We discussed how GST is calculated and its implications

1. GST and Its Implications on
Supply Chain

2. Limitations of Previous System
1. Cascading Effect of Tax: The tax is levied on the value of the product, which includes tax paid by
the previous buyer, thus, making the end consumer pay “tax on already paid tax.”
2. Multiple Points of Taxation:
1. Tax Avoidance (Pre-GST):
➢ Organizations established warehouses in each state to avoid Central Sales Tax (CST).
➢ CST was applicable if goods were sold from one state to another state.
➢ However, if goods were transferred from one state to another, CST was not applicable.
Plant Distributor Retailer Customer
Central Excise
(On Manufacturing)
Service Tax
(On Logistics)
VAT (On Sales
of Goods)
Central Sales Tax
(On Inter-state sale
of goods)
State
Boundary

3. Limitations of Previous System
4. No Uniform Policy:
4. Multiple registration was needed:
4. Different Taxes for Services and Goods:
Goods vs Service dilemma, for example, a licence software in a CD is a service or a product??
VAT was not applicable on services.
No Entry Tax
Entry Tax
No VAT on
Sugar
4% VAT on
Sugar
Entertainment Tax
Registration
Service Tax
Registration
VAT
Registration
Luxury
Tax
Central Excise
Registration
● Certain states
charged entry tax.
● VAT varied from
state to state.
● No Ease of
Doing Business
● Tax Evasion
Source: https://nacen.gov.in/resources/file/downloads/overview.pptx

4. Supplier Manufacturer Retailer
Customer
Sells at 100+15 @15% Tax
Sells at 250+37.5 @15% Tax
Sells at 500+75 @15% Tax
₹ 115 ₹ 287.5 ₹ 575
Tax Collected
₹ 15
Tax Collected
₹ 37.5
Tax Collected
₹ 75
Total tax collected
₹ 15+37.5+75= ₹ 127.5
Fabric
Total Tax Paid
₹ 15+37.5
=₹ 52.5
Total Tax Paid
₹ 37.5+75
=₹ 112.5
Total tax paid
₹ 75
Example of
“Tax on Tax”
Cost=40
Profit=100-40=60
Profit=135 Profit=212.5

5. How GST works
Supplier Manufacturer Retailer
Customer
Sells at 100+15 @15% GST
Sells at 250+37.5 @15% GST
Sells at 500+75 @15% GST
₹ 115 ₹ 287.5 ₹ 575
GST Collected
₹ 15
GST Collected
₹ 37.5-15
= ₹ 22.5
GST Collected
₹ 75-37.5
= ₹ 37.5
Total tax collected
₹ 15+22.5+37.5 = ₹ 75
Can Claim for input
tax of ₹ 15 already
paid to supplier
Can Claim for input
tax of ₹ 37.5 already
paid to manufacturer
Fabric
Total tax paid
₹ 75
Profit=150 Profit=250
Cost=40
Profit=100-40=60

6. What is GST
1. GST is a consumption tax based on the credit-invoice method where only the value
addition at each stage is taxed, with seamless flow of credit along the supply chain.
1. It subsumed a large number of consumption taxes that were administered separately
by the Centre and the States, resulting in a greatly rationalized taxation structure.
1. GST is comprehensive tax on all Goods and Services
❖ It’s a Multi-Stage Tax
❖ Destination based consumption tax
❖ Tax the Value added to the product
❖ Seamless credit of tax across SC
GST-OneTaxFor
Manufacturing
Trading
Services
Source: http://www.gstcouncil.gov.in/sites/default/files/GST-an_update_010719.pdf

7. What GST Did
Central
SalesTax
Service
Tax
Excise
Duty
Customs
Duty
Central
Levics
EntryTax
VAT
Luxury
Tax
Entertain
ment Tax
State
Levice
Pre-GST Indirect tax structure in India
Multiple Acts &
Rules
Multiple Procedures
Multiple Central Tax
Administration
Multiple State Tax
Administration
Multiple Central
Taxes
Multiple State
Taxes
GST
IGSTCGST SGST
Single Tax
Administration
Single Tax-GST
After implementation of GST in India
Source: http://www.gstcouncil.gov.in/sites/default/files/GST-an_update_010719.pdf

8. Components of GST
GST
Integrated Goods and
Services Tax (IGST)
Central Goods and
Services Tax (CGST)
Collected by the Central
Government on an intra-
state sale
Collected by the State
Government on an
intra-state sale
Collected by the
Central Government for
inter-state sale
State Goods and
Services Tax (SGST)
Intra-State supply of goods or services:
● When location of supplier and buyer are in same state.
● Seller has to collect both CGST and SGST from the buyer.
● CGST gets deposited with Central Government and SGST
gets deposited with State Government.
Inter-State supply of goods or
services:
● When location of supplier and
buyer are in different states.
● Seller has to collect IGST from
the buyer.
Collected by the Central
Government on an intra-
state sale
Collected by the State
Government on an
intra-state sale
Collected by the
Central Government for
inter-state sale

9. Salient features of GST
In order to avoid the challenge of ‘tax
on tax’, Input Tax Credit (ITC)
mechanism was incorporated into the
GST system.
ITC is the tax that a business pays on
a purchase and that it can use to
reduce its tax liability when it makes
a sale.
GST is applicable on both goods
and services, and is based on
value added and not on the
value of the product.
Levied at all stages right from
manufacturer up to final consumption
with credit on taxes paid at previous
stages.
Under GST exports are tax-free (Zero
Rated Supply); exporters are entitled
to claim refunds on input tax already
paid.
Import of goods/services are
subject to IGST in addition to
Basic Customs duty.
Cost of any services, including
logistics, is considered a value added;
a business gets tax credit on such tax
All burden of tax is to be borne by the
final consumer. But levied at all
stages.
Source: http://www.gstcouncil.gov.in/sites/default/files/GST-an_update_010719.pdf

10. Effect on Supply Chain
Plant State Depot Distributor Retailer
State
Boundary
Plant Distributor Retailer
Pre-GST Erra: Companies needed to have depots in destination states to reduce Central Sales Tax
Post-GST: No Central Sales Tax on inter-state sales, No Need to have state depots
State
Boundary

11. Effect on Supply Chain
• Central Sales Tax was the tax levied on Inter-state sale of goods.
• In pre-GST erra, organizations prefered to have a warehouse/depot in each state to
avoid Central Sales Tax (CST).
• They would transfer goods from one warehouse (in state A) to another warehouse (in
state B) instead of selling directly.
• Such movement of goods was considered as internal stock transfer and hence CST
was not imposed.
• As such, the supply chain was designed based on tax avoidance mechanisms instead
of operational efficiencies
Source: http://www.gstcouncil.gov.in/sites/default/files/The-gst-saga.pdf

12. Effect on Supply Chain
GST subsumed CST via IGST resulting in inter-state sales transaction becoming tax
neutral.
GST eliminates the existing penalties on inter state sales transactions and facilitated
consolidation of warehouses.
• This eliminated the need to have state wise warehouses, saving operational costs
• This resulted in improved efficiencies, better control and reduction in inventory
because of consolidation
• Advantage of risk pooling, economies of scale and reduce capital deployed in
the business
• Larger warehouses enabled deploying state-of-the-art planning and warehousing
systems (not possible with smaller warehouse)
• Savings in ERPs deployment in large number of small warehouses
Reference: GST: An Opportunity to reassess your Supply Chain- Tata Strategic Management Group.
https://www.tsmg.com/download/article/GST%20An%20Opportunity%20to%20reassess%20your%20Supply%20Chain.pdf

13. GST Supply ChainPre-
Tax Optimized
State Depot
State Depot
State Depot
State Depot
Retailer
Retailer
Retailer
Reference: GST: An Opportunity to reassess your Supply Chain- Tata Strategic Management Group.
https://www.tsmg.com/download/article/GST%20An%20Opportunity%20to%20reassess%20your%20Supply%20Chain.pdf
Efficiency Optimized

15. Effect on Supply Chain
• Allows for setting up mother warehouse and regional distribution hubs.
• Allows for more accurate demand forecast is expected that enables the firms
to synchronize the warehouse activities with customer demand
• With larger warehouses, transportation lot sizes could increase, making way
for more efficient and bigger trucks. Full truck loads easier to achieve.
• Distribution and transportation routes could be consolidated as state
boundaries will no longer be the parameter for deciding routes.
• Allows strategies such as cross docking, carrier collaboration, freight unit
optimization, etc.
Reference: GST: An Opportunity to reassess your Supply Chain- Tata Strategic Management Group.
https://www.tsmg.com/download/article/GST%20An%20Opportunity%20to%20reassess%20your%20Supply%20Chain.pdf

16. Other Benefits
• Triggers a shift from the unorganized sector to the organized sector.
• Resulting in higher direct tax collection.
• Removal of “tax on tax” makes exports cheaper and competitive
• Ease of doing business because of reduction in number of taxes.
• Decrease in Black transaction because of Input Tax Credit mechanism.
Source: http://www.gstcouncil.gov.in/sites/default/files/The-gst-saga.pdf

17. Tax Slabs
⚪ Source: https://www.paisabazaar.com/tax/gst-rates/
Tax Rates Products
5%
Household necessities such as edible oil, sugar, spices, tea, and coffee (except
instant) are included. Coal , Sweets and Life-saving drugs are also covered
under this GST slab
12% This includes computers and processed food
18%
Hair oil, toothpaste and soaps, capital goods and industrial
intermediaries are covered in this slab
28%
Luxury items such as small cars , consumer durables like AC and Refrigerators,
premium cars, cigarettes and aerated drinks , High-end motorcycles are
included here.

18. No Tax Inclusions
⚫ Picture books, coloring books or drawing books for children
⚫ Human hair – dressed, thinned, bleached or otherwise worked
⚫ Sanitary Napkins
⚫ Unit container-packed frozen branded vegetables (uncooked/steamed)
⚫ Vegetables preserved using various techniques including brine
⚫ Basic Savings Bank Deposit account opened under the PMJDY
⚪ Source: https://www.paisabazaar.com/tax/gst-rates/

19. References
⚫ http://www.gstcouncil.gov.in/sites/default/files/GST-an_update_010719.pdf
⚫ http://www.gstcouncil.gov.in/sites/default/files/The-gst-saga.pdf
⚫ GST: An Opportunity to reassess your Supply Chain- Tata Strategic Management Group.
https://www.tsmg.com/download/article/GST%20An%20Opportunity%20to%20reassess%20your%20Supply%20C
hain.pdf
⚫ https://www.paisabazaar.com/tax/gst-rates/
⚫ https://cleartax.in/s/gst-law-goods-and-services-tax#before
⚫ https://nacen.gov.in/resources/file/downloads/overview.pptx