B.COM 6th Sem.

Subject: GST & Indirect Tax [Core - 14]

Unit – 1 Syllabus:
Introduction to GST: Introduction, Constitutional Provisions regarding taxation in India, Pre-
GST Indirect Taxation Structure in India, What is GST, Need for GST in India, Overview and
Genesis of GST in India, GST Objectives, Scope of GST, Salient features of GST, GST and
Centre-State Financial Relations, The Constitution (122 Amendment Bill), Constitutional
Amendments required for introduction of GST, Indirect Taxes subsumed Post-GST: Principles
for subsuming taxes under GST in India, Indirect Taxes and Levies subsumed in GST, Events
that led to introduction of GST, Dual GST: Benefits of Dual GST , Structure of Dual Model of
GST, Key Features of Dual GST, Benefits of implementing GST, Central GST, State GST,
Union Territory GST, Integrated GST and GST cess, Pre-GST Regime Vs. GST Regime.

CONSTITUTIONAL PROVISIONS REGARDING TAXATION IN INDIA:

Constitution is the foundation and source of powers to legislate all laws in India. Parliament, as well as State
Legislatures gets the power to legislate various laws from the Constitution only and therefore every law has to
be within the vires of the Constitution.
The basic provisions of Constitution relating to taxation including the powers of Parliament and State
Legislatures to legislate regarding levy and collection of tax, the restrictions imposed by our Constitution on
such powers, entries concerning taxation are contained in Central List i.e. List-1 and State List i.e. List-2 of
Seventh Schedule to Constitution of India. Parliament has exclusive powers to make laws in respect of matters
given in Union List and State Government has the exclusive jurisdiction to legislate on the matters containing in
State List.
Power of Taxation under Constitution of India is as follows:
(a) The Central Government gets tax revenue from Income Tax (except on Agricultural Income), Excise (except
on alcoholic drinks) and Customs.
(b) The State Governments get tax revenue from sales tax, excise from liquor and alcoholic drinks, tax on
agricultural income.
(c) The Local Self Governments e.g. municipalities, etc. get tax revenue from entry tax and house property tax.
There is yet another list i.e. List III (called concurrent list) in the Seventh Schedule to the Constitution. In
respect of the matters contained in List III both the Central Government and State Governments can exercise
powers to
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legislate. In case of Union Territories Union Government can make laws in respect of all the entries in all the
three lists.
List III of Seventh Schedule (i.e. Concurrent list) includes entries like Criminal law and Procedure, Trust and
Trustees, Civil Procedures, economic and social planning, trade unions, charitable institutions, price control
factories, etc.
In case there is a conflict between the laws legislated by State Government and Central Government in respect
of entries contained in Concurrent list, law made by Union Government prevails.
However there is one exception to this rule, if law made by State contains any provision repugnant to earlier law
made by Parliament, law made by State Government prevails, if it has received assent of President. Even in
such cases, Parliament can make fresh law and amend, repeal or vary law made by State.
Union List:
Entry No. 82 – Tax on Income other than agriculture
income. Entry No. 83 – Duties of customs including export
duties.
Entry No. 84 – Duties of excise on Tobacco and other goods manufactured or produced in India except
alcoholic liquors for human consumption, opium, narcotic drugs, but including medicinal and toilet preparations
containing alcoholic liquor, opium or narcotics.
Entry No. 85 – Corporation tax
Entry No. 92A – Taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes
place in the course of Interstate trade or commerce.
Entry No. 92B – Taxes on consignment of goods where such consignment takes place during Inter-State trade
or commerce.
Entry No. 92C – Tax on services
Entry No. 97 – Any other matter not included in List II, List III and any tax not mentioned in List II or List III.
State List:
Entry No. 46 – Taxes on agricultural income.
Entry No. 51 – Excise duty on alcoholic liquors, opium and narcotics.
Entry No. 52 – Tax on entry of goods into a local area for consumption, use or sale therein (usually called
Octroi or Entry Tax).
Entry No. 54 – Tax on sale or purchase of goods other than newspapers except tax on interstate sale or
purchase. Entry No. 55 – Tax on advertisements other than advertisements in newspapers.
Entry No. 56 – Tax on goods and passengers carried by road or inland waterways.
Entry No. 59 – Tax on professionals, trades, callings and employment.
There are also certain restrictions which have been imposed in our Constitution on the powers of State
Governments and Union Government. So far indirect tax especially the tax on sale and purchase of goods is
concerned certain restrictions imposed in Constitution are provided here below:
Article 286(1) – State Government cannot impose tax on sale or purchase during imports or exports; or tax on
sale outside the State.
Article 286(3) – Parliament can place restrictions on tax on sale or purchase of goods declared as goods of
special importance and the State Government can tax such declared goods subject to these restrictions[section
14, 15 of CST Act, 1956 imposes restrictions and conditions on the power of State Governments to levy tax on
declared goods.]
Article 304 – State can impose tax on goods imported from other States or Union territories, but a State cannot
discriminate between goods manufactured in the State and goods brought from other States.
Proviso to article 304 provides that State legislature can impose reasonable restrictions on freedom of trade and
commerce within the state in public interest. However, such bill cannot be introduced in State Legislature
without previous sanction of the President.
Article 265 – No tax shall be levied or collected except by authority of law.
Concluding in the end, all the above articles of the Constitution are very important in relation to taxation and
must be deeply understood by every tax professional.

PRE-GST INDIRECT TAXATION STRUCTURE IN INDIA:

Tax on manufacture of goods in India – by CG*

Excise Duty

Customs Duty Tax on import of goods into India

– by CG*

Indirect Taxes Central Sales Tax

Tax on inter state sale of goods in India – by CG*

Tax on intra-state sale of goods

Value Added Tax
in India – by States

Service Tax Tax on services rendered in India

– by CG*

*CG – Central Government.

 Other than the above, States also charge Luxury Tax, Entertainment Tax, State Excise.
 Municipal Corporations and other local bodies also charge Octroi.

MEANING OF GST:

Goods and services tax means a tax on supply of goods or services, or both, except taxes on supply of alcoholic
liquor for human consumption (Article 366 (12A) of Constitution of India). GST is a value added tax levy on
sale or service or both. GST is a destination based consumption tax. GST offers comprehensive and continuous
chain of tax credit.

ADVANTAGES OF GST:

(a) One Nation One Tax.

(b) Removal of bundled indirect taxes such as VAT, CST, Service tax, CAD, SAD, and Excise.
(c) Removal of cascading effect of taxes i.e. removes tax on tax.
(d) Increased ease of doing business;
(e) Lower cost of production, increases demand will lead to increase supply. Hence, this will ultimately lead
to rise in the production of goods. Resultantly boost to make in India initiative.
(f) It will boost export and manufacturing activity, generate more employment and thus increase GDP with
gainful employment leading to substantive economic growth.

NEED FOR GST IN INDIA

GST is a Cure for ills of existing Indirect Tax:

The given statement is true. Cascading effect of tax is one of the vital cause-to-cause ill of existing Indirect Tax.
It means a tax that is levied on a good at each stage of the production process up to the point of being sold to the
final consumer. It is also known as tax on tax.

One of the fundamental features of GST is the seamless flow of input credit across the chain (from the
manufacture of goods till it is consumed) and across the country.
The following deficiencies in the existing Indirect Tax Laws cause need to bring GST in India as a cure for ills
of existing Indirect Tax regime.

1) Non-integration of VAT and Service Tax causes double taxation: In the present regime, restaurant
services provider is liable to pay VAT on sale of food and service tax on supply of services. There is no
set- off. It means VAT is not allowed as input tax credit against service tax and vice versa.
2) No CENVAT Credit after manufacturing stage to a dealer: In the present regime, a manufacturer of
dutiable goods charge excise duty and value added tax on intra-state sale of goods or CST on inter-state
sale of goods. VAT or CST is levied inclusive of excise duty.
3) Cascading of taxes on account of levy of CST Inter-state purchases: Example - Mr. C of Calicut being
a dealer purchased goods from Mr. H of Hyderabad by paying central sales tax of Rs. 2,000.Since, CST is
not allowed as Input Tax Credit against VAT payable on local sales, VAT is calculated inclusive of CST
causing cascading of tax.
4) The existing Indirect Tax frame work in India suffer from various duties and taxes at Central as
well as at State level:
 Central Indirect taxes State Indirect Taxes
Central Excise duty State Value Added Tax
Excise duty levied under Medicinal and Toilet Entertainment tax
preparations (Excise duty) Act, 1955
Service Tax Central Sales Tax
CVD on import Entry tax
Spl. CVD on import Purchase tax
Central surcharge Luxury tax
Central Cesses Betting and Gambling tax
State surcharges
State Cesses
In the GST regime, all the above taxes have been subsumed in the ambit of GST.

OVERVIEW AND GENESIS OF GST IN INDIA:

 In the year 2000, the then Prime Minister Late Atal Bihari Vajpayee introduced the concept of GST and set
up a committee to design a GST model for the country.
 In 2003, the Central Government formed a taskforce on Fiscal Responsibility and Budget Management,
which was headed by Dr. Vijay Kelkar.
 This committee in 2004 recommended GST to replace the existing tax regime by introducing a
comprehensive tax on all goods and services replacing Central level VAT and State level VATs.
 It recommended replacing all indirect taxes except the customs duty with value added tax on all goods and
services with complete set off in all stages of the value chain.
 The movement towards GST was articulated by the then Union Finance Minister in his Budget speech for
2006-07. Initially, it was proposed that GST would be introduced from 1st April 2010.
 The Empowered Committee of State Finance Ministers (EC) which had formulated the design of State
VAT was requested to come up with a roadmap and structure for GST.
 Joint Working Groups of officials having representatives of the States as well as the Centre were set up to
examine various aspects of GST and draw up reports specifically on exemptions and thresholds, taxation of
services and taxation of inter-State supplies.
 Based on discussions within it and between it and the Central Government, the EC released its First
Discussion Paper (FDP) on the GST in November, 2009.
 This FDP has formed the basis for discussions between the Centre and the States. The Constitution of India
was amended from 16 September 2016 to make provision for the introduction of GST. By this amendment,
now both the Centre and the States have concurrent power to ley and collect the GST.
 This tax reform leads to the creation of a single national market, common tax base and common tax laws
for the Centre and the States.

ONE NATION ONE TAX:

GST extends to whole of India including the State of Jammu and Kashmir.
On 7th July, 2017, the Jammu and Kashmir Goods and Services Tax Bill, 2017 was passed by the State
Legislature, empowering the State to levy State GST on intra-state supplies with effect from 8th July, 2017.
Concomitantly, the President of India has promulgated two ordinances, namely, the Central Goods and Services
Tax (Extension to Jammu and Kashmir) Ordinance, 2017 and the Integrated Goods and Services Tax (Extension
to Jammu and Kashmir) Ordinance, 2017 extending the domain of Central GST Act and the Integrated GST Act
to the State of Jammu and Kashmir, with effect from 8th July, 2017.
With this, the State of Jammu and Kashmir has become part of the GST regime, making GST truly a “one
nation, one tax” regime.

OBJECTIVES OF GST:

(i) To eliminate classification dispute between goods & services.

(ii) To bring in uniformity of tax rates and automated compliances.
(iii) To ensure availability of input tax credit across the value chain
(iv) To ensure simplification of registration, filing of return, tax administration and compliance.
(v) To harmonize tax base, laws, and administration procedures across the country.
(vi) To minimise tax rate slabs to avoid classification issues.
(vii) To prevent unhealthy competition among states regarding taxes and revenues.
(viii) To increase the tax base and raising compliance.
(ix) To remove cascading effect of taxes.
(x) To ensure free movement of Goods across the country without any additional tax.

SCOPE OF GST:

 GST is levied on every transaction of supply of goods & services except the exempted goods & services,
Goods which are outside the purview of GST and transactions below the prescribed threshold limits.
 Alcoholic Liquor for human consumption & Electricity is outside the purview of GST.
 GST is not levied on Petroleum crude, high speed diesel, motor spirit (Petrol), Natural Gas & Aviation
Turbine Fuel presently. The GST Council will recommend the date on which the GST would be levied on
these goods.

SALIENT FEATURES OF GST:

(i) GST is applicable on ‘supply’ of goods or services as against the present concept on the manufacture of
goods or on sale of goods or on provision of services.
(ii) GST is based on the principle of destination-based consumption taxation as against the present
principle of origin-based taxation.
(iii) It is a dual GST with the Centre and the States simultaneously levying tax on a common base. GST to
be levied by the Centre would be called Central GST(CGST) and that to be levied by the States would
be called State GST (SGST).
(iv) An Integrated GST (IGST) would be levied and collected by the Government of India on inter-state
supply (including stock transfers) of goods or services.
(v) Import of goods or services would be treated as inter-state supplies and would be subject to IGST in
addition to the applicable customs duties.
(vi) CGST, SGST & IGST would be levied at rates to be mutually agreed upon by the Centre and the
States. The rates would be notified on the recommendation of the GST Council. In addition to these
rates, a cess would be imposed on “demerit” goods to raise resources for providing compensation to
States as States may lose revenue owing to the implementation of GST.
(vii) GST would replace the following taxes currently levied and collected by the Centre:-

(a) Central Excise Duty

(b) Duties of Excise (Medicinal and Toilet Preparations)
(c) Additional Duties of Excise (Goods of Special Importance)
(d) Additional Duties of Excise (Textiles and Textile Products)
(e) Additional Duties of Customs (commonly known as CVD)
(f) Special Additional Duty of Customs(SAD)
(g) Service Tax
(h) Cesses and surcharge in so far as they relate to supply of goods and services.
(viii) State taxes that would be subsumed within the GST are:-

(a) State VAT

(b) Central Sates Tax
(c) Purchase Tax
(d) Luxury Tax
(e) Entry Tax (All forms)
(f) Entertainment Tax and Amusement Tax (except those levied by the local bodies)
(g) Taxes on advertisements
(h) Taxes on lotteries, betting and gambling
(i) State cesses and surcharges in so far as they relate to supply of goods and services.
(ix) GST would apply on all goods and services except Alcohol for human consumption.
(x) GST on five specified petroleum products (Crude, Petrol, Diesel, ATF & Natural Gas) would by
applicable from a date to be recommended by the GSTC.
(xi) Tobacco and tobacco products would be subject to GST. In addition, the Centre would have the power
to levy Central Excise duty on these products.
(xii) A common threshold exemption would apply to both CGST and SGST. Tax payers with an annual
turnover not exceeding Rs.20 lakh (Rs.10 Lakh for special category States) would be exempt from GST.
For small taxpayers with an aggregate turnover in a financial year up to Rs. 1.5 Crores, a composition
scheme is available. Under the scheme a taxpayer shall pay tax as a percentage of his turnover in a State
during the year without benefit of Input Tax Credit. This scheme will be optional.
(xiii) The list of exempted goods and services would be kept to a minimum and it would be harmonized for
the Centre and the States as well as across States as far as possible.
(xiv) Exports would be zero-rated supplies. Thus, goods or services that are exported would not suffer input
taxes or taxes on finished products.
(xv) Credit of CGST paid on inputs may be used only for paying CGST on the output and the credit of SGST
paid on inputs may be used only for paying SGST. Input Tax Credit (ITC) of CGST cannot be used for
payment of SGST and vice versa. In other words, the two streams of Input Tax Credit (ITC) cannot be
cross-utilised, except in specified circumstances of inter-state supplies for payment of IGST. The credit
would be permitted to be utilised in the following manner:-
(a) ITC of CGST allowed for payment of CGST & IGST in that order;
(b) ITC of SGST allowed for payment of SGST & IGST in that order;
(c) ITC of IGST allowed for payment of IGST, CGST & SGST in that order.

(xvi) Accounts would be settled periodically between the Centre and the States to ensure that the credit of
SGST used for payment of IGST is transferred by the Exporting State to the Centre. Similarly, IGST
used for payment of SGST would be transferred by the Centre to the Importing State. Further, the SGST
portion of IGST collected on B2C supplies would also be transferred by the Centre to the Destination
State. The transfer of funds would be carried out on the basis of information contained in the returns
filed by the taxpayers.
(xvii) The laws, regulations and procedures for levy and collection of CGST and SGST would be harmonized
to the extent possible.
(xviii) The whole GST system will be backed by a robust IT system. In this regard, Goods and Services Tax
Network (GSTN) has been set up by the Government. It will provide front end services and will also
develop back end IT modules for States who opted for the same.

GST AND CENTRE-STATE FINANCIAL RELATIONS:

Refer Page no. 24 of your book.

THE CONSTITUTION (122nd AMENDMENT) BILL, 2014:

This Bill was introduced in the Lok Sabha on 19 December 2014 and was passed by the House on 6 May 2015.
It was referred to a Select Committee of Rajya Sabha on 14 May 2015.
Highlights of the Bill
 The Bill amends the Constitution to introduce the goods and services tax (GST).
 Parliament and state legislatures will have concurrent powers to make laws on GST. Only the centre may
levy an integrated GST (IGST) on the interstate supply of goods and services, and imports.
 Alcohol for human consumption has been exempted from the purview of GST. GST will apply to five
petroleum products at a later date.
 The GST Council will recommend rates of tax, period of levy of additional tax, principles of supply,
special provisions to certain states etc. The GST Council will consist of the Union Finance Minister,
Union Minister of State for Revenue, and state Finance Ministers.
 The Bill empowers the centre to impose an additional tax of up to 1%, on the inter-state supply of goods
for two years or more. This tax will accrue to states from where the supply originates.
 Parliament may, by law, provide compensation to states for any loss of revenue from the introduction of
GST, up to a five year period.
Key Issues and Analysis
 An ideal GST regime intends to create a harmonised system of taxation by subsuming all indirect taxes
under one tax. It seeks to address challenges with the current indirect tax regime by broadening the tax
base, eliminating cascading of taxes, increasing compliance, and reducing economic distortions caused by
inter-state variations in taxes.
 The provisions of this Bill do not fully conform to an ideal GST regime. Deferring the levy of GST on
five petroleum products could lead to cascading of taxes.
 The additional 1% tax levied on goods that are transported across states dilutes the objective of creating a
harmonised national market for goods and services. Inter-state trade of a good would be more expensive
than intra-state trade, with the burden being borne by retail consumers. Further, cascading of taxes will
continue.
 The Bill permits the Centre to levy and collect GST in the course of inter-state trade and commerce.
Instead, some experts have recommended a modified bank model for inter-state transactions to ease tax
compliance and administrative burden.

CONSTITUTIONAL AMENDMENTS REQUIRED FOR INTRODUCTION OF GST:

Refer Page no. 20 of your book.

EVENTS THAT LED TO THE INTRODUCTION OF GST:

 In the year 2000, the then Prime Minister Late Atal Bihari Vajpayee introduced the concept of GST and set
up a committee to design a GST model for the country.
 In 2003, the Central Government formed a taskforce on Fiscal Responsibility and Budget Management,
which was headed by Dr. Vijay Kelkar.
 This committee in 2004 recommended GST to replace the existing tax regime by introducing a
comprehensive tax on all goods and services replacing Central level VAT and State level VATs.
 February 28, 2006: Finance minister P Chidambaram in his budget speech for the year 2006-07 mentioned
the constitution of an empowered committee (EC) of state finance ministers to work with the centre to
present a road map for implementing GST in India, beginning 01 April 2010.
 November 28, 2006: A report submitted by a working group formed by the empowered committee (EC) of
state finance ministers was discussed in the EC.
 December 12, 2008: The government of India presented its comments on the report of the EC.
 January 21, 2009: Proposal to set up a committee of principal secretaries, secretaries of finance/taxation
and commissioners of trade taxes of the states was accepted, and a working group was formed.
 March 2009: A report released by the department of economic affairs, ‘GST Reforms and
Intergovernmental Considerations in India’ discussed the need for, and objective of the GST reform.
 October 19, 2009: Agreement reached between then finance minister Pranab Mukherjee and the
Empowered Committee to phase out the central sales tax (CST)
 February 26, 2010: Date of proposed implementation of GST shifted from April 1, 2010 to April 1, 2011.
A Technology Advisory Group for Unique Projects (TAGUP) with Nandan Nilekani as chairman proposed.
 March 22, 2011: GST Bill (115th Constitutional Amendment Bill, 2011) introduced in the Lok Sabha. The
bill give concurrent taxing powers to both the Centre and States, and suggested the creation of a Goods and
Services Tax council and a Goods and Services Tax Dispute Settlement Authority.
 March 29, 2011: GST Bill referred to the Standing Committee on Finance (2012-13).
 March 28, 2013: The Goods and Services Tax Network (GSTN) was incorporated as a non-profit, private
limited company.
 May 18, 2014: The GST Bill lapsed with the dissolution of 15th Lok Sabha. The BJP, led by Prime
Minister Modi took power the same month.
 December 19, 2014: Seven months later, the NDA government’s finance minister Arun Jaitley introduced
the Constitution (122nd Amendment) (GST) Bill 2014 in the Lok Sabha.
 May 6, 2015: 122nd Constitutional Amendment Bill was passed in the Lok Sabha.
 September 21, 2015: Government awards Rs 1,380 crore contract to Infosys to build and maintain the
technology for implementing GSTN, over five years.
 December 4, 2015: Chief Economic Advisor Arvind Subrmanian releases report on the revenue neutral
rate and structure of rates for GST.
 June 14, 2016: The empowered committee of state finance ministers gives its in-principle approval to the
Model GST Law.
 August 3, 2016: The 122nd Constitutional Amendment Bill, 2014 was unanimously approved by the Rajya
Sabha with amendments.
 August 8, 2016: Amendments made by Rajya Sabha on August 3 were adopted and the bill was passed
again by the Lok Sabha.
 August and September 2016: Over the two months, 23 state assemblies had introduced and approved the
GST bill.
 September 8, 2016: President Pranab Mukherjee gave his approval to the GST bill, notified as the
Constitution (One Hundred and First Amendment) Act, 2016.
 September 12, 2016: Cabinet approves creation of GST Council and its Secretariat.
 September 22 and 23, 2016: First GST Council meeting held in New Delhi, in which draft rules of
procedures and conduct of business in the council, a timetable for the implementation of GST, thresholds
for exemption and composition under GST and draft GST Compensation Law are discussed.
 October 18 and 19, 2016: Tax rates under the GST regime are discussed at the 3rd meeting of the GST
council.
 November 26, 2016: Revised Model GST Law, 2016, draft IGST Law and draft GST Compensation Law
released.
 March 4, 2017: The GST council discusses the development of an e-way bill system by the GSTN at its
11th meeting.
 March 20, 2017: The Union cabinet chaired by Prime Minister Narendra Modi approves the four GST
bills: the CGST Bill, IGST Bill, UTGST Bill and the Compensation Bill.
 March 22, 2017: The cabinet approves amendments in the Customs Act, 1962, the Customs Tariff Act,
1975 and the Central Excise Act, 1944 to abolish cesses and surcharges on various goods and services to
facilitate implementation of GST.
 March 25, 2017: President Pranab Mukherjee gives his nod for the GST bills to be placed before the
parliament. The CBEC (Central Board of Excise and Customs) is renamed CBIC (Central Board of Indirect
Taxes & Customs).
 March 29, 2017: All four GST bills passed as Money Bills in the Lok Sabha.
 March 31, 2017: Date for migration of Central Excise & Service Tax to GST extended from 31st March,
2017 to 30th April, 2017.
 April 6, 2017: All the four Central GST bills are passed in the Rajya Sabha without amendments. Along
with them is passed the Taxation Laws (Amendment) Bill, 2017.
 April 12, 2017: With the President’s assent, the four bills now become Acts of Parliament: Central Goods
And Services Tax Act, 2017, Integrated Goods And Services Tax Act, 2017, Union Territory Goods And
Services Tax Act, 2017, and the Goods And Services Tax (Compensation to States) Act, 2017.
 May 18 and 19, 2017: At the 14th meeting of the GST Council in Srinagar, the final tax slabs at nil, 5%,
12%, 18% and 28% were announced, fitment of products into these slots was discussed and rates for GST
Compensation cess approved.
 June 18, 2017: The GST council announced that for the first two months after GST implementation, the
tax would be payable based on a simple return, form GSTR-RB.
 June 21, 2017: All states except Jammu and Kashmir pass SGST law.
 July 1, 2017: GST is rolled out.

PRINCIPLES FOR SUBSUMING TAXES UNDER GST IN INDIA:

 Subsuming of Taxes refers to the inclusion and absorption of different taxes of the Pre-GST regime
into one larger tax pool.
 The various Central, State and Local levies were examined to identify their possibility of being subsumed
under GST and accordingly the following principles were kept in mind:
• Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of
goods or on the supply of services.
• Taxes or levies to be subsumed should be part of the transaction chain which commences with import/
manufacture/ production of goods or provision of services at one end and the consumption of goods and
services at the other.
• The subsumation should result in free flow of tax credit in intra and inter-State levels.
• The taxes, levies and fees that are not specifically related to supply of goods & services should not be
subsumed under GST.
• Revenue fairness for Union/States should be individually attempted.

DUAL GST MODEL (INCLUDING TYPES OF GST)

India adopted a dual GST where tax is imposed concurrently by the Centre and States. Both the Centre and
State Government have distinct responsibilities to perform according to the division of powers as prescribed in
the Constitution that needs resources for implementation.
Central Goods and Services Tax Act, 2017 (CGST):
CGST levied and collected by Central Government. It is a revenue source to the Central Government of India,
on intra-state supplies of taxable goods or services or both.

State Goods and Services Tax Act, 2017 (SGST):

SGST levied and collected by State Governments/Union Territories with State Legislatures (namely Delhi and
Pondicherry) on intra-state supplies of taxable goods or services or both.
It is a revenue source of the respective State Government.

Union Territory Goods and Services Tax (UTGST):

UTGST levied and collected by Union Territories without State Legislatures, on intra-state supplies of taxable
goods or services or both.

Integrated Goods and Services Tax Act, 2017 (IGST):

IGST is a mechanism to monitor the inter-state trade of goods and services and ensure that the SGST
component accrues to the Consumer State. It would maintain the integrity of ITC chain in inter-state supplies.
The IGST rate would broadly be equal to CGST rate plus SGST rate. IGST would be levied and collected by
the Central Government on all inter-State transactions of taxable goods or services.
Features of the Dual Model:
1) GST have two components one levied by the Centre (referred to as Central GST), and the other levied by
the States (referred to as State GST)
2) Central GST and the State GST are applicable to all transactions of goods and services
3) Central GST and State GST are to be paid to the accounts of the Centre and the States individually
4) Central GST and State GST are treated individually, therefore taxes paid against the Central GST are
allowed to be taken as input tax credit (ITC)
5) Cross utilization of ITC between the Central GST and the State GST is not permitted except in the case
of inter-State supply of goods and services Cross utilization of ITC between the Central GST and the State
GST is not permitted except in the case of inter-State supply of goods and services
6) Credit accumulation on account of refund of GST should be avoided by both the Centre and the States
except in the cases such as exports, purchase of capital goods, input tax at higher rate than output tax etc.

Advantages of Dual GST:

1) Simple and transparent tax: Dual GST is the best solution for countries like India because it will
reduce the number of taxes at central and state level. This will also be easy to implement and create
accountability for.
2) Decreasing tax rate: Dual GST will also result in reduction in the effective tax rates for many goods.
3) Removal of cascading effect of taxes: The implementation of GST will reduce the cascading effects
of the present taxation system
4) Simplified tax compliance: By reducing the transaction costs of taxpayers, dual GST will bring about
simplified tax compliance.
5) Increase in the amount of tax collection: Better compliance and a wider tax base will lead to
increased tax collections
 6) Dual GST most practical for federal India: As Centre already levies CENVAT and tax services,
CGST will work well with some harmonisation as will SGST with symmetry in a dual GST system.
7) Easily attainable: The dual GST system is easy to attain in the current structure, given that India is
following an indirect taxation system. Certain amendments may be required, but on the whole, the
transition will be easier.

BENEFITS OF IMPLEMENTING GST:

For Business and Industry
1) Facilitating Ease of doing business: Under GST, there will be centralised GST Registration and multiple
VAT registration is not required. The procedure for GST registration is simple and standardized, thereby
improving the ease of starting a new business in India.
2) Boosting Make in India campaign: It will boost the Make in India Campaign by making India a single
large market by subsuming the several taxes into one single tax. Manufacturing will get more
competitive as GST addresses cascading of tax, inter-state tax, high logistics costs and fragmented
market. Increased protection from imports as GST provides for appropriate countervailing duty.
3) Easy compliance: A robust and comprehensive IT system is the foundation of the GST regime in India.
Therefore, all tax payer services such as registrations, returns, payments, etc. are available to the
taxpayers online, which make compliance easy and transparent.
4) Uniformity of tax rates and structures: GST ensures that indirect tax rates and structures are common
across the country, thereby increasing certainty and ease of doing business.
5) Removal of cascading: A system of seamless tax-credits throughout the value-chain, and across
boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce hidden
costs of doing business.
6) Improved competitiveness: Reduction in transaction costs of doing business would eventually lead to an
improved competitiveness for the trade and industry.
7) Gain to manufacturers and exporters: The subsuming of major Central and State taxes in GST,
complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax
(CST) would reduce the cost of locally manufactured goods and services. This will increase the
competitiveness of Indian goods and services in the international market and give boost to Indian exports.

For Central and State Governments

1) Simple and easy to administer: Multiple indirect taxes at the Central and State levels have been replaced
by GST. Backed with a robust end-to-end IT system, GST would be simpler and easier to administer than
all other indirect taxes of the Centre and State levied so far.
2) Higher revenue efficiency: GST is expected to decrease the cost of collection of tax revenues of the
Government, and will therefore, read to higher revenue efficiency.
3) Better controls on leakage: GST will result in better tax compliance due to a robust IT infrastructure. Due
to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is
an in-built mechanism in the design of GST that would incentivize tax compliance by traders.
For the Consumer
1) Single and transparent tax proportionate to the value of goods and services: Due to multiple indirect
taxes being levied by the Centre and State, the cost of most goods and services in the country were laden
with many hidden taxes. Under GST, there is only one tax from the manufacturer to the consumer, leading
to transparency of taxes paid by the final consumer.
2) Reduction in price of goods and services: In GST the cascading effect is removed as the Input Tax Credit
(ITC) is available for all goods and services at each and every stage of the supply chain. leading to
reduction of cost thereby reduction in prices charged to ultimate consumers.
3) Relief in overall tax burden: Because of efficiency in gains and prevention of leakages, the overall tax
burden on most commodities will come down, which will benefit consumers.
4) Better accessibility of goods and services: As all the goods and services are charged one rate across the
nation, the consumer is not required to travel across the states to make purchases for the purpose of saving
tax. Further, the online shopping companies will plan their operations to reduce the lead time.

GST CESS:

 GST cess is a compensation cess levied under section 8 of The Goods and Services Tax (Compensation to
State) Act, 2017.

 As GST is a consumption-based tax, the state in which the consumption of goods and supply happen would
be eligible for the indirect tax revenue.
 Hence, after the implementation of GST, some states that are net exporter of goods and/or services are
expected to experience a decrease in indirect tax revenue.
 To compensate the States for the loss in tax revenue, the GST Compensation Cess has been declared by the
Central Government.
 As per the Goods and Services Tax (Compensation to State) Act, 2017, GST compensation cess would be
levied for a period of 5 years from GST implementation.

 Applicability of GST Cess:

 It is levied on both intra-state and inter-state supply of goods or services to provide compensation to the
States for loss of revenue due to implementation of GST in India.

 All taxable person under GST, except taxpayers registered under GST composition scheme are expected
to collect and remit GST cess.
 The following goods will attract GST Cess:
 Pan Masala
 Tobacco and manufactured tobacco substitutes, including tobacco products
 Coal, briquettes and similar solid fuels manufactured from coal, lignite, whether or not
agglomerated, excluding jet, peat (including peat litter), whether or not agglomerated
 Aerated waters
 Motor cars and other motor vehicles principally designed for the transport of persons (other than
motor vehicles for the transport of ten or more persons, including the driver), including station
wagons and racing cars.
  Any other supplies as notified from time to time.
 Usage of GST Cess:
 All the proceeds received from the GST compensation cess would be credited to a non-lapsable fund
known as the Goods and Services Tax Compensation Fund.
 The funds would then be used for compensating tax revenue loss to States on account of GST
implementation.
 If any funds are unutilised, then at the end of the transition period, it would be shared in half by the
Central Government and all State Government.
 State government's share would be distributed in the ratio of their total revenues from the State tax or the
Union territory goods and services tax, in the last year of the transition period.
 In case the goods or service attracts GST cess, cess must be calculated on the basis of the taxable value of
the supply and as provided in the GST cess rate schedule.
 In case GST cess is applicable on goods imported into India, then cess must be levied and collected along
with the IGST and customs duty.

PRE-GST REGIME Vs. GST REGIME:

(1) Rate of Tax: In the Pre-GST era, various taxes like Excise Duty, Entry Tax, VAT etc. were charged at
different rates. The rate of VAT differed from State to State. But under GST, there is only one CGST rate
and a common SGST rate across all states.
(2) Tax Laws: In the Pre-GST era, various laws were there for various kinds of taxes like Central Excise Act,
VAT Act for respective States. But in GST regime, there is only one law called as GST Act.
(3) Effect of cascading: Cascading effect was a serious problem in the indirect taxation in India because
Credit of Central Sales Tax and other indirect taxes aren't allowed. Whereas under GST regime the
cascading effect will be eliminated.
(4) Burden on Consumers: Since there was cascading effect on taxes before pre-GST regime the cost of the
products was high but, with the implementation of GST, cost burden has been reduced by removing the
cascading effect.
(5) Transparency in Tax Administration: Before GST Tax was levied in both stages of production and
consumption, i.e., when product moves out of factory and also at retail outlet. But GST is levied only at
final destination of consumption and not at various points. This will bring more transparency in tax
administration.
(6) Concurrent Power: In Pre-GST regime, there was no such power to both Centre and State on same subject
of tax matter. After GST, both Centre and State are given the concurrent power to make laws with respect
to goods and services tax, according to Article 246A of the Constitution.
(7) Tax Compliance: Previously, tax compliance was complicated because there were multiple taxes. With
GST, tax compliance will be simple because there is one tax for the entire country.
(8) Input Tax Credit: Under Pre GST regime, Input Tax credit was applicable to only Intra state transactions
but Under GST regime it is applicable to both Intra-state and Inter-stare transactions.
Important Short Questions (2 marks each):
1. Discuss in brief the Scope of GST.

Ans.) (a) GST is levied on every transaction of supply of goods & services except the exempted goods &
services, Goods which are outside the purview of GST and transactions below the prescribed
threshold limits.
(b) Alcoholic Liquor for human consumption & Electricity is outside the purview of GST.
(c) GST is not levied on Petroleum crude, high speed diesel, motor spirit (Petrol), Natural Gas &
Aviation Turbine Fuel presently.

2. “India adopted a Dual GST model”. Comment.

Ans.) Dual GST ensures that the Centre and States simultaneously levy tax on a common base.
GST to be levied by the Centre would be called Central GST(CGST) and that to be levied by the States
would be called State GST (SGST).

3. What is meant by Subsuming of taxes? Name two Central taxes and State taxes that are subsumed into GST.

Ans.) Subsuming of Taxes refers to the inclusion and absorption of different taxes of the Pre-GST regime into
one larger tax pool under the new GST system.
e.g. – Central Taxes: (a) Central Excise Duty
(b) Service
Tax State Taxes: (a)
State VAT
(b) Entry Tax

4. What is meant by Common Threshold Limit?

Ans.) A common threshold exemption would apply to both CGST and SGST. Tax payers with an annual
turnover not exceeding Rs.20 lakh (Rs.10 Lakh for special category States) would be exempt from GST.
For small taxpayers with an aggregate turnover in a financial year up to Rs. 1.5 Crores, a composition
scheme is available.

5. Discuss the utilization of Input Tax Credit.

Ans.) Credit of CGST paid on inputs may be used only for paying CGST on the output and the credit of SGST
paid on inputs may be used only for paying SGST.
Input Tax Credit (ITC) of CGST cannot be used for payment of SGST and vice
versa. The credit would be permitted to be utilised in the following manner:-
(d) ITC of CGST allowed for payment of CGST & IGST in that order;
(e) ITC of SGST allowed for payment of SGST & IGST in that order;
(f) ITC of IGST allowed for payment of IGST, CGST & SGST in that order.

6. What is meant by Cascading effect of tax?

Ans.) Cascading effect is a situation when there is a tax on tax levied on a product at every step of the sale.
The tax is levied on a value that includes tax paid by the previous buyer, thus, making the end consumer
pay “tax on already paid tax”.
7. What is meant by GST Cess?

Ans.) GST cess is a compensation cess levied under section 8 of The Goods and Services Tax (Compensation to
State) Act, 2017.
As GST is a consumption-based tax, after the implementation of GST, some states that are net exporter of
goods and/or services are expected to experience a decrease in indirect tax revenue.
Hence, to compensate the States for the loss in tax revenue, the GST Compensation Cess has been
declared by the Central Government for a period of 5 years from the date of implementation of GST.

8. Briefly discuss the applicability of GST Cess?

Ans.) It is levied on both intra-state and inter-state supply of goods or services to provide compensation to the
States for loss of revenue due to implementation of GST in India.
All taxable person under GST, except taxpayers registered under GST composition scheme are expected
to collect and remit GST cess.
e.g. – GST Cess is applicable on some goods like tobacco products, aerated waters, pan masala, motor
cars etc.

9. In what way Concurrent Power ensured successful implementation of GST?

Ans.) In Pre-GST regime, there was no concurrent power to both Centre and State on same subject of tax
matter. For successful implementation of GST, both Centre and State are given the concurrent power to
make laws with respect to goods and services tax, according to Article 246A of the Constitution.