Goods and Service Tax (Introduction and Procedure)


This is the term which currently everyone has to deal today, one way or the other, after the passing of much-delayed constitutional amendment bill on 6th May to introduce the Goods and Service Tax, hectic preparations were on to practically implement it. Though the motion was set way back in 2000 when the Vajpayee Government started discussion on GST by setting up empowered committee.


GST is a indirect tax on manufacture, sale, consumption of goods and on services. Multiple types of tax on goods and services will be eliminated. Goods and Services shall have tax:

  1. State Level GST( SGST)
  2. Central Level GST (CGST)
  3. Integrated Goods & Service Tax (IGST). This is on interstate supply of goods and/or services.


Taxes paid under SGST shall be allowed as Input Tax Credit against SGST.

Taxes paid under CGST shall be allowed as Input Tax Credit against CGST.

But ITC (Input Tax Credit) of SGST shall not be allowed against ITC of CGST and vice-versa.

IGST shall be distributed between Centre and State.


Following taxes of the State shall be subsumed under GST

  1. Octroi and Entry Tax
  2. Value Added Tax (VAT)
  3. Luxury Tax
  4. Purchase Tax
  5. Taxes on Lottery, Betting and Gambling
  6. State Cess and Surcharge
  7. Entertainment Tax

Procedure for GST registration:

  1. Those who are already registered under VAT would be getting provisional ID and password
  2. A new GST portal has been floated by the government,
  3. Create a new user ID and password in the above mentioned site by using the provisional ID and password.
  4. Once you create new user ID and password, you will getting eight fields, namely:
  1.  Business Details
  2. Promoter/Partner
  3. Authorized Signatory
  4. Principal Place of Business
  5. Additional Places of Business
  6. Goods and Services
  7. Bank Accounts
  8. Verification

After filing the application, one can use DSC(digital signature certificate) to digitally sign the same.Click Submit.

That was easy, isn’t it and we thought that there would be a lot of hue and cry.


AS-23 states that for consolidation with Associates, Equity Method has to be followed. Goodwill or Capital Reserve has to be ascertained at the time of acquisition and investment has to be carried at Carrying Value. Carrying Value is costs of original investment plus post acquisition profit. Goodwill / (Capital Reserve) merely has to be disclosed without any effect in the outer column or on the balances of the Co.

The Annual Report of Tata Investment Corporation Ltd. and DLF for instance calculates Goodwill / (Capital Reserve) arising on acquisition of shares of Assoicates. Goodwill or Capital Reserve has been disclosed by them in the Significant Notes to Financial Statement. Investment in Associate is shown as original cost + post acquisition profit.

When we read As-21, it states that goodwill / (capital reserve) should be ascertained when the holding – subsidiary relationship comes into existence, i.e, when the shareholding of parent exceeds 50%.

Deducing from what is read from AS-21 and AS-23, the goodwill / (capital reserve) in the case of Companies in hand is computed when 20% or more holding is acquired, that is the relationship of Associate is established.

There are two basic Issues or Doubts with regards to consolidation that needs to be addressed:

1st Issue:

  1. i) While calculating the Goodwill / (Capital Reserve) , do we substract from the investment in associate, the % share in Share Premium balance of Associate:

Let’s take imaginary figures. A Ltd. acquired 25% in B Ltd.

Cost of Control:

Investment made                                                                        110


25% of Paidup Equity Shares of associate (25%*100)            25

25% of Profit & Loss A/c Balance (25% * 200)                         50

25% of Share Premium or Securities Premium

of Associate B(25% * 400)

Goodwill                                                                       35


If I take 25% of Share Premium then the Goodwill can change into

Capital Reserve

The study materials of ICAI on Financial Reporting states that % shareholding in Paidup capital and Reserves and Surplus has to be deducted from Invesments made in order to arrive at Goodwill / (Capital Reserve).

As we know that Securities Premium A/c is part of Reserves and Surplus then should be not consider Share Premium A/c too while computing Goodwill / (Capital Reserve).

Contention from some quarters is that Share Premium A/c can only for  few purposes as specified in section 52 of the Companies Act, 2013, namely:


  • Bonus shares : Paying up unissued equity shares of the company to be issued to members of the company as fully paid bonus shares; or
  • Writing off : Writing off expenses of / commission paid / discount allowed on any issue of equity share capital; or
  • Writing off : Writing off the preliminary expenses of the company;
  • Provisioning : Providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company;
  • Buy-back : Purchasing its own shares / other securities (section 68).

and therefore cannot be used for calculation of Goodwill / (Capital Reserve). But my contention here is that we are merely using the Share Premium a/c for calculation purpose and not for any other purpose which will effect in the reduction of balance standing in the Share Premium A/c and therefore should be applied while calculating goodwill / (capital reserve).

2nd Issue:

Suppose A Ltd. holds 27.65% in B Ltd. and B Ltd. holds 22.88% in A Ltd then do we give any effect of same while calculating goodwill / (capital reserve). Some quarters are of the opinion that any effect should not be given as consolidation is not being done for Holding – subsidiary relationship but for Parent-Associate relationship. My contention is that be it any relationship but where there is cross-holding and certain method has been prescribed for calculating goodwill / (capital reserve) for cross holding, the same should be followed.

When cross holding exists then the revenue and capital profits of both A Ltd. and B Ltd. are adjusted for inter company holdings and then percentage share of such adjusted profit is taken.


  1. Section 129 of the Companies Act states that consolidation of accounts have to be done with Subsidiaries and for the purpose of Section 129, subsidiaries includes Associates. Therefore, if you have Associate only, consolidation is required. Exemption was provided only for FY 2014-15.


  1. A notification dated 29.02.2016 has exempted consolidation in few cases and I am attaching the notification in this regard. The exemption is basically where one holding has many subsidiaries and associates and any one in the chain has prepared consolidation of accounts then upon certain formalities, other need not prepare the same.


  1. When subsidiary is consolidated than ‘Accounting Standard AS-21 : Consolidated Financial Statements ‘ is followed which requires line by line consolidation. This requires, adding of corresponding sundry debtor, sundry creditors and other items, unrealized gain on cross transactions are eliminated and goodwill/capital reserve is stated in books. But where an Associate is consolidated, the procedure is as follows:
  2. Calculate Goodwill/ (Capital Reserve) at the time of holding. The procedure will be :

Let us take imaginary figures:

(Rs. in lacs)

Cost of Invesment                                                                                —     100

Less:  % share of Paidup Capital of Associate                                   —-     80

% share in the Reserves and Surplus of Associate               —-      40


Goodwill, if +ve

Capital Reserve , if –ve               (20)


Suppose if share was acquired in 2014, then this will be calculated on that date

And share of Profit / (loss) earned by Associate after that date till 31.03.2016 shall be post acquisition profit.

Suppose post acquisition profit share is                                              10


  1. Suppose A Pvt. Ltd. has acquired 22% shares of Associate B Pvt. Ltd. and profit of associate is 20 lacs for FY 2015-16, then the share of profit of Associate for FY 2015-16 is 22% of 20 lac,i.e, 4.4 lac. This figure has to be included in the Statement of P & L a/c of A Ltd.


  1. In the Balance Sheet, in the Asset side show:

INVESTMENTS:                                                                                  Inner Col.              Outer Col.

Associate: B Pvt. Ltd.

Investment                                                                                              100

Add: Post-acquisition profit                                                                 10                          110


In the Liability side:


Profit & Loss Account:

Per last account:                                                         —–

For the year (includes 4.4 lac of Associate)            —–        ——-




Rs. 110/- is the carrying amount of investment. Goodwill / (Capital Reserve) has to be shown as follows:

S. No. Name of the Associates Ownership Interest (%) Original Cost of Investment Amount of Goodwill (Capital Reserve) in original Cost Share of Post Acquisition Reserves & Surplus Carrying Amount of Investment
(A) (B) ( C)  ( A + C)
1) B Pvt. Ltd. 22.00              100                                             (20)                                   10                              110



I hope that this information shall be useful. If anyone have querries than they are welcome to ask.


Hi everyone, this is my new blog and totally new experience. I have heard stories of people getting peace, solace and satisfaction from there Blog. It becomes a part of there life and uplifts them in moments of loneliness and give a field to follow there passion. I have kept the name and style of my blog as TAXDHAN because I would be mostly sharing my knowledge in the area of Finance and Taxation. I hope this would benefit one and all.