Ch.

1 Introduction and Constitution

Ch 1 INTRODUCTiON AND CONSTiTUTiON

Why tax:

(A Family of 5 to 8 members) (A Family of 140 Crores

Run by Parents
Ü If Job-
We Earn salary
Ü If Business (of Goods / Services)-
We Earn Fees / Profit from Sale
Here, Revenue is Salary or profit from sale
etc., which is used by parents for Food /
Clothes / House / Education, Health and
other daily needs of their 5 to 8 family
members.
i.e., Whole India)
Run by Government
* If Job-
We earn salary & pay “Income Tax”
* If Business of Goods / Services- We
Earn Fees / Profit from Sale and pay GST and
Income Tax
Here, Revenue is Taxes & duties on Salary or
profit from sale etc., which is used by
Government to fulfil daily needs of their 130
Crores + family members.

Example
Coaching service
Mr. Raj Student

Particulars Amount In `` Remarks

Value of Service provided 5,000
Add: - GST @ 18% 900
Total Value of service Provided 5,900
Less: - GST paid to Government (900) To Government
(Indirect Tax)
Net Value of service Provided 5,000
Less: -Expenses 2,000
Total Income / Profit 3,000
Less: - Income Tax (on above income) (3000 x 30%) (900) To Government
[Assumption- Rate of Income Tax=30%] (Direct Tax)
Net Income 2,100

Government need fund to fulfill Increasing developmental needs of country or to fulfill Socio
Economic Objectives of the country, that’s why Government impose tax.

CA Rajkumar 1.1
 Introduction and Constitution Ch.1

What is Tax ? A compulsory extortion of money

+
Made under an act / law
+
To support the Nation

Type of Taxes (Levied in India)

Type of Taxes

Direct Taxes Indirect Taxes

The incidence of tax borne by The incidence of tax not borne by the
Incidence of tax- the person on whom it is person on whom it is levied rather it is
levied. borne by ultimate user / End user.

Nature of tax- Progressive in nature (High Regressive (All the consumers equally
Nature of tax- rate of taxes for people bear the burden, irrespective of their
having higher ability to pay). ability to pay)

Types of tax- Income Tax, etc Goods and Service Tax, etc.

Example
Tax Imposed On Tax Borne By Type of Tax Applicable

Mr. Raj Student Indirect Tax

Mr. Raj Mr. Raj Direct Tax

Destination Principle:

India
End User of Goods / services in
India i.e. it is consumed in
India, Then Tax = to Indian
Govt.)
Manufacturer

USA
Manufacturer

End User of Goods / services -

in USA i.e. it isconsumed in
USA, Then Tax = to USA Govt.)

1.2 CA Rajkumar
Ch.1 Introduction and Constitution

WHAT IF
Ÿ Goods imported from USA to India and
Ÿ Cleared for Home consumption in India on payment of Import duty,

Ÿ Now exported to Sri Lanka i.e. End User in Sri Lanka,

Ÿ In such case Tax will goes to Government of Sri Lanka.

Ÿ & What about tax paid to Indian Govt.?

According to this principle, if any goods or services, whether domestic or imported

ØConsumed in India: Tax will be levied and collected by Indian Government only
ØConsumed outside India: Tax will be levied and collected by Government outside India only

CREDIT CONCEPT in IDT

Concerned Person Particulars Amount Tax to Govt.

Manufacturer 1- Value = 100

GST @ 18% = 18 `18
Raw Material (Iron) Wire
Total= 118

Manufacturer 2- Value = 1000 Credit=18)

GST @ 18% = 180 `` 180-18
Wire Compressor
Total= 1180 =``162

Manufacturer 3- Value = 10000 Credit=180

GST @ 18% = 1800 `` 1800-180
Compressor AC
Total= 11800 =``` 1620

End User- Value = 500000 (Credit=1800)`

GST @ 18% = 90000 ` 90000
AC Car
Total= 590000 - 1800
= `` 88200

Total = ``90000

CA Rajkumar 1.3
 Introduction and Constitution Ch.1

FEATURES OF INDIRECT TAXES

I) An important source of revenue :

Indirect taxes are a major source of tax revenues for Governments worldwide and continue to
grow. In India, indirecttaxes contribute more than 50% of the total tax revenues of Central and
State Governments.

ii) Tax on Goods and services:

It is levied on Goods and services at the time of manufacture or purchase or sale or
import/export thereof/provision of services.

(iii) Shifting of burden:

There is a clear shifting of tax burden on end user. 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 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.
(v) Inflationary:Indirect taxation directly affects the prices of goods and services and leads to
inflationary trend.
(vi) Wider tax base:The indirect taxes have a wide tax base as compare to direct tax. Majority of
the products or services are liable to indirect taxes.
(vii) 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.
(viii) Promotes social welfare:High taxes are imposed on the consumption of harmful products
(also known as ‘sin goods’) such as alcoholic products, tobacco products etc. This not only
control their consumption but also enables the State to collect substantial revenue.

Difference between Direct Taxes and Indirect Taxes

Basis Indirect Taxes Direct Taxes

The person on whom it is imposed, The person on whom it
1) Burden of Tax c o l l e c t s t h e s a m e f r o m t h e u l t i m a t e is imposed directlybears
consumer. Thus, incidence of tax is shifted to the incidence of tax.
the other person / End User
Regressive (All the consumers equally bear Progressive (High rate of
2) Nature
the burden, irrespective of their ability to taxes for people having
pay). higher ability to pay).

1.4 CA Rajkumar
Ch.1 Introduction and Constitution

It has to bear by almost all persons. (i.e., a It has narrow tax base
3) Tax Based i.e.,
bagger buy a matchbox, then he is also comparatively.
PersonAffected
bearing the tax load.) Thus it has wider tax
base.
4) Collection 10-12 lakh crores. 10-12 lakh crores.
of Amount

5) Effect on Inflation It Directly affects inflation. It does not affect inflation.

6) Effect on Person It indirectly affects the bearer (Ultimate It directly affects the
consumer). Assessee.

7) Imposed on It is imposed on the person deal in It is imposed on

goods/services i.e., Businessman /Self- Employees /
employed persons. Businessmanand all

8) Examples Goods and Service Tax, etc. Income Tax, etc.

INTRODUCTION TO GST

WHY GST
Basis of difference PRE GST POST GST
Central Excise Duty, VAT, CST, GST (one nation one tax).
Multiple Tax Service Tax, ie Total 17 Taxes.

Separate: Registration, Books of ONE (Procedure).

Multiple Procedure
Account, Invoice etc.

Multiple Taxable Manufacturing , Sales, Entry in SUPPLY

Event other state etc.

Person Manufacturer, Service provider, Taxable PERSON

Trader etc.. (Supplier/Recepient)

Cascading Effect YES. NO (Cascading Effect) upto

99.99%

Double Taxation YES. NO Double Taxation upto 99.99%

Level Intra state, inter state, international Intra state, inter state,
(International will also called as
inter state.)

CA Rajkumar 1.5
 Introduction and Constitution Ch.1

What is It is a value added tax

having continuous chain
GST of credit where burden is
A TAX on “Goods/Services” shifted on END User

SUPPLY

GST: IMPOSED

Origin & Destination NATURE OF SUPPLY Origin & Destination

In Same State / Union in 2 Different States
territory Crux: Any border exists In
in 2 Different Union territories
between then Inter-
in a State & a Union Territory
State otherwise Intra-State
in 2 Different Countries
INTRA STATE
Ie, UP To UP
INTER - STATE
Value of Goods / Service : XXX
+ C- GST : XXX Value of Goods / Service : XXX
+ S – GST (UP) : XXX + I- GST : XXX
: XXX (A Sum Total of
CGST + HR GST) : XXX
What About Daman to Daman?

Inter State Supply: Where origin & destination of supply fall under 2 Different States, UT’s, State
& UT, countries then the supply will be Inter State and IGST would be levied.

Ÿ IGST will be payable to Central Government in IGST Fund and

Ÿ Central Government transferred CGST potion to CGST FUND and
Ÿ Balance Portion (SGST) will be transferred to destination or consuming State’s SGST FUND.
Ÿ Where Destination is an Union Territory then Balance Portion (UT GST) will be transferred
toUTGST FUND.

Intra State: Where origin and destination of supply falls under same State/UT then the supply will
be Intra State & accordingly CGST & SGST/UT GST would be payable
Ÿ CGST will be credited to CGST fund directly and
Ÿ SGST/UTGST will be credited to SGST/UTGST FUND.

1.6 CA Rajkumar
Ch.1 Introduction and Constitution

PRACTICE OF INTER & INTRA IGST Payable to CG in

IGST Fund CG T/F 50%
to CGST fund balance
IGST 50% to UTGST fund by
Along with CG
Import MH MH UP
Duty INTER INTRA INTER INTER

CGST - Payable to IGST - Payable to

Central Govt. Central govt. (18%) & central govt
IMPORT
MH-GST - Payable to retain : 9% &
MH Govt. Balance 50% transfer to UP Govt. DAMAN
USA

IGST : Payable to INTER

CG[IGST Fund]
50% T/F to CGST fund
CHD
No GST and balance 50%
Destination T/F to UTGST Fund
Out of
India EXPORT

ANDMAN ANDMAN DL DL
INTRA INTER
INTRA INTER

CGST : To CGST Fund IGST : Central Govt. CGST : Payable to CG[CGST fund] IGST Payable to CG.[IGST
UT-GST to UT GST fund 50% CGST fund DL-GST : Payable to DL-GST fund Fund] 50% T/F to CGST fund
50% UTGST fund & 50% T/F to DL-GST fund

CA Rajkumar 1.7
 Introduction and Constitution Ch.1

TOTAL NUMBERS OF STATES AND UTs

Union Territories [UTs]

Natural States Mixed UT [T ermed as deemed state in the

world of GST]
Pure UT- An UT without
legislature ie no own
Its an UT with legislature ie having its own assembly, no own Chief
assembly, own Chief Minister. Minister.
In simple its having some charecterstick of
State

29 States 2 Mixed UT [Delhi and Puducherry ] 5 Pure UT

De-Merger of J&K 1 Mixed UT [J&K] 1 Pure UT [Ladakh]

Mergerof 2 Pure UT’s Dadar

- (1) Pure UT
and Nagar Haveli, Daman &
Diu
T otal : Natural States = 28 T otal deemed states = 3 T otal Pure UT’s = 5

FINALLY TOTAL NUMBER OF ST ATES (Natural and Deemed states )= 31

GST LAW

Ÿ For Levy and collection of CGST = CGST Act, 2017 (Total 1 Act)

Ÿ For Levy and collection of SGST = SGST Act, 2017 (Total 31 Acts)

Ÿ For Levy and collection of UTGST = UT GST Act, 2017 (Total 1 Act)

Ÿ For Levy and collection of IGST = IGST Act, 2017 (Total 1 Act)

Ÿ For Levy and collection of GST compensation Cess = GST compensation Cess Act, 2017
(Total 1 Act)
Ÿ For constitutional changes = The Constitution Amendment Act, 2016

1.8 CA Rajkumar
Ch.1 Introduction and Constitution

Utilisation of ITC

Inward Supply Outward Supply CGST

SGST
INPUT TAX (GST) OUTPUT TAX (GST) XXX UTGST
IGST
I.T.C. OF

CGST Use ITC XXX

SGST NET GST XXX
UTGST
IGST C C

I I

S S

U U

It means:
(I) First of all credit of IGST will be utilised-
- For the payment of IGST
- For the payment CGST / SGST or UTGST (in ANY Ratio and in any sequence)
(ii) After that credit of CGST will be utilised –
- For the payment of CGST
- For the payment of IGST
(iii) Lastly credit of SGST will be utilised –
- For the payment of SGST
- For the payment of IGST
(iii) Lastly credit of UTGST will be utilised –
- For the payment of UTGST
- For the payment of IGST

Note
Credit of SGST can NOT be utilised for the payment of CGST & Vice Versa.
Credit of UTGST can NOT be utilised for the payment of CGST & Vice Versa.

CA Rajkumar 1.9
 Introduction and Constitution Ch.1

EXAMPLE:

Total Output GST= 62,000 Output IGST Output CGST Output SGST
Total ITC = 60,000 15000/- 12000/- 35000/-
(1) ITC of IGST = 20000 (15000) (2000) (3000)
Balance Liability = NIL 10000 32000
(2) ITC of CGST = 10000 - (10000) -
Balance Liability = Nil Nil 32000
(3) ITC of SGST = 30000 - - (30000)
Cash Liability 2000

Finally Concepts of GST based on:

(1) Value added Tax: GST is a value added tax levied on manufacture, sale and consumption of
goods and services.
(2) Continuous chain of Tax credit: GST offers comprehensive and continuous chain of tax credits
from the producer's point/service provider's point upto the retailer's level/consumer’s level
thereby taxing only the value added at each stage of supply chain.
(3) No tax on tax (Cascading): Since, only the value added at each stage is taxed under GST, there is
no tax on taxorcascadingoftaxesunderGSTsystem. GST does not differentiate between goods
and services and thus, the two are taxed at a single rate.
(4) Burden borne by final consumer: The supplier at each stage is permitted to avail credit of GST
paid on the purchase of goods and/or services and can set off this credit against the GST payable
on the supply of goods and services to be made by him. Thus, only the final consumer bears the
GST charged by the last supplier in the supply chain, with set-off benefits at all the previous
stages.

Which Taxes Subsumed or not to subsumed in GST

Following taxes/duties/cess have been subsumed in GST…

Ÿ Central excise duty,

Ÿ State level VAT,

Ÿ Central Sales Tax,

Ÿ Entry tax / Octroi,

Ÿ Purchase Tax,

Ÿ Service Tax,

Ÿ Tax on betting, gambling, Lotteries

1.10 CA Rajkumar
Ch.1 Introduction and Constitution

Ÿ Luxury Tax on hotels

Ÿ Entertainment Taxes levied by State Govt.

Ÿ Various kind of cess eg. krishi kalyaan cess, swach Bharat cess

Ÿ Etc.

Following taxes have not been subsumed in GST….

Ÿ Import duty

Ÿ Export duty

Ÿ Entertainment Taxes levied by Local bodies.

Ÿ Electricity duty/Tax.

Ÿ Stamp Duty.

Ÿ Road Tax & passenger tax

Ÿ Toll tax

Ÿ Etc.

Old and New Tax

Alcoholic Liquor for human consumption State Excise duty NO GST
Sales Tax
5Petroleum Products Central Excise duty
Sales tax
Tobacco Central Excise duty Yes GST
Sales tax
Rest of the goods
All Services - Yes GST

Need For GST in India/Deficiencies in the existing value added taxation

Multiple taxes:
There are multiple taxes in India in old regime like central excise duty, state level vat, service tax,
various kinds of cesses consequently multiple legislation and multiple taxable events, multiple
procedures and there was no coordination among all taxes.
Cascading effect:
In the old regime, a manufacturer of excisable goods charges excise duty and value added tax (VAT)
on intra-State sale of goods, even vat was charged on cum duty price consequently it creates
cascading effects. Moreover credit of CST not available atall to any one consequently creates
cascading effect and many more examples of cascading effects.

CA Rajkumar 1.11
 Introduction and Constitution Ch.1

Double taxation:
Double taxation of a transaction as both goods and services as the distinction between goods and
services was often blurred, e.g. software was liable to both VAT and service tax. It was Just because of
lack of proper coordination among various tax laws there was a situation of double taxation eg.
Restaurants services, works contract, etc. liable to both service tax and vat.
No Uniformity:
Because of multiple taxes there were multiple legislation, Multiple Procedure, multiple returns,
registration, invoicing, multiple threshold exemptions and all and was no coordination among all
taxes hence it can be said that there was no uniformity in old taxes.

BENEFITS OF GST
GST brings benefits to all the stakeholders of industry, Government and the consumer. It will lower
the cost of goods and services, give a boost to the economy and make the products and services
globally competitive. GST is a win-win situation for the entire country. The significant benefits of GST
are discussed hereunder:

No multiple taxes (to GST will subsume majority of old indirect taxes levies both at Central and
the extent): State level into one tax i.e., GST which will be leviable uniformly on goods
and services.

No cascading effect By subsuming most of the Central and State taxes into a single tax and by
(to the extent): allowing a set-offof prior-stage taxes for the transactions across the
entire value chain, it would mitigate the ill effects of cascading, improve
competitiveness and improve liquidity of the businesses.
No double taxation GST will make doing business easier and will also tackle the highly
(to the extent): disputed issues relating to double taxation of a transaction as both
goods and services.

Uniformity in GST aims to make India a common market with common tax rates and
provision (to the procedures, common procedure, common valuation system which
extent): provides uniformity in taxation system.
Buoyancy to the GST is expected to bring buoyancy to the Government Revenue by
Government widening the tax base and improving the taxpayer compliance.
Revenue:

Boost to 'Make in GST will give a major boost to the 'Make in India' initiative of the
India' initiative: Government of India by making goods and services produced in India
competitive in the national as well as international market..
Win- Win for all GST is a win-win situation for the entire country. It brings benefits to all
the stakeholders of Industry, Government and the Consumer. It lowers
the cost of goods and services, gives a boost to the economy and makes
the products and services globally competitive.

1.12 CA Rajkumar
Ch.1 Introduction and Constitution

GENESIS OF GST IN INDIA

Year Event

1954 France was the first country to implement GST in the year 1954.

The idea of national Goods and Services Tax (GST) in India was mooted
2004
by Kelkar Task Force in 2004.
2014 NDA Government tabled the Constitution (122nd Amendment) Bill..

2016 Constitution (122nd Amendment) Bill, 2014 received the assent of the
President on 8th September, 2016 and became Constitution (101st
Amendment) Act, 2016.

2017 (March) The Central GST legislations - Central Goods and Services Tax Bill,
2017, Integrated Goods and Services Tax Bill, 2017, Union Territory
Goods and Services Tax Bill, 2017 and Goods and Services Tax
(Compensation to States) Bill, 2017 were introduced in Lok Sabha.

2017 (July) Finally Govt. rolled out GST by 1st July, 2017, by achieving consensus
on all the issues relating thereto.

Goods and Services Network (GSTN)

GSTN is a company Registered under section 8 of Companies Act, 2013 i.e. A company “Not for
Profit”.
- Both the Government provides funding to GSTN.
- GSTN provides GST portal service to Govt. and Tax Payers.
- Facilities offered by GSTN/GST Portal are as follows—
Ÿ Registration,
Ÿ filing of Return,
Ÿ Distribution of IGST Between CG & SG/UT,
Ÿ Matching of Returns,
Ÿ Analysis Tax Payer's profile and provide Various Kinds of Report to Government.

Note: “www.ewaybillgst.gov.in” means the website managed by the National Informatics

Centre, Ministry of Electronics & Information Technology, Government of India.

GSPs/ASPs
- GSTN has selected certain IT, ITeS and financial technology companies, to be called GST
Suvidha Providers (GSPs).
- GSPs develop applications to be used by taxpayers for interacting with the GSTN.
- They facilitate the tax payers in uploading invoices as well as filing of returns and act as a
single stop shopfor GST related services.

CA Rajkumar 1.13
 Introduction and Constitution Ch.1

- They customize products that address the needs of different segment of users.
- GSPs may take the help of Application Service Providers (ASPs) who act as a link between
taxpayers and GSPs.

GST Portal

(GSTR-1/ GSTR-3B- Organised Data)

GST Suvidha Provider (GSP) /

Application Service Provider (ASP)

It is A communicator between Computer of

taxpayer and GST Portal
(Work Mode @ Pull / Push Mode)

All Raw Data

File GSTR -3B

GSTR-2B Computer of Tax Payer File GSTR-1

Input Tax Credit Output GST

404
ERROR

Invoice Received RELOAD HOME

Invoice Issued

CONSTITUTION
As we know that Power to levy and collect taxes whether, direct or indirect emerges from the
Constitution ofIndia.
So For Introduction of GST in INDIA, lots of changes were required in constitution of INDIA
.Mainly four Articles in constitution need to be study.
ARTICLE No.: 246A
Ÿ CG & every SG have simultaneous power to make laws with respect to CGST & SGST/UTGST for Intra
State supplies.

1.14 CA Rajkumar
Ch.1 Introduction and Constitution

Ÿ CG has Exclusive power to make law with respect to IGST for Inter State supplies.

Ÿ 5 Petroleum products [Petroleum crude, High Speed Diesel, Motor Sprit, Natural Gas, Aviation
Turbine Fuel] would be covered under the ambit of GST from that date which will be recommended
by GST council.
ARTICLE No.: 269A
Ÿ As stated earlier, CG has Executive power to make law with respect to IGST on Inter State supplies.

Ÿ IGST will be payable to CG in IGST FUND. The CG will transferred 50% amount in CGST FUND which
is owned by central Government and Balance 50% shall be transferred to consuming/destination
state Government’ SGST FUND or in Case where destination is an UT then such amount will be
transferred to UTGST FUND which is owned by Central Government.
Ÿ All International Transaction will also be called as Inter-State transaction.

ARTICLE No.: 366

Ÿ GST means A Tax as Goods/services.
(Excluding Tax on Alcoholic Liquor a human consumption)
Ÿ Goods – Any kind of moveable property will be called as Goods.
Ÿ Service – Anything other than goods will be treated as service.

GST COUNCIL
ARTICLE No. 279AGST Council

GST Council
For any change B GST Council
in law eg. rate Union F.M
C Notification
Exemption,
issued
Proceural
Difficulties etc. If the proposal
&
State Finance Minister accepted by
A Parliament D
GST council
then recomendation
send to parliament
Act
Taxable Person Discussion over the
Tax Payer proposal send by Industries
(Industries) E
Amended Provision Applicable

CA Rajkumar 1.15
 Introduction and Constitution Ch.1

PROPOSAL PASSING % = 75% Weighed %

Central Govt. = 1 Vote

State Govt. = 31 Vote

ON A PROPOSAL : Central Government State Government

(Assume CG agreed
And 25 states agreed 1 25
x 100 x 100
on a proposal 1 31
1 2
100% x 80.65% x
3 3

33.33% + 53.77% = 87.1%

1. Where industry demands any change in law it approach GST Council for the same.
2. Such matter is discussed in GST COUNCIL.
3. After discussion if favorable voting percentage is 75% or more (weighted %) then the
proposal/recommendation is sent to the Parliament. Every decision of the Goods and Services
Tax Council shall be taken at a meeting, by a majority of at least 75% of the weighted votes
of the members present and voting, the vote of the Central Government shall have a
weightage of 1/3 of the total votes cast, and The votes of all the State Governments taken
together shall have a weightage of 2/3 of the total votes cast, in that meeting.
4. After that a formal notification is issued for the same.
5. Now the change will be effective for industry and government.
6. 50% of the total number of Members of the Goods and Services Tax Council shall constitute
the quorum at its meetings.

1.16 CA Rajkumar