GST- Tool for Development of Society
CA. Satish Saraf
The author is a member of the Institute. He can be reached at satish.saraf@icai.org and eboard@icai.in
“The article narrates Balancing the imposition of tax versus burden on people, which is a tough act for any country in modern revenue laws, based on Axiom – Caveat Emptor and as advised in Arthasastra, whether GST laws, comply to these or not. Also discussed whether the GST, taxes are harsh or not, transparent or controlled from the view point of a common man. Briefly discussed the aspects such as registration details, Invoice, Tax on Value Addition, Algorithm of GSTIN, Removal of cascading effect of taxes, Anti-profiteering and expectations. This is a plain article to create awareness among everyone on the basic aspects. Read on….”
Introduction: The Dual Mandate of Revenue Laws
The fundamental axiom “Caveat Emptor” (Let the buyer beware) dictates that every purchaser must actively protect themselves from the malpractices, unfair trade tricks, and non-compliances adopted in the marketplace. In a modern democracy, every common citizen should possess a baseline knowledge of statutory legislation—particularly revenue legislation that directly implicates their personal financial affairs, household budgets, and purchasing power.
It is an established notion across fiscal jurisprudence that no revenue law can be drafted entirely without harsh enforcement provisions. However, Indian lawmakers frequently declare that their fiscal philosophy is anchored upon the venerable teachings of Chanakya in the Arthashastra:
Chanakya’s Dictum on Equitable Taxation (Arthashastra)
“Taxation should not be a painful process for the people. There should be leniency and caution while deciding the tax structure. Ideally, governments should collect taxes like a honeybee, which sucks just the right amount of honey from the flower so that both can survive. Taxes should be collected in small and not in large proportions.”
Balancing the imposition of tax versus the economic burden on citizens is a delicate and challenging tightrope walk for any sovereign nation enacting modern revenue codes. Thus, when the Government of India first announced the proposal to introduce the Goods and Services Tax (GST) regime, deep doubts arose as to whether lawmakers would truly succeed in legislating the laws while preserving these core equitable principles.
The Indian GST framework is compounded by extraordinary constitutional complexity because two sovereign tiers of government—the Union Government and twenty-eight State Governments (along with Union Territories with legislatures)—had to harmonize distinct revenue requirements and enact identical laws under the Constitution of India. Harmonizing this dual federal structure is akin to resolving the legendary ‘Bermuda Triangle’: collecting revenue without causing pain to taxpayers while instilling radical transparency, establishing uniform chargeability, and integrating all business activities under a single common digital mechanism.
Implementation of GST: Navigating Unprecedented Complexity
The Indian GST structure is widely acknowledged as one of the most intricate and ambitious indirect tax transformations implemented globally. Compounding its structural intricacy was the timing of its launch: the Government implemented the GST Acts on July 1, 2017—in the middle of the fiscal year upon the conclusion of the first quarter, rather than at the commencement of a fresh financial year on April 1. This mid-year transition created substantial administrative and computational complexities for businesses, practitioners, tax authorities, and the general public alike.
The vital inquiry remains: Did the Indian legislatures successfully embed statutory safeguards within the GST Acts that directly or indirectly empower the common citizen to protect themselves, while mobilizing revenues strictly in harmony with the ancient tenets of the Arthashastra?
Caveat Emptor & Arthashastra in the GST Ecosystem
To breathe practical life into the doctrine of “Let the buyer beware”, the GST framework embeds multi-layered institutional transparency across the entire supply chain. These statutory transparency mechanisms include:
- Mandatory Invoicing Rules: Binding statutory protocols governing the generation, content, and issuance of invoices for supplies of goods and services.
- Mandatory Disclosure of HSN / SAC Codes: Clear specification of Harmonised System of Nomenclature (HSN) codes for goods and Services Accounting Codes (SAC) on tax invoices to avoid ambiguous or arbitrary rate classifications.
- Public Domain Disclosures: Real-time public availability of taxpayers’ registration and filing status over the national portal.
- Anti-Profiteering Mandate: Statutory compulsion requiring suppliers to pass on the economic benefits of input tax credits and rate reductions directly to end consumers.
- Dismantling Cascading Tax Barriers: Eradication of the dreaded tax-on-tax phenomenon to ensure that consumers only pay tax on genuine value addition.
“To make a buyer aware, the laws introduced registration details to be displayed at business premises of each seller and to let the consumer know the seller is a tax agent for the government or not and also the tax amount can be collected by him or not.”
Mandatory Business Premises Display Obligations
To ensure consumers are never misled, the law imposes a strict statutory obligation on every GST-registered entity to prominently display specific registration data at their principal place of business and every additional place of business:
- GSTIN and Legal/Trade Name: Must be displayed on the name board at the prominent entrance of the business premises.
- Category of Registration: Must clearly specify whether the person is registered as a ‘Regular Taxpayer’ or under the ‘Composition Scheme’.
- Registration Certificate Display: A physical copy of the GST Registration Certificate (Form GST REG-06) must be prominently displayed inside the premises where it is clearly visible to all visiting customers and inspectors.
- Prohibition 1: The GST law strictly prohibits any person from collecting GST from customers without holding a valid, active GSTIN.
- Prohibition 2: A dealer registered under the Composition Scheme is strictly prohibited from collecting tax from customers. A composition dealer cannot issue a Tax Invoice, cannot charge GST to the buyer, and must pay their composition tax liability entirely out of their own turnover collections.
Demand for Invoice: The Citizen as a Fiscal Policeman
Invoicing is the bedrock of tax compliance and anti-evasion. Under GST law, specific thresholds balance compliance burdens for small traders against the imperative of revenue integrity:
“Whether the customer demands for the Tax Invoice or not, the registered supplier has to prepare the Tax Invoice for all transactions of the day individually when more than the Rs. 200/- value and one consolidated for less than Rs. 200/- value transactions.”
Transactions Exceeding Rs. 200/-
Where the value of supply exceeds Rs. 200/-, the law mandates the issuance of an individual Tax Invoice. A statutory right is expressly bestowed upon the consumer to demand this Tax Invoice, which delineates the taxable value, applicable tax rates (CGST, SGST, IGST), and exact tax quantum.
Transactions Lower Than Rs. 200/-
To mitigate administrative burdens on micro-merchants, suppliers supplying to unregistered recipients are exempt from issuing individual invoices if the value is below Rs. 200/- (unless the recipient expressly requests one). However, at the close of each business day, the supplier is legally obligated to prepare a consolidated Tax Invoice covering all such sub-Rs. 200 transactions.
Therefore, every consumer—especially the common citizen—must actively demand a Tax Invoice whenever paying GST. By doing so, the consumer acts as an empowered decentralised enforcement officer (policing on behalf of the public exchequer). This ensures that taxes collected from consumers are duly remitted to the Treasury rather than illicitly pocketed by dishonest merchants. A simple everyday gesture of insisting on a Tax Invoice yields monumental cumulative gains in national revenue mobilization, ultimately preventing the government from imposing new or higher taxes on essential commodities.
Tax on Value Addition & The Matching Principle
In harmony with standard Value Added Tax (VAT) principles, GST is levied strictly on the incremental value addition achieved at each stage of the supply chain, rather than on the gross transaction value repeatedly.
However, the revolutionary distinction under GST that protects both the common citizen and the exchequer is the mandatory electronic uploading of invoice-level outward supply data to the GST Network (GSTN) servers. This digital architecture enforces the matching principle: input tax credit (ITC) claimed by a recipient is cross-verified against the tax paid and reported by their supplier. Every registered person is entitled to claim ITC on taxes paid on inward supplies, preventing tax leakage and systematically eradicating unrecorded off-the-books transactions.
The Algorithm of GSTIN: Decoding the 15-Digit Identifier
The Legislature structured the Goods and Services Tax Identification Number (GSTIN) upon an intuitive, transparent algorithm so that even an ordinary consumer can effortlessly decipher it and instantly detect fraudulent or fictitious suppliers.
The primary objective of the GSTIN is twofold: to identify the State in which the taxpayer is registered and from which goods or services originate, and to link the business directly to its Permanent Account Number (PAN) allotted under the Income-tax Act, 1961.
Practical Illustration: Spotting a Fake GSTIN in Seconds
Suppose a consumer in Hyderabad is issued an invoice where the printed GSTIN begins with the state code ‘36’ (signifying registration in Telangana). If the vendor’s physical address or contact details printed on that same invoice indicate an address located in Karnataka or Maharashtra, the consumer can immediately recognize that the invoice is suspicious or fictitious.
If a basic two-digit check coupled with a cursory glance at the address reveals genuineness or fakery, imagine how effortlessly a stakeholder can verify complete details using all 15 digits on official portals. Any citizen can verify a taxpayer instantly by visiting the GST Network (GSTN) portal at www.gst.gov.in and clicking on the “Search Taxpayer” tool (searchable via GSTIN or PAN). Comprehensive statutory guidelines are also accessible via the Central Board of Indirect Taxes and Customs (CBIC) website at www.cbic.gov.in.
Removal of the Cascading Effect of Taxes
Another direct benefit delivered to the common consumer is the systematic elimination of the cascading effect of taxes (tax on tax).
In the fragmented pre-GST regime, numerous central and state levies—including Central Excise Duty, Service Tax, State VAT, Central Sales Tax (CST), Entry Tax, Luxury Tax, and Entertainment Tax—operated in independent silos. Taxes paid under one statute were routinely disallowed as input tax credit against liabilities arising under another statute. This forced businesses to capitalize taxes into their cost base, triggering compounding tax on tax and artificially driving up retail prices.
By subsuming and clubbing these disparate duties into a unified GST mechanism with seamless input credit fungibility, the cascading distortion was dismantled, leading to noticeable downward price rationalization across numerous consumer product categories in 2017.
Anti-Profiteering: Protecting Consumer Wallets
The GST law incorporates a potent statutory weapon known as Anti-Profiteering (Section 171 of the CGST Act). This mandate stipulates that whenever the GST Council reduces the tax rate on any supply of goods or services, or whenever enhanced input tax credits become available, the business is legally compelled to pass on a commensurate reduction in the selling price directly to the recipient.
“GST Law has a special provision called Anti-profiteering which stipulates the businessmen to reduce the price of the goods or services where the rate of tax is reduced by the Government during the GST Regime.”
Mathematical Case Study: How Rate Reduction Must Lower Retail Price
The author provides a precise empirical illustration demonstrating how an anti-profiteering price adjustment functions when the GST rate on a commodity is reduced from 18% to 12%:
- Baseline Pre-Reduction Transaction: A good is originally sold at a basic price of Rs. 1,000/- with GST @ 18% (Rs. 180/-), yielding a final consumer invoice price of Rs. 1,180/-.
- Supplier’s Procurement Cost & Tax: The seller had procured the item for Rs. 900/- with GST @ 18%, paying Rs. 162/- as input GST.
- Revised Purchase Tax Liability: Upon rate reduction to 12%, the tax on the seller’s purchase of Rs. 900/- @ 12% becomes Rs. 108/-.
- Input Tax Differential: The net input tax savings equals Rs. 54/- (Rs. 162 - Rs. 108). This full benefit of Rs. 54/- must be deducted from the base selling price on all existing inventory held on the effective date.
- Revised Base Selling Value: Rs. 1,000 - Rs. 54 = Rs. 946/-.
- Revised Output GST @ 12%: 12% on Rs. 946/- = Rs. 113.52 (rounded to Rs. 114/-).
- Final Consumer Price Post-Reduction: Rs. 946 + Rs. 114 = Rs. 1,060/- (as compared to the initial price of Rs. 1,180/-, delivering a direct consumer savings of Rs. 120/-).
If a supplier refuses to pass on this commensurate reduction, any vigilant consumer has the statutory right under GST law to escalate the matter by filing a formal complaint before the National Anti-profiteering Authority (NAA).
“Any consumer is aware of reduction in rate of tax on any particular good or service, as per the provisions of the GST Law he can demand for reduction from the supplier.”
Public Expectations: The Imperative to Bring Petroleum Under GST
The common citizenry continues to eagerly look forward to both the Union and State Governments bringing petroleum products (petrol, diesel, aviation turbine fuel, crude oil, and natural gas) into the GST net.
Currently, the non-inclusion of fuel products results in heavy cascading taxes across state boundaries. Transportation and logistics represent the single largest input cost component immediately following procurement and manufacturing across almost all economic sectors. Bringing petroleum under GST would rationalize fuel prices, unlock unutilized input tax credits for freight operators, significantly lower manufacturing and retail prices, and act as a powerful deflationary force across the Indian economy.
Conclusion: Striving Toward Societal Equity
In conclusion, although the Indian GST architecture remains one of the most complex fiscal networks in the modern world—with both Union and State administrations naturally focused on safeguarding incremental revenues for their respective exchequers—vital pro-consumer measures have been deliberately engineered into the statutory framework.
While contemporary revenue legislation may not strictly embody the ideal honeybee paradigm propounded in Kautilya’s Arthashastra or the pristine rigor of Caveat Emptor, the statutory requirements of mandatory invoicing, GSTIN algorithmic transparency, cascading tax elimination, and anti-profiteering enforcement represent earnest, commendable strides toward delivering justice, equity, and developmental progress to society at large.