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GOODS AND SERVICE TAX

A. Meaning:

 GST is known as the Goods and Services Tax.

 It is an indirect tax which has replaced many indirect taxes in India such as the
excise duty, VAT, services tax, etc.
 In other words, the goods and services tax (GST) is a tax on goods and services
sold domestically for consumption.
 The GST is paid by consumers, but it is remitted to the government by the
businesses selling the goods and services.
 The tax is included in the final price and paid by consumers at point of sale and
passed to the government by the seller.

B. Introduction:

The goods and services tax (GST) is an indirect federal sales tax that is applied to the
cost of certain goods and services. The business adds the GST to the price of the
product, and a customer who buys the product pays the sales price inclusive of the
GST. The GST portion is collected by the business or seller and forwarded to the
government. It is also referred to as value added tax (VAT) in some countries.

Most countries with a GST have a single unified GST system, which means that a
single tax rate is applied throughout the country. A country with a unified GST platform
merges central taxes (e.g., sales tax, excise duty tax, and service tax) with state-level
taxes (e.g., entertainment tax, entry tax, transfer tax, sin tax, and luxury tax) and
collects them as one single tax. These countries tax virtually everything at a single
rate.

It has successfully helped us achieve the agenda of ‘One Nation, one tax’.
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C. FEATURES:

1. Multi stage

An item goes through multiple change-of-hands along its supply chain: Starting from
manufacture until the final sale to the consumer.

Let us consider the following stages:

 Purchase of raw materials

 Production or manufacture

 Warehousing of finished goods

 Selling to wholesalers

 Sale of the product to the retailers

 Selling to the end consumers

2. Value addition

 A manufacturer who makes biscuits buys flour, sugar and other material. The value
of the inputs increases when the sugar and flour are mixed and baked into biscuits.
 The manufacturer then sells these biscuits to the warehousing agent who packs
large quantities of biscuits in cartons and labels it. This is another addition of value
to the biscuits. After this, the warehousing agent sells it to the retailer.
 The retailer packages the biscuits in smaller quantities and invests in the marketing
of the biscuits, thus increasing its value. GST is levied on these value additions, i.e.
the monetary value added at each stage to achieve the final sale to the end
customer.
3. Destination based

Consider goods manufactured in Maharashtra and sold to the final consumer in

Karnataka. Since the Goods and Service Tax is levied at the point of consumption, the
entire tax revenue will go to Karnataka and not Maharashtra.
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4. Single indirect tax

GST has been introduced as a single, unified tax reform. It has eliminated many
existing indirect centre and state taxes like Central Value Added Tax, Special Additional
Duty of Customs, Service Tax, and VAT and converted them into a single tax. The
elimination of these indirect taxes has not only made tax compliance easier for
businesses but has also helped in making many of the goods and services more
affordable for the consumers. The GST system applies a single tax rate to goods and
services based on their classification under the Harmonized System of Nomenclature
(HSN). The GST rates vary depending on the nature of the goods or services and can
range from 0% to 28%.

5. Input tax credit system

One of the most prominent GST features in India is the input tax credit. If a
manufacturer or service provider has already paid input tax on a purchase, the same
can be deducted from their total output tax liability. The input and output invoices need
to match to take advantage of the tax credit. This helps in removing the cascading tax
effect or the traditional ‘tax-on-tax’ regime. Moreover, it also helps in reducing tax
evasion.

6. GST composition scheme

The GST composition scheme allows eligible businesses to pay GST at a lower rate on

their taxable turnover. It also reduces the number of compliances a business needs to
adhere to. Manufacturers that have a turnover of up to Rs 1.5 crore are allowed to opt
into the composition scheme. In North-Eastern states and Himachal Pradesh, this limit
is Rs.75 lakhs. There is also a special composition scheme for service providers with a
turnover of up to Rs.50 lakh. However, a business paying tax under the composition
scheme cannot claim the input tax credit, as explained in the next pointer. 

7. Four tier tax structure

The tax structure under GST is divided into four rates: 

5% — Essential goods, such as food items and life-saving drugs

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12% — Goods such as certain apparel items, packaged food, nuts, medicines, etc.

18% — Goods such as electronic items, consumer durables, and most services 

28% — Luxury and sin goods such as cars, tobacco, and aerated drinks

In addition to these four tax rates, there is also a Nil rate imposed on several essential
goods, such as food grains, as well as special tax rates of 0.25% and 3%  imposed on
certain luxury goods like precious stones and jewellery. There are also special rates for
taxpayers under the composition scheme. The four-tier rate structure intends to bring
uniformity in taxation across the country while reducing the cascading effect of taxes
and promoting the ease of doing business. However, some experts believe the multiple
tax rates complicate compliance and add to business costs. 

D. SCOPE

1. Easy compliance: GST makes it easy for taxpayers to compliance with required

rules and regulations timely. They can avail all services relating to GST via online
portal such as registration, tax payment, return filling, response to notices, etc. It has
accelerated the whole process.
2. Removes cascading effect: GST has eliminated the cascading effect of taxation on
goods that existed in the previous tax system. Cascading effect means implying tax
on tax which raises the cost of the product. Here the tax is not levied on the full
value of the product but only on the net value added to it. Removal of cascading
effect will make goods cheaper for consumers.
3. Simplification of taxation: This tax has simplified the whole taxation procedure by
eliminating around 17 indirect taxes. GST has minimized the compliance cost for
business and saved them from facing various problems that arise in indirect tax
previously.
4. Provides transparency: The introduction of GST has provided better transparency
in the collection of taxes to the government. Due to its robust IT structure, it is
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difficult to evade tax and make false claims by taxpayers. It has also reduced the
collection cost of taxes by the government which ultimately raises its revenue.
5. Bring uniformity in tax structure: GST has unified the whole tax structure of the
nation. It has introduced the same tax rates for products and services across the
country.
6. Improve profitability: GST has reduced the transaction costs for business which
facilitates them in doing operations efficiently. It has also brought down production
cost by eliminating the cascading effect of tax which improves overall
competitiveness for industry and trade.

E. TYPES:

1. Integrated Goods and Services Tax or IGST

 The Integrated Goods and Services Tax or IGST is a tax under the GST
regime that is applied on the interstate (between 2 states) supply of goods
and/or services as well as on imports and exports.

 The IGST is governed by the IGST Act. Under IGST, the body responsible for
collecting the taxes is the Central Government. After the collection of taxes, it
is further divided among the respective states by the Central Government.

 For instance, if a trader from West Bengal has sold goods to a customer in
Karnataka worth Rs.5,000, then IGST will be applicable as the transaction is
an interstate transaction. If the rate of GST charged on the goods is 18%, the
trader will charge Rs.5,900 for the goods. The IGST collected is Rs.900, which
will be going to the Central Government.

2. State Goods and Services Tax or SGST

 The State Goods and Services Tax or SGST is a tax under the GST
regime that is applicable on intrastate (within the same state) transactions. In
the case of an intrastate supply of goods and/or services, both State GST and
Central GST are levied.
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 However, the State GST or SGST is levied by the state on the goods and/or
services that are purchased or sold within the state. It is governed by the
SGST Act. The revenue earned through SGST is solely claimed by the
respective state government.

 For instance, if a trader from West Bengal has sold goods to a customer in
West Bengal worth Rs.5,000, then the GST applicable on the transaction will
be partly CGST and partly SGST. If the rate of GST charged is 18%, it will be
divided equally in the form of 9% CGST and 9% SGST. The total amount to be
charged by the trader, in this case, will be Rs.5,900. Out of the revenue
earned from GST under the head of SGST, i.e. Rs.450, will go to the West
Bengal state government in the form of SGST.

3. Central Goods and Services Tax or CGST

 Just like State GST, the Central Goods and Services Tax of CGST is a tax
under the GST regime that is applicable on intrastate (within the same state)
transactions. The CGST is governed by the CGST Act. The revenue earned
from CGST is collected by the Central Government.

 As mentioned in the above instance, if a trader from West Bengal has sold
goods to a customer in West Bengal worth Rs.5,000, then the GST applicable
on the transaction will be partly CGST and partly SGST. If the rate of GST
charged is 18%, it will be divided equally in the form of 9% CGST and 9%
SGST. The total amount to be charged by the trader, in this case, will be
Rs.5,900. Out of the revenue earned from GST under the head of CGST, i.e.
Rs.450, will go to the Central Government in the form of CGST.

4. Union Territory Goods and Services Tax or UTGST

 The Union Territory Goods and Services Tax or UTGST is the counterpart of
State Goods and Services Tax (SGST) which is levied on the supply of goods
and/or services in the Union Territories (UTs) of India.
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 The UTGST is applicable on the supply of goods and/or services in Andaman

and Nicobar Islands, Chandigarh, Daman Diu, Dadra, and Nagar Haveli, and
Lakshadweep. The UTGST is governed by the UTGST Act. The revenue
earned from UTGST is collected by the Union Territory government. The
UTGST is a replacement for the SGST in Union Territories. Thus, the UTGST
will be levied in addition to the CGST in Union Territories.

F. Background and implementation in India:

1. When did GST begin?

The history of GST goes back as early as the year 1954, when it was first
adopted by France, followed by over 160 countries worldwide. Malaysia was one
of the most recent countries to adopt a valued-based tax system, GST, back in
2015. GST was first introduced in India in 2017 when they decided to introduce a
dual tax structure system.

2. Who introduced GST in India?

In 2014, the then Finance Minister, Mr Arun Jaitley, introduced the Constitution
Amendment Bill in the parliament. In May 2015, the Constitution (122nd
Amendment) Bill was passed in the Lok Sabha. The Integrated GST Bill, 2017,
the Union Territory GST Bill, 2017, the Central GST Bill, 2017, and the GST
(Compensation to States) Bill, 2017 were passed by the Lok Sabha and the
Rajya Sabha by the 20th of April 2017. On the 1st of July, 2017, GST was
officially rolled out.

3. Brief history of GST in India-

The history of GST traces back more than 20 years ago to the year 2000 when
the first discussion with regard to India adopting GST was made at a time when
the Atal Bihari Vajpayee government was in reign. An empowered committee of
state finance ministers was chosen for this purpose since they had prior
experience working with State VAT. The Fiscal Responsibility and Budget
Management Committee was formed in 2004, and the Committee recommended
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the introduction of GST. During the 2006-07 Budget Speech, the then Union
Finance Minister announced that GST would be introduced by April 1, 2010.
However, for various reasons, the introduction of GST had to be pushed further.
The Constitution (115th Amendment) Bill, 2011, was introduced in the parliament.
This Bill was introduced to incorporate certain provisions of GST and was
examined in detail by a Standing Committee. With the dissolution of the Lok
Sabha in 2014, the Bill lapsed, thus warranting the need for a new Constitutional
Amendment Bill.

4. Timeline and evolution of GST-

2000
 An Empowered Committee consisting of State Finance Ministers is set
up. 
2006
 The then Finance Minister, P Chidambaram, announced the
implementation of GST on April 1, 2010.
2009
 The Empowered Committee of State Finance Ministers submitted the
first discussion paper on GST in India.
2010
 President Pranab Mukherjee announced the delay in introducing GST,
proposing to introduce it in April 2011.
2011
 The Constitution (115th Amendment) Bill focused on the introduction of
GST in India was introduced in the Lok Sabha.
 The Lok Sabha then refers the Bill to the Standing Committee on
Finance for a detailed examination.
2013
 The Standing Committee on Finance submits the report on the
Constitution (115th Amendment) Bill.
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2014
 The Lok Sabha dissolution leads to the lapse of the Bill.
 The Constitution (122nd Amendment) Bill introduced in the Lok Sabha
focused on introducing GST.
2015
 The Bill was passed by the Lok Sabha and referred to a Select
Committee in the Rajya Sabha.
 The Select Committee submits the report.
 Chief Economic Advisor-led Committee submits a report on the possible
GST rates.
2016
 The Bill is passed by both the Lok Sabha and the Rajya Sabha and is
then notified as the Constitution (101st Amendment) Bill.
 The first state to ratify the Bill in Assam.
 President Pranab Mukherjee gives his assent to the Bill.
 The Union Cabinet approves the setting up of the GST Council, following
which the first GST Council meeting is held in New Delhi.
2017
 The CGST Bill, IGST Bill, UTGST Bill, and GST (Compensation to
States) Bill is introduced in the Lok Sabha.
 The Bills are passed by the Lok Sabha and the Rajya Sabha, after which
the GST Acts are notified.
 The GST Council notifies GST rates and cess on goods and services.
 1st July, the official rollout of GST.
2018
 Introduction of TDS provisions along with the filing of GSTR-7
 Introduction of E-way bill system for inter-state movement of goods
2019
 The reverse charge mechanism is made applicable
 Restrictions on availment of ITC for Section 36(4)
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2020
 Introduction of e-invoicing voluntarily
 Quarterly return monthly payment scheme
 June – Relief to taxpayers in view of COVID-19
2021
 Introduction of GSTR-8 and GST on service supplied by restaurants
through e-commerce operators
 GST on services supplied by State Govt. to their undertakings or PSUs
by way of guaranteeing loans taken by them.

5. Replacement and absorption

It has replaced a host of taxes, including-

a. Service tax

b. Central Excise Duty

c. Additional duties related to Excise

d. Special Additional Customs Duty

e. Additional duties related to Customs

f. Other cesses and surcharges

GST has absorbed the following taxes-

g. Central Sales Tax

h. Value Added Tax (VAT)

i. Luxury Tax

j. Purchase Tax

k. Entertainment Tax (except taxes levied by local entities)

l. Taxes on lottery, gambling, advertisements

m. Entry Tax
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G. Levy and collection

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