GOODS AND SERVICE TAX

(S.Y.BBA, VNSGU)

PREPARED BY:
PROF. AVNIT CHADHA
(NET, GSET, C.S., LL.M., M.COM)
INTRODUCTION

India is a Socialist, democratic and republic country. The federal structure of India comprises
central and state level Government. Both the Governments, share the prime responsibilities
including meeting out the increasing development needs of the country. The primary source of
revenue is the levy of taxes only. In fact, in order to stimulate economic growth and to fulfil socio-
economic objectives, the tax is considered to be the most important source of revenue for the
Government.

A tax is a compulsory contribution from a person to the expenses incurred by the state in common
interest of all without reference to specific benefits conferred on any individual. The tax cannot be
regarded as voluntary payment or donation. Rather, it is enforced contribution which is exacted
through legislative authority. The word tax has been derived from the Latin word “Taxo” which
means touch sharply or charge.

As per Wikipedia, “A tax is a mandatory financial charge or some other type of levy imposed upon
a tax payer (an individual or other legal entity) by the Government in order to fund various public
expenditure”. It may be noted that the tax is a mandatory payment because a failure to pay or
evasion of or resistance of taxation, is punishable by law.

TYPES OF TAXES

The taxes are generally classified into direct tax and indirect tax.

1. Direct Tax: A direct tax is paid directly by an individual or organization to an imposing

entity. The direct tax is a type of tax where the incidence and impact of taxation falls on
the same entity. It means brunt of direct tax cannot be shifted by the taxpayer to someone
else. The significant direct tax imposed in India is Income Tax.
2. Indirect Tax: The indirect taxes are imposed on goods/services. The immediate liability
to pay indirect taxes lies on the manufacturer/service provider/seller, etc. but the burden is
ultimately transferred to the consumers. Since this tax is indirectly borne by the consumer,
it is called as indirect tax. Hence, an indirect tax is collected by an intermediary from the
person who bears the ultimate economic burden of the tax. It may be noted that the burden
of indirect tax is transferred not in the form of taxes but as a part of the price of such goods/
services.

FEATURES OF INDIRECT TAXES

The following are the basic features of indirect taxes:

1. Taxable Event: The indirect taxes are levied on purchase/sale/manufacture of goods and
provision of services.
2. Incidence & Impact: In case of indirect taxes, the incidence and impact fall on two
different persons. It means the tax burden is shifted by the supplier to the buyer or recipient
of goods or services.
 3. Regressive Taxation: The indirect taxes do not depend on paying capacity as tax payable
on commodity is same whether it is purchased by a poor man or rich person. Therefore,
indirect taxes are regressive in nature. There are exceptions to this argument as higher taxes
may be imposed on luxury goods.
4. Impact of Indirect Tax: The indirect tax on goods and services increases its price. This
leads to inflationary trend.
5. Promotes Welfare: The harmful or sin products like alcohol, tobacco, etc. may be taxed
at higher rate. This practice not only discourages consumption of such goods but also
increases the revenue of the State.
6. Major Source of Revenue: In India, the contribution of indirect taxes to total tax revenue
is more than 50%. Therefore, it is a major source of tax revenue for the Government.

INTRODUCTION TO GST

GST is a tax on goods and services with comprehensive and continuous chain of set-off benefits
up to the retailer level. It is essentially a tax only on value addition at each stage, and a supplier at
each stage is permitted to set-off, through a tax credit mechanism, the GST paid on the purchase
of goods and services. Ultimately, the burden of GST is borne by the end-user (i.e. final consumer)
of the commodity/service.

There are about 160 countries that have implemented GST/VAT, both being destination based
taxation system. France was the first country to introduce GST in the year 1954. Only Canada has
dual GST model (like India).

With the introduction of GST, a continuous chain of set-off from the original producer’s point and
service provider’s point up to the retailer’s level has been established, eliminating the burden of
all cascading or pyramiding effects of an indirect tax system. This is the essence of GST. GST
taxes only the final consumer. Hence the cascading of taxes (tax-on-tax) is avoided and production
costs are cut down.

Prior to the introduction of GST, the indirect tax system of India suffered from various limitations.
There was a burden of tax-on-tax in the pre-GST system of Central excise duty and the sales tax
system of the States. GST has taken under its wings a profusion of indirect taxes of the Centre and
the States. It has integrated taxes on goods and services for set-off relief. Further, it has also
captured certain value additions in the distributive trade. There is now a continuous chain of set-
offs which would eliminate the burden of all cascading effects.

In a nutshell, GST is a comprehensive indirect tax levy on manufacture, sale and consumption of
goods as well as services at the national level. GST is an indirect tax for the whole of India to make
it one unified common market. GST is designed to give India a world class tax system and improve
tax collections. It would end the long-standing distortions of differential treatment of
manufacturing sector and services sector. GST will facilitate seamless credit across the entire
supply chain and across all States under a common tax base.
GST IN INDIA
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 and would
make India one unified common market.
This new tax proves beneficial not only to the common man but for the country as a whole due to
the following:
1. Combining various taxes: It combines variety of taxes and provides tax credit against
goods and services as well.
2. Stage wise tax on Value Addition: It is levied at all stages right from manufacture upto
final consumption with credit of taxes paid at previous stages available as set-off. In a
nutshell, only value addition will be taxed and burden of tax will be borne by final
consumer.
3. Recovery from ultimate consumer: The final consumer will, however, bear only the tax
charged by the last dealer in the supply chain with the set off benefits that are allowed at
previous stages.
4. Uniform rates: GST is to be charged at the same rate at national level on similar products
and services and it replaces almost all the current indirect taxes which are imposed by the
Central Government and the States/ Union Territories.
5. Destination based tax: GST is however consumption based tax which means that the tax
which is paid is at the ultimate point of sale.
6. Place of accrual of tax: The tax would accrue to the taxing authority which has jurisdiction
over the place of consumption which is also termed as ‘place of supply’.
7. Exemption to small traders: Tax payers with aggregate turnover of Rs.40 lakhs would be
exempted from tax. For North Eastern States and Sikkim the exemption would be Rs.20
lakhs.
8. Registration under GST: Businesses whose turnover exceeds Rs.40 lakhs in case of
goods (Rs.20 lakhs for special category states) and Rs.20 lakhs in case of services (Rs.10
lakhs for special category states) is required to register as a normal taxable person.

COMPONENTS OF GST
There are three taxes applicable under this system: CGST, SGST & IGST.

 Central Goods and Services Tax (CGST): It is the tax collected by the Central Government
on an intra-state sale (e.g., a transaction happening within Maharashtra)
 State / Union Territories Goods and Services Tax (SGST/UTGST): It is the tax collected
by the state government on an intra-state sale (e.g., a transaction happening within
Maharashtra)
 Integrated Goods and Services Tax (IGST): It is a tax collected by the Central Government
for an inter-state sale (e.g., Maharashtra to Tamil Nadu)
In most cases, the tax structure under the new regime will be as follows:
Transaction Old Regime New Regime Revenue Distribution
Sale within VAT + Central CGST + Revenue will be shared equally between the
the State Excise/Service SGST Centre and the State
tax
Sale to Central Sales IGST There will only be one type of tax (central) in
another State Tax + case of inter-state sales. The Centre will then
Excise/Service share the IGST revenue based on the
Tax destination of goods.

PRESENT INDIRECT TAX STRUCTURE AND GST

 BEFORE GST
Before the Goods and Services Tax could be introduced, the structure of indirect tax levy in India
was as follows:

 DEFECTS IN STRUCTURE OF INDIRECT TAXES BEFORE GST

Over the period of almost six decades the prevailing indirect tax regime created complexities and
showed several shortcomings forcing Government to overhaul the existing system. These short
comings are summarized below:
1. Cascading Effect: Both central and state Government levy tax on the same goods. Former
levy tax on manufacture of goods and the later levy VAT on sale of very same goods. State
Government does not permit credit of excise duty paid by the manufacture to the dealer on
sale of goods. Thus VAT is also payable on excise duty component of the price resulting
in cascading effect. Similarly, service tax is payable on rendering of service. No credit of
service tax paid on input service used in selling of goods is provided by the state
government. So tax is levied on tax. It boosted inflation.
2. Multiplicity of Tax/Cess: Multiple taxes were levied in pre GST regime like Excise duty,
VAT, Entry tax, luxury tax, Entertainment tax, Service tax, Octroi etc. These taxes were in
additions to various cesses imposed by State and Central Government like Krishi Kalyan
Cess, clean energy cess etc. All this made the tax structure very cumbersome.
3. Overlapping of Jurisdiction: Over the years, distinction between goods and services has
become hazy, due to which there is overlapping of state VAT and Central Service tax on
transactions like works contract, food related services of restaurants, caterers, computer
software, SIM cards, renting of movable property etc. In these cases, it was difficult to
judge whether the transaction was sale of goods or rendering of service. Therefore, both
the central and state Government would impose tax.
4. Rivalry amongst states: Pre-GST regime of indirect tax was not destination based tax but
origin based tax. In that regime taxes are collected and utilized by the state administration
where goods/services are transacted/manufactured or supplied. This would encourage state
to provide sales tax/VAT relief to attract industries and at the same time discourage supply
of goods from other state by imposing entry tax, octroi, luxury tax etc. on goods coming
from other states.
5. Hindrance to Integrated market system: India despite being one nation could not
develop into a national market due to invisible barriers of Central State tax, VAT, entry tax
etc. as mentioned in last point. These invisible barriers were visible in the form of check
posts on the boundaries of states.
6. Loss of Man and Truck hours: Due to check posts mounted by states on entry point
millions of man hours and Truck hours were lost. Besides that huge corruption was
involved which made logistics management a costly affair.
7. Difficulty in Compliance for Taxpayers: As mentioned already pre GST regime had
multiplicity of Tax and consequently tax laws. Moreover, each tax had a different taxable
event like manufacture for Excise, VAT for sales etc. Also there were multiple of Tax
authorities. Compliance required voluminous efforts on the part taxpayers. It also promoted
Inspector raj.
8. Difficulty in Cross Verification of Credit availed by Assessee: Earlier it was difficult
for the tax department to get the verification report from supplier of goods to know whether
the supplier has issued particular invoice on the basis of which input tax credit has been
taken by the purchaser. Due to lack of online data the verification was done off line. Often
the report of supplier was not received or received after considerable lapse of time. Many
scrupulous dealers exploited this and availed fraudulent credit.
9. Tax Evasion: Burden of compliance, multiplicity of tax laws increased the propensity to
evade taxes. Fudging of records, concealment of transaction, bribing the tax officials were
the tools adopted to remain out of tax net.
10. Huge Amount of litigation: With multiple tax laws each having different taxable events
result was lot of disputes regarding availment of credit, determining manufacture of goods,
 value of goods, classification of goods etc. Dispute settlement mechanism is almost choked
with such disputes resulting in pendency of tax demands.
 AFTER 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 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.
 GST rates
There are five tax slab rates under GST; which includes 0%, 5%, 12% 18% and 28%. Around 60%
goods are capped under 12% and 28% slab rates to make greater revenues for the state and the
centre government. There is a special category to cover rough precious or semi-precious stones
and gold which are taxed at 0.25% and 3% respectively under GST regime.
GST has three kinds of taxes; which are IGST (for interstate sales, revenue collected by centre and
state), SGST (for intra-state sale, revenue collected by state), and CGST (for intra-state sale,
revenue collected by centre).
 Input Tax Credit

Input credit means at the time of paying tax on output, you can reduce the tax you have already
paid on inputs and pay the balance amount.

For example: You are a manufacturer –

a. Tax payable on output (FINAL PRODUCT) is Rs.450

b. Tax paid on input (PURCHASES) is Rs.300
c. You can claim INPUT CREDIT of Rs.300 and you only need to deposit Rs.150 in taxes.

How is Input Tax Credit used:

 ITC Received on account of Setoff against (in order)
IGST 1. IGST
2. CGST
3. SGST

SGST 1. SGST
2. IGST

CGST 1. CGST
2. IGST

THE JOURNEY OF GST IN INDIA

TAX LAWS BEFORE GST
In the earlier indirect tax regime, there were many indirect taxes levied by both the state and the
centre. States mainly collected taxes in the form of Value Added Tax (VAT). Every state had a
different set of rules and regulations.
Inter-state sale of goods was taxed by the centre. CST (Central State Tax) was applicable in case
of inter-state sale of goods. The indirect taxes such as the entertainment tax, octroi and local tax
were levied together by state and centre. These led to a lot of overlapping of taxes levied by both
the state and the centre.
For example, when goods were manufactured and sold, excise duty was charged by the centre.
Over and above the excise duty, VAT was also charged by the state. It led to a tax on tax effect,
also known as the cascading effect of taxes.
The following is the list of indirect taxes in the pre-GST regime:

 Central Excise Duty

 Duties of Excise
 Additional Duties of Excise
 Additional Duties of Customs
 Special Additional Duty of Customs
 Cess
 State VAT
 Central Sales Tax
 Purchase Tax
 Luxury Tax
 Entertainment Tax
 Entry Tax
 Taxes on advertisements
 Taxes on lotteries, betting, and gambling

CGST, SGST, and IGST have replaced all the above taxes.
COMMODITIES KEPT OUTSIDE GST
The new GST replaced most of the previous taxes in India. Now GST is levied at all stages right
from manufacture up to the final consumption with credit of taxes paid at previous stages available
as set off. Only value addition will be taxed and burden of tax will be borne by the final consumer.
However, at present following items are kept outside the purview of GST:
1. Alcohol for Human Consumption: Alcohol for human consumption has been kept outside
the purview of GST in India at present. However, the taxes imposed to alcohol for human
consumption will continue as per the structure before GST implementation. Sales Tax/VAT
could be continued to be levied on alcoholic beverages as per the existing practice. VAT is
 levied on alcohol purchases in some states, and there will be no objection to that. Excise duty,
which is presently levied by the states, may also be unaffected.
2. Petroleum products: Petroleum Products such as petroleum crude, motor spirit (petrol), high
speed diesel, natural gas and aviation turbine fuel etc. are also kept outside the purview of GST
in India. However, the taxes for these products will be charged as per the structure before
introduction of GST. Sales tax could continue to be levied by the states on these products with
the prevailing floor rate. Similarly, Centre could also continue its levies.
3. Electricity: The electricity has been kept outside the purview of GST at present. However, the
taxes applicable at present for electricity will continue as before.
STRUCTURE OF GST

The Goods and Service Tax in India is organized in such a way that all the necessary services and
some food items are placed in the lowest bracket, and the other luxury goods and services and de-
merit goods are placed in the highest bracket.

The GST council has set the four-tier structure at 0%,5%,12% and 18% and 28%.The Government
has decided in an attempt to keep inflation in check to exclude essential items such as basic food
commodities from tax. However, a 5% tax will be applicable for common commodities. Most of
the standard services will fall under the 12%, and 18% tax slab and the luxury items will fall under
the 28% slab.

 The Four-Tier Tax Structure

 Nil rate Rate

 Lower Rate
 Standard Rate
 Higher Rate

NIL Rate (0%)

Under this category, the GST council has decided to exempt or not charge any taxes on a few of
the basic commodities. Most of the items in the Consumer Price Index (CPI) comes under the zero
rate. Basically, in simple words, no GST will be charged on these goods.

The following items stated below are some of the GST-Exempted Goods:

 Raw vegetables including potatoes, onions, and various leguminous vegetables, etc.
 Live animals such as sheep, goats, live poultry, birds, bird’s eggs in the shell, fresh fish
 Wheat, corn, maize, cereal grains, soybeans that have yet to put into containers
 Human blood and various components of the same
 Fresh ginger, melon, roasted coffee beans, unprocessed green tea leaves, etc.
 Raw materials such as raw silk, silk waste, khadi fabric, khadi yarn, charcoal, firewood,
handloom fabrics and wool (not processed).
 Tools and instruments such as hearing aids, spades, shovels, tools used in agricultural
purposes, handmade musical instruments, etc.
Lower Rate (5%)

Under this slab, a 5% rate will apply to most of the common commodities and services. This mainly
includes the rest of the items under the Consumer Price Index and the mass consumption products.
Some of these items are-frozen vegetables, coffee, tea, rail tickets, economy air tickets, takeaway
food, fertilizers, etc.

Standard Rate (12% and 18%)

Most of the goods and services come under this slab. To keep inflation in check, the government
has decided to keep two standard rates for the products and services. The 12% slab consists of -
butter, cheese, handbags, jewelry boxes, cellphones, frozen meat, business class air tickets, movie
tickets priced under ₹100, etc. Some of the items under the 18% slab are-pasta, pastries, cakes,
vacuum cleaners, hairdryers, panels, wires, IT services, telecom services, etc.

Higher Rate (28%)

More than 200 products will come under the 28% tax slab. This mostly consists of luxury products.
Some of these items include-pan masala, paint, cement, automobile, washing machine, shampoo,
sunscreen, motorcycles, aerated water, etc. For some of the products under the 28% slab category,
an additional cess has been fixed by the government.

Additional cess

People worried that demerit goods (such as tobacco products and aerated drinks), which were
previously taxed at 65% and 40%, would become cheaper and too easily accessible with the new
higher rate of GST set at 28%. Keeping this in mind, the GST structure collects an additional cess
on top of 28% GST. The cess will only be applied on certain demerit goods. The percentage of
additional cess has been fixed by the government as 15% for luxury vehicles, 1% for petrol
powered small cars and 3% for diesel powered small cars. Motorcycles with an engine capacity of
over 350 cc are liable for an additional cess of 3%.

SALIENT FEATURES OF GST IN INDIA

The salient features of GST in India have been highlighted below:

1. Supply as the base: GST would be applicable on “supply” of goods or services as against
the erstwhile concept of tax on the manufacture of goods or on sale of goods or on
provision of services.
2. Destination-based tax: As opposed to the previous principle of origin-based taxation,
GST would be based on the principle of destination-based consumption taxation.
3. Dual GST: The Centre and the States would simultaneously levy tax on a common base.
The GST to be levied by the Centre would be called Central GST (CGST) and the GST to
be levied by the States (including Union territories with legislature) would be called State
GST (SGST). Union territories without legislature would levy Union territory GST
(UTGST).
4. Inter-State supply: An integrated GST (IGST) would be levied on inter-State supply of
goods or services. This would be collected by the Centre so that the credit chain is not
disrupted. Imports of goods and services would be treated as inter-State supplies and would
be subject to IGST. (This would be in addition to applicable customs duties).
5. Central taxes subsumed: GST would subsume the following taxes that were levied and
collected by the Centre: Central excise duty; Additional duties of excise; Additional duties
of customs (commonly known as countervailing duty); special additional duty of customs
(SAD); service tax; and cesses and surcharges insofar as they relate to supply of goods or
services.
6. State taxes subsumed: GST would subsume the following taxes that were levied and
collected by the State: State VAT; Central Sales Tax; purchase tax; luxury tax; entry tax;
entertainment tax (except those levied by the local bodies); taxes on advertisements; taxes
on lotteries, betting and gambling; and State cesses and surcharges insofar as they relate
to supply of goods or services.
7. Applicability: GST would apply to all goods and services except alcohol for human
consumption. GST on five specified petroleum products (crude, petrol, diesel, aviation
turbine fuel, natural gas) would be applicable from a date to be recommended by the GST
Council.
8. Threshold for GST: A common threshold exemption would apply to both CGST and
SGST. Taxpayers with an annual turnover of Rs.20 lakhs for services and Rs.40 lakhs for
goods (for special category States (except J&K) Rs.10 lakhs for services and Rs.20 lakhs
for goods as specified in article 279A of the Constitution) would be exempt from GST. A
compounding option (i.e. to pay tax at a flat rate without credits) would be available to
small taxpayers (including to manufacturers other than specified category of
manufacturers and service providers) having an annual turnover of up to Rs.1 crore (Rs.75
lakhs for special category States (except J&K and Uttarakhand) enumerated in article
279A of the Constitution). The threshold exemption and compounding scheme is optional.
9. Exports: All exports and supplies to Special Economic Zones (SEZs) and SEZ units
would be zero-rated.
10. Input tax credit: Credit of CGST paid on inputs may be used only for paying CGST on
the output and the credit of SGST/UTGST paid on inputs may be used only for paying
SGST/ UTGST. In other words, the two streams of input tax credit (ITC) cannot be cross
utilized, except in specified circumstances of inter-State supplies for payment of IGST.
11. Electronic filing of returns: There will be electronic filing of returns by different class
of persons at different cut-off dates. Various modes of payment of tax available to the
taxpayer including internet banking, debit/credit card and National Electronic Funds
Transfer (NEFT)/Real Time Gross Settlement (RTGS).
12. Tax deduction on payment made: While the provision for TDS has not been notified
yet, it is obligatory on certain persons including government departments, local authorities
and government agencies, who are recipients of supply, to deduct tax at the rate of 1%
from the payment made or credited to the supplier where total value of supply, under a
contract, exceeds Rs.2,50,000.
 13. Refund: Refund of tax can be sought by taxpayer or by any other person who has borne
the incidence of tax within two years from the relevant date. Refund is to be granted within
60 days from the date of receipt of complete application and interest is payable if refund
is not sanctioned within 60 days.
14. Anti-profiteering clause: An anti-profiteering clause has been provided in order to ensure
that business passes on the benefit of reduced tax incidence on goods or services or both
to the consumers.
ADVANTAGES OF GST
GST benefits in India will assist the Government as well as the consumers in the long run in
creating a win-win situation for both. Some of the advantages of GST in India are enlisted as
follows:
1. Mitigation of Cascading effect: Under the GST administration, the final tax would be
paid by the consumer for the goods and services purchased. However, there would be an
input tax credit structure in place to ensure that there is no slumping of taxes. GST is levied
only on the value of the good or service.
 Pre-GST regime
A business consultant extends services at Rs.50000 and levies a service tax at the rate
of 15%, i.e. Rs.7500 (50000×15%). The consultant purchased office supplies at
Rs.20000 and paid VAT at the rate of 5% without any deduction, i.e. Rs.1000
(20000×5%). The total cash outflow would amount to Rs.8500.
 Post-GST regime
A business consultant’s cash outflow will amount to –
GST levied on services at the rate of 18%, i.e. Rs.9000 (50000×18). The GST applied
to office supplies is subject to deduction. So, the net GST amounts to Rs.8000 (9000-
1000)
2. Abolition of Multiple Layers of Taxation: One of the advantages of GST is that it
integrated different tax lines such as Central Excise, Service Tax, Sales Tax, Luxury Tax,
Special Additional Duty of Customs, etc. into one consolidated tax. It prevents multiple
tax layers imposed on goods and services.
3. Higher threshold limit: With the implementation of GST norms, the minimum
threshold limit for registration has increased. Previously, under the VAT regime, all
businesses with a turnover above Rs.5 lakhs (limit used to vary among states) had to pay
VAT. However, under this new GST regime, this threshold limit was increased to Rs.20
lakh providing relief to several small service traders.
4. Lowering of tax rates: For the consumers, the biggest gain is in terms of reduction in
the overall burden of taxes on goods, which was earlier around 25-30%.
5. Lesser number of compliances: Under the previous tax regime, both service tax and
VAT extended different compliances. For instance, excise returns were filed monthly
whereas in case of service tax, companies and Limited Liability Partnership filed it
monthly, and partnership and proprietorship filed them quarterly. Conversely, in case of
VAT, the filing of returns varied largely. Nevertheless, with GST in the picture
taxpayers are now required to file only one return.
6. Composition Scheme: Businesses with an annual turnover less than Rs.1.5 crores
(Rs.75 lakhs for special category states) for goods and Rs.50 lakhs for services are
 eligible to lower their taxes with the help of the Composition Scheme. This option has
not only lowered the applicable tax rate but has also reduced the compliance burden to
a great extent. This pointer proves a vital parameter to weigh in the advantages and
disadvantages of GST.
7. Resourceful Administration by Government: Previously, the management of indirect
taxes was a complicated task for the Government. However, under the GST establishment,
the integrated tax rate, simple input of tax credit mechanism and a merged GST Network,
where information is available, and administration of resources are well-organized and
straightforward for the Government.
8. Creation of a Common National Market: GST gave a boost to India’s tax to Gross
Domestic Product ratio that aids in promoting economic efficiency and sustainable long –
term growth. It led to a uniform tax law among different sectors concerning indirect taxes.
It facilitates in eliminating economic distortion and forms a common national market.
9. Ease of Doing Business: With the implementation of GST, the difficulties in indirect tax
compliance have been reduced. Earlier companies faced significant problems concerning
registration of VAT, excise customs, dealing with tax authorities, etc. The benefits of GST
have aided companies to carry out their business with ease.
10. Regulation of the Unorganized Sector under GST: It has created provisions to bring
unregulated and unorganized sectors such as the textile and construction industries to name
a few under regulation with continuous accountability. This would promote their shift
towards the organized market.
11. Reduction of Litigation: GST aids in reducing litigation as it establishes clarity towards
the jurisdiction of taxation between the Central and State Governments. GST provides a
smooth assessment of tax.
12. Tackling Corruption and Tax Leakages: With the GST online network portal, the
taxpayer can directly register, file returns and make payments of the taxes without having
to interact with tax authorities. A mechanism has been devised to match the invoices of the
supplier and buyer. This will not only keep a check on tax frauds and evasion but also bring
in more businesses into the formal economy.

DISADVANTAGES OF GST
1. Increased operational cost: GST had directed businesses to update their old accounting
to GST-compliant software or ERP to keep their businesses running. Nonetheless, the
cost of purchase, installation of software along with training employees to use GST -
compliant software can be quite substantial. Also, adherence to GST norms has
increased the operational cost for small businesses as more firms are now forced to hire
tax professionals to become more GST-compliant.
2. IT Infrastructure: Since GST is an IT-driven law, it cannot be sure whether all the states
in India are currently equipped with infrastructure and workforce availability to embrace
this law. Only a few states have implemented this E- Governance model. Even today some
states use the manual VAT returns system.
3. Increase Burden of Compliance: The GST administration states that companies are
required to register in all the states they operate in. This increases the burden on the
business for excessive paperwork and compliance.
 4. GST is an online taxation system: Unlike earlier, businesses are now switching from pen
and paper invoicing and filing to online return filing and making payments. This might be
tough for some smaller businesses to adapt to.
5. Petroleum Products don’t fall under the GST Slab: Petrol and petroleum products have
not been included in the scope of GST until now. States levy their taxes on this sector. Tax
credit for inputs will not be available to these industries or those related industries.
6. Coaching of Tax Officers: There is inadequate training that is provided to the Government
officers for practical usage and implementation of such systems since the GST
administration heavily banks on information technology.
7. Teething trouble: GST Network (GSTN) may not work optimally for quite some time due
to various factors that could be ascertained only after its implementation for few years.
There seems to be a lot of improvement in this regard.
DUAL GST
India is a federal country where both the Centre and the State have been assigned the powers to
levy and collect taxes through appropriate legislation. Moreover, both governments have been
assigned distinct responsibilities, as prescribed under the division of powers statute of the
Constitution. Overall, a dual GST structure is designed to align with the Constitutional
requirements of fiscal federalism.
India is the third country, after Canada and Brazil to implement a dual GST model.
The Dual GST structure in India is essentially a simple tax with different taxation rates – the
Central Goods and Service Tax (or CGST) and the State Goods and Service Tax (or SGST). As
the name suggests, the dual GST structure implies that both the Central and State governments can
levy and collect taxes via appropriate legislation.

 Features of the Dual GST Structure

1. The GST or Goods and Service Tax has two components – one levied by the central
government (referred to as Central GST or CGST), and the other collected by the State
governments (referred to as State GST or SGST)
2. Both CGST and SGST apply to all transactions pertaining to goods and services
3. Both CGST and SGST are paid to the respective accounts of the Central and the States
governments individually
4. CSGT and SGST are treated individually, implying that the taxes paid against the CGST
are allowed to be considered as Input Tax Credit (or ITC)
5. Cross utilization of the Input Tax Credit between CGST and SGST is not permitted,
except for the inter-state supply of goods and services
6. Credit accumulation based on the GST refund is to be avoided by both the Central and
State governments except in the case of exports, input tax at a higher rate than output tax,
and purchase of capital goods, among others
7. There is a uniform procedure for collection of both CGST and SGST, as prescribed in
their respective legislation
8. The composition or compounding scheme for GST has an upper ceiling and a floor tax
rate concerning the gross annual turnover
 9. As a taxpayer, you must submit periodic returns, in a standard format, to both the CGST
and SGST authorities
10. Each taxpayer is allotted a 14-15 digit PAN-linked taxpayer identification number

 Benefits of Dual GST

The Dual GST structure is a transparent and straightforward tax model with a pre-defined set of
CGST and SGST rates. The benefits of having a dual GST structure include –
1. Reduction in the total number of taxes levied by the Central and State governments
2. A decrease in the effective tax rate for different goods
3. Elimination of the existing cascading effect of taxes
4. Reduction of the taxpayer’s transaction costs through simplified tax compliance
5. Increased tax collections based on a broader tax base and improved compliance

DEFINITIONS
 GOODS – SECTION 2(52) OF CGST ACT
“Goods means every kind of movable property other than money and securities but includes
actionable claims, 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.”
The above is summarized as under:
Goods include:
 Every kind of movable property
 Actionable claims
 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.
Goods does not include:
 Money and
 Securities
Explanation:
 The definition is inclusive and not exhaustive.
 Goods could be of various types of movable property.
 Intangible assets like copyright, trademark, royalty on mining, lease, carbon credit,
electricity are also considered as goods.

 SERVICE – SECTION 2(102) OF CGST ACT

“Services means anything other than goods, money and securities but includes activities relating
to the use of money or its conversion by cash or by any other mode, from one form, currency or
denomination, to another form, currency or denomination for which a separate consideration is
charged.”
Service means any economic activity resulting into value addition. Service is instantly perishable
and cannot be stored. Service also cannot be returned to the service provider or transferred to
another.
Explanation 1: Services include transactions in money but does not include money and securities.
Meaning thereby that if transaction is done without any separate charge/consideration, no service.
Explanation 2: But transaction in money relating to the use of money or its conversion by cash or
by any other mode, from one form, currency or denomination, to another form, currency or
denomination for which a separate consideration is charged then it is service.
 AGGREGATE TURNOVER – SECTION 2(6) OF CGST ACT
“Aggregate turnover means the aggregate value of –
1. All taxable supplies pertaining to inter/intra state activities,
2. Exempted supplies,
3. Exports of goods or services or both.
It is to be computed on pan-India basis for the person having the same Permanent Account
Number.
Includes:
 Values of stock transfer
 Values of branch transfer
Does not include:
 Value of inward supplies on which tax is payable by person on reverse charge basis.
 CGST, SGST, UTGST, IGST and GST compensation cess.

 PERSON
Person includes –

1. an Individual;
2. Hindu Undivided Family (HUF) ;
3. Company;
4. Firm;
5. Limited liability partnership;
6. an association of persons or a body of individuals, whether incorporated or not, in India or
outside India;
7. any corporation established by or under any Central Act, State Act or Provincial Act or a
Government Company as defined under clause (45)of Section 2 of Companies Act, 2013;
8. any body corporate incorporated by or under the laws of a country outside India;
9. a co-operative society registered under any law relating to co-operative societies;
10. a local authority;
11. Central Government or State Government;
12. Society as defined under the Societies Registration Act, 1860;
13. Trust; and
 14. every artificial juridical person, not falling within any of the above.

 TAXABLE PERSON
A ‘taxable person’ under GST, is a person who carries on any business at any place in India and
who is registered or required to be registered under the GST Act. Any person who engages in
economic activity including trade and commerce is treated as taxable person.
 BUSINESS – SECTION 2(17) OF CGST ACT
“Business” includes –
a. any trade, commerce, manufacture, profession, vocation, adventure, wager or any other
similar activity, whether or not it is for a pecuniary benefit;
b. any activity or transaction in connection with or incidental or ancillary to (a) above;
c. any activity or transaction in the nature of (a) above, whether or not there is volume,
frequency, continuity or regularity of such transaction;
d. supply or acquisition of goods including capital assets and services in connection with
commencement or closure of business;
e. provision by a club, association, society, or any such body (for a subscription or any other
consideration) of the facilities or benefits to its members, as the case may be;
f. admission, for a consideration, of persons to any premises; and
g. services supplied by a person as the holder of an office which has been accepted by him in
the course or furtherance of his trade, profession or vocation;
h. services provided by a race club by way of totalizator or a license to book maker in such
club;
i. Any activity or transaction undertaken by the Central Government, a State Government or
any local authority in which they are engaged as public authorities.
  PLACE OF BUSINESS
Place of business includes –
a. A place from where the business is ordinarily carries 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 accounts; or
c. A place where taxable person is engaged in business through an agent, by whatever named
called.

 WORKS CONTRACT – SECTION 2(119) OF CGST ACT

Works Contract have been defined to mean an agreement for carrying out for cash, deferred
payment or other valuable consideration, building, construction, fabrication, erection, installation,
fitting out, improvement, modification, repair, renovation or commissioning of any movable or
immovable property. Deeming of works contract as services should simplify taxation of works
contract. However, whether a particular contracting structure qualifies as works contract, is a
determination that the tax-payer would need to undertake.
 SUPPLY – SECTION 7 OF CGST ACT
Supply means a supply of goods or services or both which is leviable to tax under this act. Taxable
event under GST is supply of goods or services or both.
Explanation: Supply includes all forms of supply of goods or services or both such as sale, transfer,
barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration
by a person in the course or furtherance of business. It also includes import of services for a
consideration whether or not in the course or furtherance of business
Parameters of Supply:
The meaning and scope of supply under GST can be understood in terms of following six
parameters, which can be adopted to characterize a transaction as supply:
1. Supply of goods or services. Supply of anything other than goods or services does not
attract GST.
2. Supply should be made for a consideration
3. Supply should be made in the course or furtherance of business
4. Supply should be made by a taxable person
5. Supply should be a taxable supply
6. While these six parameters describe the concept of supply, there are a few exceptions to
the requirement of supply being made for a consideration and in the course or furtherance
of business. Any transaction involving supply of goods or services without consideration
is not a supply, barring few exceptions, in which a transaction is deemed to be a supply
even without consideration. Further import of services for a consideration, whether or not
in the course or furtherance of business is treated as supply.
 CLASSIFICATION OF SUPPLY AND TYPES

 Composite supply and Mixed Supply:

There are a few supplies which are made together with two or more items. Such supplies are further
classified into Composite Supply and Mixed Supply.
 Composite Supply:
It includes any combination of services and/or goods provided in the course of furtherance of
business. It means –
a. A supply made by a taxable person
b. To a recipient consisting of two or more taxable supplies of goods or services or both, or
any combination thereof,
c. Which are naturally bundled and supplied in conjunction with each other in the ordinary
course of business, one of which is a principal supply.

Explanation: 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 on the
entire supply.
E.g. (1) When goods are packed and transported with insurance, the supply of goods, packing
material, transport, insurance is a composite supply and supply of goods is principal supply.
E.g. (2) Consumer buys a television set and also gets warranty and maintenance contract with it.
Here, TV is principal supply and warranty is composite supply
E.g. (3) 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
composite supply.
  Mixed Supply:
It means –
a. Two or more individual supplies of goods or services, or any combination thereof,
b. Made in conjunction with each other by a taxable person,
c. For a single price where such supply does not constitute a composite supply.

Explanation: 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 mixed supply.
LEVY AND COLLECTION UNDER GST
Section 9 of CGST Act/SGST Act and Section 5 of IGST Act are the Charging Sections for
the purposes of levy of GST.

CGST and SGST shall be levied on all intra-state supplies of goods and/or services and IGST shall
be levied on all inter-state supplies of goods and/or services respectively.

A. Levy and Collection of GST under CGST Act. (Section 9)

1. Levy of central goods and service tax [Section 9(1)]:

Under CGST Act, central tax called as the central goods and services tax (CGST) shall be
levied on all intra-State supplies of goods or services or both, except on the supply of
alcoholic liquor for human consumption.
It shall be levied on the value determined under section 15 and at such rates, not exceeding
20%, as may be notified by the Government on the recommendations of the Council and
collected in such manner as may be prescribed and shall be paid by the taxable person.
[Similar rates have been prescribed under SGST/UTGST]

2. Central tax on petroleum products to be levied from the date to be notified [Section
9(2)]:
The central tax on the supply of petroleum crude, high speed diesel, motor spirit
(commonly known as petrol), natural gas and aviation turbine fuel shall be levied with
effect from such date as may be notified by the Government on the recommendations of
the Council.

3. Tax payable on reverse charge basis [Section 9(3)]:

The Government may, on the recommendations of the Council, by notification, specify
categories of supply of goods or services or both, the tax on which shall be paid on reverse
charge basis by the recipient of such goods or services or both.
 Further, all the provisions of this Act shall apply to such recipient as if he is the person
liable for paying the tax in relation to the supply of such goods or services or both.

4. Tax payable on reverse charge if the supplies are made to a registered person by
unregistered person [Section 9(4)]:
The central tax in respect of the supply of taxable goods or services or both by a supplier,
who is not registered, to a registered person shall be paid by such person on reverse charge
basis as the recipient and all the provisions of this Act shall apply to such recipient as if he
is the person liable for paying the tax in relation to the supply of such goods or services or
both.

5. Tax payable on intra-State supplies by the electronic commerce operator on notified

services: [Section 9(5)]
As per section 2(45) of the CGST Act, 2017, “electronic commerce operator” means any
person who owns, operates or manages digital or electronic facility or platform for
electronic commerce.
Further, “electronic commerce” means the supply of goods or services or both, including
digital products over digital or electronic network.
Thus, Electronic Commerce Operators (ECO), like flipkart, uber, make-my-trip, display
products as well as services which are actually supplied by some other person to the
consumer, on their electronic portal. The consumers buy such goods/services through these
portals. On placing the order for a particular product/service, the actual supplier supplies
the selected product/service to the consumer. The price/consideration for
the product/service is collected by the ECO from the consumer and passed on to the actual
supplier after the deduction of commission by the ECO.
The Government may, on the recommendations of the Council, by notification, specify
categories of services the tax on intra-State supplies of which shall be paid by the electronic
commerce operator (ECO), if such services are supplied through it.
However, where an electronic commerce operator (ECO) does not have a physical presence
in the taxable territory, any person representing such electronic commerce operator (ECO)
for any purpose in the taxable territory shall be liable to pay tax.
Where an electronic commerce operator (ECO) does not have a physical presence in the
taxable territory and also he does not have a representative in the said territory, such
electronic commerce operator shall appoint a person in the taxable territory for the purpose
of paying tax and such person shall be liable to pay tax.

B. Levy and Collection of GST under IGST Act. (Section 5)

The provisions under section 5 of the IGST Act are similar to section 9 of CGST Act except—

1. the word CGST has been substituted by IGST under IGST Act
2. under IGST Act, tax called integrated tax is to be levied on all inter State supplies and
on goods imported into India.
3. maximum rate under section 5(1) of the IGST Act is 40% (i.e. 20% CGST + 20%
UTGST).
C. Levy and Collection of GST under UTGST Act. (Section 7)

The provisions under section 7 of the UTGST Act are similar to section 9 of CGST Act
except—

1. the word CGST has been substituted by the word UTGST under the UTGST Act.
2. Under UTGST Act, tax called UT tax will be levied on all intra-State
supplies, maximum rate 7(1) of UTGST Act is 20%.

COMPOSITION LEVY

The composition levy is an alternative method of levy of tax designed for small taxpayers. The
objective of composition scheme is to bring simplicity and to reduce the compliance cost for the
small taxpayers.

Moreover, it is optional and the eligible person opting to pay tax under this scheme can pay tax at
a prescribed percentage of his turnover every quarter, instead of paying tax at normal rate.
However to qualify for this scheme, he has to fulfill the mandatory conditions prescribed under
the law, one of which is the limit of annual turnover.

1. Notwithstanding anything to the contrary contained in this Act but subject to the provisions
of sub-sections (3) and (4) of section 9, a registered person, whose aggregate turnover in
the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the
tax payable by him, an amount calculated at such rate as may be prescribed, but not
exceeding,––
a. one per cent of the turnover in State or turnover in Union territory in case of a
manufacturer,
b. two and a half per cent of the turnover in State or turnover in Union territory in case
of persons engaged in making supplies referred to in clause (b) of paragraph 6 of
Schedule II, and
c. half per cent of the turnover in State or turnover in Union territory in case of other
suppliers, subject to such conditions and restrictions as may be prescribed:

Provided that the Government may, by notification, increase the said limit of fifty lakh
rupees to such higher amount, not exceeding one crore rupees, as may be recommended
by the Council.

2. The registered person shall be eligible to opt under sub-section (1), if:—
a. he is not engaged in the supply of services other than supplies referred to in clause
(b) of paragraph 6 of Schedule II;
b. he is not engaged in making any supply of goods which are not leviable to tax under
this Act;
c. he is not engaged in making any inter-State outward supplies of goods;
d. he is not engaged in making any supply of goods through an electronic commerce
operator who is required to collect tax at source under section 52; and
 e. he is not a manufacturer of such goods as may be notified by the Government on
the recommendations of the Council:

Provided that where more than one registered persons are having the same Permanent
Account Number (issued under the Income-tax Act, 1961), the registered person shall
not be eligible to opt for the scheme under sub-section (1) unless all such registered
persons opt to pay tax under that sub-section.

3. The option availed of by a registered person under sub-section (1) shall lapse with effect
from the day on which his aggregate turnover during a financial year exceeds the limit
specified under sub-section (1).
4. A taxable person to whom the provisions of sub-section (1) apply shall not collect any tax
from the recipient on supplies made by him nor shall he be entitled to any credit of input
tax.
a. If the proper officer has reasons to believe that a taxable person has paid tax under
sub-section (1) despite not being eligible, such person shall, in addition to any tax
that may be payable by him under any other provisions of this Act, be liable to a
penalty and 6 the provisions of section 73 or section 74 shall, mutatis mutandis,
apply for determination of tax and penalty.

Explanation 1: Who can opt for the Composition Scheme?

 Any manufacturer or trader having a turnover of less than Rs.1.5 crore in a financial year
can opt for the composition scheme. This limit will be applicable to restaurants (not serving
alcohol).
 However, the threshold limit is Rs.75 lakh for North-eastern states and Himachal Pradesh.
 Service providers having a turnover of less than Rs.50 lakh can avail the GST composition
scheme.

Explanation 2: Who cannot avail the composition scheme?

The following businesses cannot opt for the composition scheme:
 Manufacturers of ice-cream, pan masala, or tobacco
 Businesses making inter-state supplies
 Businesses registered as a casual taxable person or a non-resident taxable person
 Businesses supplying goods through an e-commerce operator

Explanation 3: GST rates applicable to a composition dealer

The GST rates that apply to composition dealers are quite different from the ones that apply to
non-composition dealers. Have a look at the table below to know more:
Type of business CGST SGST Total
Manufacturers and traders (goods) 0.5% 0.5% 1.0%
Restaurants not serving alcohol 2.5% 2.5% 5.0%
Other service providers 3.0% 3.0% 6.0%