseparately

* an entity should provideadditional disclosures if the netassets being held for distributionto owners meet the definition ofa discontinued operation.

IFRIC 17 applies to pro ratadistributions of non-cash assets (allowners are treated equally) but doesnot apply to common control trans-actions.

Comparative Indian StandardThe Accounting Standard

issued by the Institute of CharteredAccountants of India (ICAI)comparative to IAS 27 is AS 21,Consolidated Financial State-ments. AS 21 is based on IAS 27(revised 2000). AS 21 is presentlyunder revision to converge withIAS 27.

The major differences betweenthese two standards are:

1. Difference due to legal andregulatory environment: Keepingin view the requirements of the lawgoverning the companies, AS 21defines control as ownership ofmore than one-half of the votingpower of an enterprise or as controlover the composition of the gov-erning body of an enterprise so asto obtain economic benefits. Thisdefinition is different from IAS 27,which defines control as “the powerto govern the financial and oper-ating policies of an enterprise soas to obtain benefits from itsactivities”.

2. Conceptual Differences:Goodwill/Capital reserve is calcu-lated by computing the differencebetween the cost to the parent ofits investment in the subsidiaryand the parent’s portion of equity

in the subsidiary in AS 21 whereas,in IAS 27, fair value approach isfollowed.

January 2008 Revised StandardOn January 10, 2008, the IASB

revised the IFRS 3 and IAS 27. Therevisions will result in a highdegree of convergence betweenIFRSs and US Generally AcceptedAccounting Principles (GAAP),although some inconsistenciesremain, which may result insignificantly different financial re-porting.

The revised Standards promisesignificant change, including :

● a greater emphasis on the useof fair value, potentially increasingthe judgement and subjectivityaround business combination ac-counting, and requiring greaterinput by valuation experts;

● focussing on changes incontrol as a significant economicevent — introducing requirementsto remeasure interests to fair valueat the time when control is achi-eved or lost, and recognising di-rectly in equity the impact of alltransactions between controllingand non-controlling shareholdersnot involving a loss of control; and

● focussing on what is givento the vendor as consideration,rather than what is spent to achievethe acquisition. Transaction costs,changes in the value of contingentconsideration, settlement ofpre-existing contracts, share-basedpay-ments and similar items willgenerally be accounted for sepa-rately from business combinationsand will generally affect profit orloss.

ConclusionThe revised IAS 27 resolves manyof the more contentious aspects ofbusiness combination accounting byrestricting options or allowablemethods. As such, they should resultin greater consistency in accountingamong entities applying IFRSs. ❏



Regions & Chapters

EASTERN REGION

ASANSOL CHAPTERThe following members are thenew Managing Committee Members forthe year 2010-2011 :

Utpal Majumdar ChairmanSubrato Banerjee Vice-ChairmanJaydip Ghosal SecretarySudip Dasgupta Jt. SecretaryKajal Mishra TreasurerG. B. Gupta Jt. Treasurer

KONKAN CHAPTER

Following are the office bearers ofKonkan Chapter for the year 2010-11 :Ramesh M Joshi ChairmanUday S Bodas Vice-ChairmanAnand M Shembekar SecretaryRajendra D Aphale Hons. Treasurer

LUCKNOW CHAPTER

The following members have beenelected for Managing CommitteeMembers for the year 2010-2011 :O.P. Saxena ChairmanMahendra Singh Vice-ChairmanShailendra Paliwal SecretaryVikas Srivastava Treasurer

PUNE CHAPTER

The following are the newly electedmembers to the Managing Committeefor the year 2010-2011 :Pramod Dube ChairmanMadhuvanti Sathe Vice-ChairmanMilind Date SecretaryHarshad Deshpande Treasurer

WESTERN REGION

AURANGABAD CHAPTERThe following members have beenelected as Managing Committee Mem-bers for the year 2010-2011 :

R. B. Shukla ChairmanR. D. Khandalkar Vice-ChairmanD. V. Dabri ’’S. J. Deore SecretaryR. S. Deshmukh Jt. SecretaryN. L. Kuyate ’’M. A. Avhad Treasurer

KALYAN AMBERNATH CHAPTER

The following office bearers have beenelected for the year 2010-2011 :

G. B. Shamnani ChairmanM. R. Dudani Vice-Chairman

(ADM)S.G. Narasimhan Vice-Chairman (PD)Neetu Kapoor SecretaryG. U. Keswani Treasurer

SOUTHERN REGION

VISAKHAPATNAM CHAPTER

The following members havebeen elected for the ManagementCommittee Members for the year2010-2011 :

S. Satyananda Rao ChairmanG.S.R. Krishna Murthy Vice-ChairmanD. Ramana Murthy SecretaryU. Prakash Treasurer

NORTHERN REGION

GORAKHPUR CHAPTER

Members unanimously elected thefollowing office bearers for the year2010-2011 :Prateek Kr. Chawdhary ChairmanR. S. Ojha Vice-ChairmanS. S. Pandey SecretaryH. N. Pandey Jt. Secretary

JODHPUR CHAPTER

The following office bearers ofthe Managing Committee of thechapter for the year 2010-2011 are asunder :

Devendra Daga ChairmanS. N. Pareek Vice-ChairmanK. K. Vyas SecretarySunny Agarwal Jt. Secretary

(Student Nominee)Virendra Surana Treasurer

KANPUR CHAPTER

The following Managing Commi-ttee have been elected unanimously forthe year 2010-2011 :

A. K. Awasthi ChairmanS. K. Verma Vice-ChairmanD. S. Misra SecretaryR. K. Trivedi Jt. SecretaryS. K. Saxena Prog. DirectorH. O. Mishra Treasurer

OBITUARY

ICWAI deeply regret the sad demise of Mr. M. L. Yadaw (M.Sc,LLB, AICWA) one of the prominent scholar and officer of Railway.Mr. M. L. Yadaw was the founder Member of the GorakhpurChapter of Cost Accountants.


Regions & Chapters

Seminar on�Cost and Strategic Management for Growth of SME Sector�

WIRC organized a Seminar on ‘Cost and Strategic Management for Growth of SME Sector’, on Wednesday, the 19th May, 2010,at prestigious Bhaidas Sabhagrih, Vile Parle, Mumbai. This Seminar was organized with the support of MCX’ SX, as Partner Exchange,CIMA of UK as Knowledge Partner and with the Association with SME Chamber of India and Maharashtra Chamber of Commerce,Industry and Agriculture. State Bank of India, IDBI Bank and Credit Analysis & Research Ltd. (CARE) kindly sponsored this programme.CMA V.C. Kothari, CCM., ICWAI and Chairman, CMA Research & Training Centre Committee, WIRC, coordinated the programmewith the active support of CMA Aruna Soman, Co-opted Member-Excom., WIRC.

Shri Jagdish Capoor, Chairman, HDFC, inaugurated the Seminar as Chief Guest. Shri U. Venkataraman, Executive Director,MCX Stock Exchange Ltd., Shri Shriram Dandekar, Vice-President, Maharashtra Chamber of Commerce, Industry & Agriculture(MACCIA) and Shri Chandrakant Salunke, President, SME Chamber of India were the Guest of Honors for the function. The Seminarhad 5 Technical Sessions, viz., Growth Opportunities for SME Sector for 2020, Cost / Strategic Management for Sustaining Growth,Regulatory Changes for Accelerating Growth, Success Stories in SME Sector and Special Financial Products for SME Sector.

Shri Jagdish Capoor, in his inaugural address mentioned about his association with ICWAI for more than two decades includingduring the period he was Deputy Governor of RBI. He highlighted the difficulties faced by SME Sector, which has been partly miti-gated with the help of Institutions like ICWAI.

The eminent faculty members covered divergent subjects relevant to the SME Sector, but were unanimous that the Cost andManagement Accountants should come forward to assist this Sector, which has to manage operations with limited resources, whilefacing multiple challenges.

Central Council Members, CMA Somnath Mukherjee, CMA (Dr.) Sanjiban Bandyopadhyaya, CMA H.K. Goel also graced theSeminar. A number of past Presidents, ICWAI and past Chairmen of WIRC participated in the Seminar.

CMA Manubhai K. Desai, Chairman, WIRC, CMA Amit A. Apte, Vice-Chairman, WIRC, CMA P.V. Wandrekar, Hon. Secretary,WIRC, CMA G.R. Paliwal, RCM, WIRC, CMA Sanjay R. Bhargave, CCM. ICWAI and CMA Ashwin G. Dalwadi, CCM, ICWAI alsocontributed as faculty / session Chairman, etc., for making the Seminar memorable and exemplary.

The Programme started with Saraswati Vandana by CMA & CA (Smt.) Pamela Jain, which was followed by welcome address byCMA G.R. Paliwal, RCM, WIRC. The Guests were welcomed with flower and mementos. The main programme started with lightingof lamp by the dignitaries.

CMA V.C. Kothari, Chairman, CMA Research & Training Centre, WIRC introduced the theme of the Seminar. He explained thatthe SME Sector comprises about 98% and 99% of total establishments in USA and Japan. Its share of employment in these countries is53% and 72%. SME enterprises at present contribute nearly 17% of India’s GDP, which is expected to increase to 22% by 2012. Thissector accounts for 95% of the industrial units, is contributing around 40% of manufacturing output, is the second largest employerafter the agricultural sector and enjoys around 40% of exports in India. The sector faced many unforeseen challenges during the lastfew years due to abnormal increases and decreases in prices of petroleum products, impact of sub-prime meltdown in economy allover the world, strain on financial sector universally and high inflation. All these factors have affected their capital requirements forkeeping pace with speedy revival of Indian Economy. Besides many regulatory changes are taking place like new Companies Act,IFRS, GST, DTC, LLP, etc. Hence, WIRC decided to organise this seminar.

CMA Manubhai K. Desai, Chairman, WIRC in his introductory remarks briefly narrated achievements of the Institute and itscontribution to the Society since its incorporation in 1944 as a Company and thereafter recognition by an Act of Parliament in 1959.The Guests were introduced by CMA Amit A. Apte, Vice-Chairman, WIRC.

Shri Shriram Dandekar, Vice-president, Maharashtra Chamber of Commerce, Industry and Agriculture, Guest of Honor , in hisaddress mentioned the contribution of Small and Medium Sector nationally and particularly in Maharashtra with special reference toMumbai City. Shri Chandrakant Salunkhe, Guest of Honor and President, SME Chamber of Industry highlighted the problems facedby SME Sector and its role in Indian Economy, particularly the exports. He also highlighted the services of his organization almost allover the country in assisting SMEs to further contribute for the welfare of the Society as a whole.

Shri U. Venkataraman, Executive Director, MCX Stock Exchange Ltd., Guest of Honour, in his address specially mentioned theMoU entered with ICWAI on 6th May, 2010 at Kolkata to contribute for the success and growth of various businesses by optimisingutilization of resources of both the organizations. He also highlighted various facilities offered by MCX Stock Exchange for transact-ing various businesses particularly hedging of risk to cover unforeseen volatility in the market.

Shri Jagdish Capoor, Chairman, HDFC Bank Ltd., while recalling his association with ICWAI for more than 2 decades, appreci-ated the role of the Institute for service to the businesses in general and Society in particular. Shri Capoor narrated his experience asCommittee Member during his days in RBI in solving the problems of SMEs by bringing together the authorities, bankers and indus-try associations. He wished the Institute and the Profession growth for service to the society.

In the First Technical session on “Growth Opportunities for SME Sector for 2020”, CMA Amit Jatia, Managing Director, McDonaldsRestaurants, shared his experiences in setting up chain of Restaurants in Western and South India for 15 years which involves devel-opment of uniform and standard raw materials to meet stringent International quality standards and training of man power to meetdifferent tests. Shri Jatia was optimistic that with the increasing income and better living standards, small businesses have goodopportunity for growth, if they plan their operations carefully.

Shri Shriram Dandekar, Guest of Honour, shared his experience in his business of stationery, reading materials, writing instru-ments, etc. in education and general businesses, which has very good potential in future due to large allocation of resources by thegovernment for education and health sector.

Shri Asim Mukhopadhyay, Head-Business Planning (Commercial Vehicle Business Unit), Tata Motors, highlighted the growthopportunity in Automobile Sector particularly the country’s contribution in export of large and small vehicles. He also highlighted his


Regions & Chapters

experience in vendor development for ensuring high quality as foreign vehicle users follow very high technical standards for long lifeof automobiles and to ensure safety and environmental control.

CMA A.G. Dalwadi, Session Chairman shared his experience in the State of Gujarat and how the State Government is providingnew opportunities for improving domestic as well as export markets particularly in diamonds, chemicals and textiles sector. CMAAmit Apte, Vice-Chairman, WIRC proposed vote of thanks.

The Second Technical session on “Cost / Strategic Management for Sustaining Growth” was addressed by Shri D.R. Dogra,Managing Director & CEO., Credit Analysis & Research Ltd. Smt. L.P. Deosthalee, Dy. Chief Accounts Officer, Mumbai Port Trustand Ms. Arati Porwal, Chief Representative, CIMA, which was chaired by CMA P.D. Phadke, Past President, ICWAI. Shri Phadke inhis introductory remark, emphasized on the importance of cost and strategic management for substantial growth for SME sector. Heespecially mentioned that the global economy which faced unprecedented slow down in 2008 has been greatly revived with detailedcost / strategic management, leading to improved efficiency, saving in cost of operations, restructuring businesses, relocating em-ployees and businesses, etc. Shri Dogra, while explaining the risk faced by an organization highlighted the role of Credit RatingAgencies, which analyses the external / internal risks faced by the organization. Credit rating helps in providing confidence to stakeholders including lenders, investors, customers, suppliers and the Government Authority. The charges for credit rating are nominalconsidering the benefits derived. He explained in brief the help his organization provides, as credit rating has become compulsory forfinance assistance from banks over Rs.5 crores.

Smt. Deosthalee meticulously gave details of businesses handled by Ports in India in assisting international trade and the facilityprovided by Ports particularly Mumbai Port Trust including Warehousing for Imports and Exports. Ms. Arati Porwal, in her presen-tation analyzed various studies made by CIMA in UK covering operation of Small and Medium Enterprises. CMA G.R. Paliwal, RCMin the beginning introduced Guests. CMA (Dr.) Heena Oza, Chairman, Surat-South Gujarat Chapter of Cost Accountants, proposedvote of thanks.

Third technical session covering ‘Regulatory Changes for Accelerating Growth’ and ‘Success Stories’ was chaired by Shri K.R.Bhargava, Guest of Honour and Chief Commissioner of Customs. CMA Sanjay Bhargave, CCM, ICWAI, explained in detail, thevarious Excise, Customs, Cenvat, VAT and Service Tax Provisions, which help SMEs. CMA N.K. Nimkar analyzed Direct Tax Codeprovisions for SMEs. Dr. Bipin Doshi, Industrialist and Social Worker explained that in spite of being a Medical Doctor, he hasswitched over to construction business of his family and has been very successful mainly due to proper planning, timely execution ofproject and meticulous cost management. He advised participants to do proper planning before starting a project to avoid time andcost over runs. He also emphasized for provision of environmental factors in business. Shri Anil Gachake, Chairman of SME Commit-tee of Maharashtra Chamber of Commerce, Industry and Agriculture, narrated success stories in various parts of the country by co-operative efforts in which a sector of SMEs join together to obtain large volume orders from customers and share among themselvesfor its timely execution. This joint marketing and production sharing strategy has been helping many SMEs in the country like leather,textile and furniture making, etc.

Shri K.R. Bhargava, Chief Commissioner of Customs and Guest of Honour, in his address emphasized on the role of Cost andManagement Accountants in helping SMEs as a bridge maker between the revenue authorities and businesses. He also explainedinitiatives taken by the Government of India including for e-filing of various forms and communications for speedy compliance ofvarious procedures and reducing the cost of transactions. He hoped that with new GST regime, the Profession and the ICWAI willhelp the authorities and businesses as usual for smooth transactions, better compliance and growth of national economy in general.

CMA Somnath Mukherjee, CCM, ICWAI, in the beginning analyzed new provisions of GST and DTC and special role expected ofthe Profession for smooth transition. CMA Y.S. Thakkar, Chairman, Baroda Chapter of Cost Accountants proposed vote of thanks.

The final technical session on ‘Financial Products for SMEs’ and Valedictory session was chaired by CMA V.C. Kothari, Chair-man, Research & Journal Committee of ICWAI and Chairman, CMA Research & Training Centre Committee of WIRC. CMA AshishP. Thatte, Programme Coordinator and WIRC Bulletin Editorial Board Member, introduced the Guests.

Mrs. G. Rita, Deputy General Manager-SME, State Bank of India presented details of products and services offered by SBI for SMEsector particularly Stree Shakti (Plan for Women Enterpreneur) Seed Capital for Professionals and open loan facilities, vehicle loans,equipment loan, international trade finance, etc. She mentioned that the Bank has special SME Branches all over the country tofacilitate businesses at a low cost in minimum time. Shri Ajay Kumar, Assistant General Manager – SME, IDBI Bank also highlightedvarious special products and facilities for SMEs, including for long term assistance. Shri Saji Cherian, Head, Corporate Services &Business Developments, MCX Stock Exchange mentioned various facilities offered by his exchange for SME. He especially mentionedefforts made by the Exchange to promote SME exchanges all over the country to provide long term finance for SME sector.

CMA Shyamal Acharya, Chief General Manager, SBI, Guest of Honour of the Valedictory Session congratulated the Institute inorganizing this Seminar and providing an opportunity for interaction between financial institutions, MCX Stock Exchange and Chamberof Commerce and Industry and Professionals to discuss various problems faced by SMES. He hoped that the members of the Institutewill assist SMEs in managing operations efficiently and for planning growth. He assured assistance by his Bank in particular and theentire banking system in general for the growth of this important sector in the national economy.

CMA V.C. Kothari, in his concluding remarks summarized the proceedings for the day and announced that considering to delib-erations at the Seminar, the Institute will make efforts for co-coordinating efforts of SME Chambers, Banks, Direct and Indirect TaxesAuthorities, Government Organizations, Professional Institutes and Industries, in setting up advisory services to improve the operationsof SME sector with the help of Institute’s Regional Offices and Chapters. He also emphasized that the Institute has brought out a SpecialIssue of its journal – The Management Accountant, on Cost and Strategic Management fo growth of SME Sector, which has beendistributed to the participants today. Similar special issues have been planned on Direct Tax Code, Goods and Service Tax, newCompanies Act, etc., which will have special articles for SME sector also. He requested all the stake holders to support the Institute inthis direction.

CMA Manubhai K Desai, Chairman, WIRC assured to provide services of the Regional Council and the Institute for assisting theSME Sector in general and the businesses in particular.

CMA P.V. Wandrekar, Hon. Secretary, WIRC proposed vote of thanks for the whole Seminar.


THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA(Set up in 1944, Founder member of IFAC, CAPA and SAFA)

MANAGEMENT DEVELOPMENT PROGRAMMES 2010-11Programmes Areas

Cost Management ● Financial Management ● IFRS ● Risk Management● Taxation Management ● Auditing ● Valuation Management

● Contract Management ● Derivatives ● Mergers & Acquisitions

DATES TOPIC VENUE STATUS & FEE (Rs.)

Non- ResidentialResidential

JULY, 2010

07-09 Workshop on IFRS Convergence New Delhi 15,00028-30 Corporate Tax-Planning, Compliance and Management Chennai 15,000 30,00028-30 Cost Management for Cost Competitiveness Chennai 15,000 30,000

AUGUST, 2010

04-06 Derivatives and Risk Management New Delhi 15,00010-13 Internal Auditing for Effective Management Control Madurai 30,00010-13 Recent Trends in Financial Management Madurai 30,000

Including IFRS Convergence

SEPTEMBER, 2010

07-10 Management of Taxation - Service Tax, VAT, Port Blair 30,000Excise & Customs, TDS and Proposed GST

07-10 Finance for Jr. Finance and Accounts Officers Port Blair 30,000and Non-Executives (F&A)

15-17 Mergers and Acquisitions Hyderabad 15,000 30,000

OCTOBER, 2010

05-08 Corporate Tax-Planning, Compliance and Management Goa 30,00

NOVEMBER, 2010

10-12 Contract Management New Delhi 15,00022 to International Programme on Singapore, 2,25,000Dec 2 ‘Emerging Trends in Financial Management’ Kualalumpur

& Bangkok

DECEMBER, 2010

21-24 Advance Tax, TDS and Tax Planning Shirdi 30,00021-24 Internal Auditing for Effective Management Control Shirdi 30,000

Calendar of MDP Programmes


JANUARY, 2011

03-09 Recent Trends in Financial Management including Dubai & 1,50,000IFRS Convergence Muscat

18-21 Management of Taxation - Service Tax, VAT, Mahabaleshwar 30,000Excise & Customs, TDS and Proposed GST

18-21 Finance for Jr. Finance and Accounts Officers Mahabaleshwar 30,000and Non-Executives (F&A)

FEBRUARY, 2011

09-11 Financial Risk Management New Delhi 15,00016-18 Valuation Management New Delhi 15,000

For Non-Residential Programmes Fee includes course fee, course material, lunch, tea/coffee etc.

For Residential Programmes Fee includes course fee, course material, accomodation on Single Room Basis, all mealsand visits.

CEP Credit Hours — [For 1 Day Prog.-4 Hours] [For 2 Days Prog.-6 Hours] [For 3 Days & more Prog.-l0 Hours]

For Kind Information

★ For outstation programmes the participants are requested to get the confirmation from the Institute before proceedingto the venue. If any participant reaches the venue for the postponed/cancelled programme without getting theconfirmation from the Institute, the Institute will not be held responsible for the same. The cancellation/postponementof the programme, if any, will be initimated to only those organizations whose nominations have been receivedby the Institute on time.

★ For residential programmes normally the first day check-in at 12.00 noon and last day check-out at 12.00 noon.★ For International programmes, Faculty will be from the respective countries apart from the Indian Faculty.★ The Payment of the Fee is to be made by Cheque/DD in favour of ‘The Institute of Cost and Works Accountants

of India’ payable at New Delhi.★ Details for ECS Payment : State Bank of India, Lodhi Road Branch, New Delhi-110 003

Current A/c No. 30678404703 MICR Code : 110002493 IFSC Code : SBIN0060321

For further details and Registration please contact :Shri D. Chandru, Addl. Director (PD & P)The Institute of Cost and Works Accountants of India .ICWAI Bhawan, 3 Institutional Area, Lodi Road, New Delhi-110 003Phones : 011-24622156-57-58, 24618645 (D) 011-24643273 (M) 09818601200Tele Fax : 011-43583642 / 24622156 / 24618645E-mail : [email protected], [email protected] Website: www.icwai.org

PresidentSHRI G. N. VENKATARAMAN

Vice PresidentSHRI B.M.SHARMA

Chairman, Continuing Education Programme CommitteeSHRI A.G.DALWADI

DATES TOPIC VENUE STATUS & FEE (Rs.)Non- Residential

Residential

Calendar of MDP Programmes

The email : [email protected] Management email...

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