Unit 4

Introduction to
Goods And Services Tax (GST)
 Basis of Taxation

❖ Basis of relationship
❖ Basis of method of assessment
❖ Basis of incidence and impact of tax
Relationship between tax base and tax rate

Proportional tax - Income (increase) tax (increase)

- Income (decrease) tax (decrease)
Progressive tax - Income (increase) tax (increase) - Eg Income tax
Regressive tax - tax on necessities
Digressive tax - widely progressive (first increase of some limit then fixed flat rate)
Basis of method of Assessment
● Specific duty - Eg excise duty on cigarettes on the basis of length of cigarettes. Now
subsumed with GST
● Ad-Valorem tax- on the basis of value of tax

Basis of method of Assessment

● Incidence of tax - falls on one person later shifts
● Impact of tax - customer - ultimate burden
Introduction
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.
The Goods and Service Tax Act was passed in the Parliament on 29th March 2017 and came
into effect on 1st July 2017.
In other words,Goods and Service Tax (GST) is levied on the supply of goods and services.
Goods and Services Tax Law in India is a comprehensive, multi-stage, destination-based tax
that is levied on every value addition.
GST is a single domestic indirect tax law for the entire country.
Before the Goods and Services Tax could be introduced, the structure of indirect
tax levy in India was as follows:
Types of GST

Under the GST regime, the tax is levied at every point of sale.

In the case of intra-state sales, Central GST and State GST are charged.

All the inter-state sales are chargeable to the Integrated GST.

 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

The Goods and Services Tax is levied on each of

these stages making it a multi-stage tax.
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.
Destination-Based

Consider goods manufactured in Gujarat and sold to the final consumer in Maharashtra.
Since the Goods and Service Tax is levied at the point of consumption, the entire tax revenue will go
to Maharashtra and not Gujarat.
The Journey of GST in India
Objectives Of GST
1. To achieve the ideology of ‘One Nation, One Tax’
2. To subsume a majority of the indirect taxes in India
3. To eliminate the cascading effect of taxes
4. To curb tax evasion
5. To increase the taxpayer base
6. Online procedures for ease of doing business
7. An improved logistics and distribution system
8. To promote competitive pricing and increase consumption
Features of GST
(i) An important source of revenue: Indirect taxes are a major source of tax revenues for Governments
worldwide and continue to grow as more countries move to consumption-oriented tax regimes. In India,
indirect taxes contribute more than 50% of the total tax revenues of Central and State Governments.
(ii) Tax on commodities and services: It is levied on commodities at the time of supply or manufacture or
purchase or sale or import/export thereof. Hence, it is also known as commodity taxation. It is also levied
on supply of services.
(iii) Shifting of burden: There is a clear shifting of tax burden in respect of indirect taxes. For example,
GST paid by the supplier of the goods is recovered from the buyer by including the tax in the cost of the
commodity.
(iv) No perception of direct pinch: Since value of indirect taxes is generally inbuilt in the price of the
commodity, most of the time the tax payer/consumer pays the same without actually knowing that he is
paying tax to the Government. Thus, tax payer does not perceive a direct pinch while paying indirect taxes.
Features of GST
(v) Inflationary: Tax imposed on commodities and services causes an all-round price spiral. In other
words, indirect taxation directly affects the prices of commodities and services and leads to inflationary
trend.
(vi) Wider tax base: Unlike direct taxes, the indirect taxes have a wide tax base. Majority of the
products or services are subject to indirect taxes with low thresholds.
(vii) Promotes social welfare: Higher taxes are imposed on the consumption of harmful products (also
known as ‘sin goods’) such as alcoholic products, tobacco products etc. This not only checks their
consumption but also enables the State to collect substantial revenue.
(viii) Regressive in nature: Generally, the indirect taxes are regressive in nature. The rich and the poor
have to pay the same rate of indirect taxes on certain commodities of mass consumption. This may further
increase the income disparities between the rich and the poor.
Benefits of GST
1. Easy compliance:
2. Uniformity of tax rates and structures:
3. Removal of cascading:
4. Improved competitiveness:
5. Gain to manufacturers and exporters:
6. Simple and easy to administer:
7. Better controls on leakage:
8. Higher revenue efficiency:
9. Single and transparent tax proportionate to the value of goods and services:
10. Relief in the overall tax burden:
Replaced Taxes with GST
VAT
Octroi
Entertainment Tax
Tax on Lottery
Luxury Tax
Purchase Tax
Service Tax
Additional Excise Duty
Central Excise Duty
And more
Coverage / Scope of GST
Structure of GST (Dual model)
The current GST structure has a total of 4 tax slabs 0%, 5%, 12%, 18%, and 28%.

There is a possibility that the 18% slab will be eliminated in the future, with items
currently under this slab being moved to either the 12% or 28% slab.

Another possibility is that the 18% and 28% slabs will be merged, creating a single
higher tax slab.
The structure of GST in India is a framework decided by the GST Council, which
consists of a four-tier system.

This structure's primary purpose is to ensure that all essential goods and a few edibles
are included in the lower tax bracket.

At the same time, high-value goods and services are placed in the upper tax bracket.

The four-tier GST tax structure includes 0%, 5%, 12%, 18%, and 28%, respectively.
Central GST (CGST) Central GST or CGST is the tax incorporated by the central government. This
tax is imposed on the movement of goods and services within the state.
State GST (SGST) State GST or SGST is the tax levied by the state government. This tax is
appropriated in the state where the transaction occurs or where the goods are sold and
consumed.
Integrated GST (IGST) For interstate supplies, there is a tax included in the GST structure in
India called the integrated GST or IGST. This tax is imposed on all the goods and services
between two or more states or union territories.
Union Territory GST(UTGST) If there is a supply of goods and services within the Indian Union
Territories, which the central government governs, a tax called Union Territory GST or UTGST is
imposed
Introduction to zero rate in GST

Zero rate in GST means a nil tax rate levied on the goods and services. In other
words, a zero rate is equivalent to tax exemption.

The government decides the goods and services that are eligible for a zero-tax
rate.

Some examples include fresh fruits, bread, milk, curd.

Also supplies made to SEZ developers or Special economic zones and overseas
come under zero-rate tax.
Lower rate (5%)

A lower rate means 5% GST is applied to commodities and services.

Some examples include footwear under Rs. 500, clothing under Rs. 1000,
packaged food items, branded paneer, cream, skimmed milk powder, etc.
Standard rate (12-18%)

The standard rate comes into play when a 12-18% GST is applied.
The standard rate of 12% includes butter, cheese, frozen meat products,
ghee, animal fat, sausages, packaged dry fruits, namkeen, fruit juices,
ketchup & sauces, etc. 18% GST is applied for pastries, pasta, cakes,
hairdryers, panels, vacuum cleaners, wires, telecom services, IT
services, etc.
Higher rate (18% and 28%) of GST apply

A higher rate is applied when luxury items are considered.

For items such as paint, washing machines, cement, automobiles, shampoo,
aerated water, sunscreen, motorcycles, etc., a 28% GST is applied.
Some items are under the 28% slab for which the government fixes an
additional cess.
Inter-state transactions

It is a transaction that takes place between two states.

For instance, a supplier supplies iron ore from Jharkhand to a consumer in West
Bengal.

The GST, thus collected, is divided between the Central government and the West
Bengal government (State of consumption).
Intra-state transactions
When a transaction is carried out within a State, it is an intra-state transaction. For
example, a business in Jharkhand supplies 1 tonne of iron-ore to a consumer within the
State. The GST then diverts to the Centre government and the Jharkhand government.

Based on this nature of transactions, there are primarily three different types of GST –

State Goods and Services Tax or SGST

Central Goods and Services Tax or CGST
Integrated Goods and Services Tax or IGST
SGST

A State government levies SGST on the intra-state transactions of goods and

services.

The revenue collected is earned by the state government wherein this transaction
takes place. SGST subsumes earlier taxes like purchase tax, luxury tax, VAT, Octroi,
etc.

For union territories like Chandigarh, Puducherry and Andaman and Nicobar
Islands, a Union Territory Goods and Services Tax or UGST replaces SGST.
CGST

The Central government levies CGST on the intra-state transactions of goods and
services. It is levied alongside SGST or UGST, and the collected revenues are
shared equally between the center and the state.
IGST

When a transaction of goods and services is inter-state in nature, an IGST is levied

on them.

It is applicable to imports and exports as well. Revenues generated through this

tax are shared between the state and the central governments.
Current Application of the Different Types of GST
Difference Between the Types of GST
Who is Liable to Pay GST?

The following categories of persons are liable to pay GST –

Individuals registered under GST and making taxable supplies.

GST registered persons are required to pay under the reverse charge mechanism.

Persons registered under GST and required to deduct tax at source (TDS).

E-commerce operators registered under GST.

E-commerce operators registered under GST are required to collect tax at source (TCS).

Individuals supplying goods or services on behalf of a supplier or manufacturer (agents).

Goods Exempted from GST Payment

Like all other taxes, the GST exempts certain goods and services from ensuing liability.
Exemptions under GST contain an extensive list of goods, which include the following –

Food: Fruits and vegetables, cereals, meat, and fish, etc.

Raw materials: Cotton for khadi yarn, handloom fabrics, unprocessed wool, raw silk, raw
jute fibre, etc.
Instruments/Tools: Agricultural tools, tools for differently-abled individuals.
Miscellaneous: Vaccines, journals, newspapers, maps, books, non-judicial stamps,
articles of paper pulp, etc.
List of GST Exemption on
Goods
List of GST Exemption on
Goods
GST Council
Goods and Services Tax (GST) was rolled out in the country through the 101st Act,
2016. Consequently, the President constituted the GST council under Article 279A
to make recommendations on important GST-related issues.

As per Article 279A, a GST Council is a joint forum of the centre and the states and
is responsible for taking all major decisions related to GST. Subsequently, the
union cabinet approved the first GST council on 12th September 2016, along with
the setting up of the GST Council secretariat in New Delhi.
 Structure of the GST Council
Presently, the GST council consists of 33 members. As per Article 279A, a GST Council will have
the following members:
The Union Finance Minister as the chairperson of the GST Council
The Union Minister of State in charge of revenue (finance) from the centre
A minister from each state who is either in charge of finance or taxation or has been nominated by
the state to serve as a member of the GST Council
Accordingly, the ministers of state will elect a vice-chairperson of the GST Council from amongst
the members. The Secretary (Revenue) will serve as the GST Council’s ex-officio secretary.
Additionally, the Central Board of Excise and Customs (CBEC)’s chairperson is a permanent invitee
to all the proceedings of the GST Council.
Functions of GST Council Members
The primary function of the GST Council is to create a user-friendly and IT-driven GST
structure based on wide consultation with the union and the states.

Article 279A (4) enumerates the key functions of the GST Council members.
Powers and Duties of GST Council Members

The GST Council is directed by the requirement for a harmonised national market
and GST structure when carrying out the functions bestowed by the GST act.
(1) As per Article 279A (4), the GST Council should make recommendations on the
following aspects:
The goods and/or services that are either subject to or are exempt from GST.
Any taxes, cesses, and surcharges already levied by the central government, states,
or local bodies should be subsumed in the GST law.
Recommendations about model GST laws and principles governing Integrated
Goods and Services Tax (IGST) levy and place of supply.
Applicable GST rates and floor rates, particularly for raising additional resources
during a natural disaster or a calamity.
Definitions
India

“India” means the territory of India as referred to in article 1 of the

Constitution, its territorial waters, seabed and sub-soil underlying such
waters, continental shelf, exclusive economic zone or any other maritime
zone as referred to in the Territorial Waters, Continental Shelf, Exclusive
Economic Zone and other Maritime Zones Act, 1976 (80 of 1976 ), and
the air space above its territory and territorial waters;
https://www.gstzen.in/a/definitions-cgst-act-section-2.ht
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Supply
Supply includes sale, transfer, exchange, barter, license, rental, lease and disposal.
If a person undertakes either of these transactions during the course or furtherance
of business for consideration, it will be covered under the meaning of Supply
under GST.
Supply has two important elements:
● Supply is done for a consideration
● Supply is done in course of furtherance of business

If the aforementioned elements are not met with, it is not considered as a sale
Classification of supply and types - Composite supply and
Mixed Supply

Composite supply u/s 2(30)

A supply comprising of two or more goods/services, which are necessarily supplied in conjunction with
each other as per frequent business practices followed in that area. In other words, these items cannot be
supplied individually. There is a principal supply and a secondary supply in the whole transaction. In such
cases, the tax rate on principal supply will apply to the entire supply.

E.g. Buying a Dry Fruit Gift Box for Diwali. It includes dry fruits, a box, and a wrapper. Box and wrapper
cannot be sold individually without the main content which is dry fruit. This is a composite supply.
Mixed Supply u/s 2(74)

A supply comprising of two or more goods/services, wherein the supplies are independent of each

other and are not necessarily required to be sold together is called a mixed supply. The first condition

to be met for mixed supply is that ‘it should not be a composite supply’. In such cases, the tax rate that is

higher of the two supplies will be applicable to the entire supply.

E.g Buying a Christmas package consisting of cakes, aerated drinks, chocolates, Santa caps, and other gift

items. Each of these items can be sold separately and are not dependent on each other. This is a mixed

supply.
Aggregate Turnover u/s 2(6)
“aggregate turnover” means the

● aggregate value of all taxable supplies (excluding the value of inward supplies on
which tax is payable by a person on reverse charge basis),
● exempt supplies, nil rated supplies, Non GST supplies such as alcoholic liquor, petrol,
diesel
● exports of goods or services or both and
● inter-State supplies of persons having the same Permanent Account Number, to be
computed on all India basis but excludes central tax, State tax, Union territory tax,
integrated tax and cess;
Capital goods u/s 2(19)

“capital goods” means goods, the value of which is capitalised in the

books of account of the person claiming the input tax credit and which are
used or intended to be used in the course or furtherance of business;
Casual Taxable Person u/s 2(20)

“casual taxable person” means a person who occasionally undertakes

transactions involving supply of goods or services or both in the course or
furtherance of business, whether as principal, agent or in any other capacity,
in a State or a Union territory where he has no fixed place of business;
Exempt supply u/s 2(47)

“exempt supply” means supply of any goods or services or both which attracts nil
rate of tax or which may be wholly exempt from tax under section 11, or under
section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable
supply;
Exempt supply comprises of the following:
● Supplies taxable at NIL rate of tax
● Supplies that are wholly or partially exempted from CGST or IGST by way
of notification
● Non taxable supplies - petrol, diesel
Outward Supply u/s 2(83)

“outward supply” in relation to a taxable person, means supply of goods

or services or both, whether by sale, transfer, barter, exchange, licence,
rental, lease or disposal or any other mode, made or agreed to be made
by such person in the course or furtherance of business;
Place of supply u/s 2(86)
“place of supply” means the place of supply as referred to in Chapter V of the Integrated Goods and
Services Tax Act;
(a) where the supply involves movement of goods, whether by the supplier or the recipient or by any
other person, the place of supply of such goods shall be the location of the goods at the time at
which the movement of goods terminates for delivery to the recipient;
● A supply shall be intrastate supply liable for CGST and SGSt where the location of the supplier
and place of supply are in the same state or union territory
● In case where the location of supplier and place of supply are in different state, then supply
would be regarded as interstate supply liable for IGST.
● Supplies to SEZ unit or developers or supplies to SEZ units or developers would always be
regarded as interstate supply irrespective of place of supply.
Goods u/s 2(52)
“goods” means every kind of movable property other than money and securities but includes
actionable claim, growing crops, grass and things attached to or forming part of the land
which are agreed to be severed before supply or under a contract of supply;

Actionable claims - example

● Arrears of rent were held to be a debt

● Negotiable instruments like bills of exchange, promissory notes etc
● Bank guarantee, Insurance claims etc

Intangibles like DEPB license, copyright and carbon credit would continue to be held as ‘goods’
Input u/s 2(59), Input service u/s 2(60),

“input” means any goods other than capital goods used or intended
to be used by a supplier in the course or furtherance of business;

“input service” means any service used or intended to be used by a

supplier in the course or furtherance of business;
Input Service Distributor u/s 2(61)

“Input Service Distributor” means an office of the supplier of goods or services

or both which receives tax invoices issued under section 31 towards the receipt
of input services and issues a prescribed document for the purposes of
distributing the credit of central tax, State tax, integrated tax or Union
territory tax paid on the said services to a supplier of taxable goods or services
or both having the same Permanent Account Number as that of the said office;
Input Tax
“input tax” in relation to a registered person, means the central tax, State tax, integrated tax
or Union territory tax charged on any supply of goods or services or both made to him and
includes—
(a) the integrated goods and services tax charged on import of goods;
(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;
(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the
Integrated Goods and Services Tax Act;
(d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the
respective State Goods and Services Tax Act; or
(e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the
Union Territory Goods and Services Tax Act, but does not include the tax paid under
the composition levy;
Job Work u/s 2(86)

“job work” means any treatment or process undertaken by a person on goods

belonging to another registered person and the expression “job worker” shall be
construed accordingly;
Manufacture u/s 2(72)

“manufacture” means processing of raw material or inputs in any manner

that results in emergence of a new product having a distinct name, character
and use and the term “manufacturer” shall be construed accordingly;
Place of Business u/s 2(85)

“place of business” includes––

(a) a place from where the business is ordinarily carried on, and includes a
warehouse, a godown or any other place where a taxable person stores his goods,
supplies or receives goods or services or both; or

(b) a place where a taxable person maintains his books of account; or

(c) a place where a taxable person is engaged in business through an agent, by

whatever name called;
Person u/s 2(84)
“person” includes—

(a) an individual; (b) a Hindu Undivided Family; (c) a company; (d) a firm; (e) a Limited Liability
Partnership;

(f) an association of persons or a body of individuals, whether incorporated or not, in India or outside India;

(g) any corporation established by or under any Central Act, State Act or Provincial Act or a Government
company as defined in clause (45) of section 2 of the Companies Act, 2013;

(h) any body corporate incorporated by or under the laws of a country outside India;

(i) a co-operative society registered under any law relating to co-operative societies;

(j) a local authority; (k) Central Government or a State Government;

(l) society as defined under the Societies Registration Act, 1860;

(m) trust; and (n) every artificial juridical person, not falling within any of the above;
Reverse charge u/s 2 (98)
Reverse charge refers to the liability to pay tax by the recipient of supply of goods or
services or both instead of the supplier of such goods or service or both