CHAPTER 1

GST IN INDIA – AN
INTRODUCTION
LEARNING OUTCOMES
After studying this Chapter, you will be able to:
 explain the concept of tax and the objective for its levy
 describe the concept of direct and indirect tax and the
differences between the two types of taxes
 enumerate the basic features of indirect taxes and the
principal indirect taxes in India
 explain the concept of GST and the need for GST in India.
 discuss the framework of GST as introduced in India and
understand the various benefits to be accrued from
implementation of GST.
 explain the constitutional provisions pertaining to levy of
various taxes
 appreciate the need for constitutional amendment paving
way for GST.
 discuss the significant amendments made by Constitution
(101st Amendment) Act, 2016.

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 1.2 INDIRECT TAXES

CHAPTER OVERVIEW

Direct and Indirect Taxes

Features of indirect taxes

Genesis of GST in india

GST in India

Concept of GST

Need for GST in India

Framework of GST as introduced in India

Benefits of GST

Constitutional provisions

1. BACKGROUND
In any Welfare State, it is the prime responsibility of the Government to fulfill the
increasing developmental needs of the country and its people by way of public
expenditure. India, being a developing economy, has been striving to fulfill the
obligations of a Welfare State with its limited resources; the primary source of
revenue being the levy of taxes. Though the collection of tax is to augment as
much revenue as possible to the Government to provide public services, over the
years it has been used as an instrument of fiscal policy to stimulate economic
growth. Thus, taxes are collected to fulfill the socio-economic objectives of the
Government.

What is a tax? A tax may be defined as a "pecuniary burden laid upon

individuals or property owners to support the Government, a payment exacted by
legislative authority. A tax "is not a voluntary payment or donation, but an
enforced contribution, exacted pursuant to legislative authority".
In simple words, tax is nothing but money that people have to pay to the
Government, which is used to provide public services.

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 GST IN INDIA – AN INTRODUCTION 1.3

2. DIRECT AND INDIRECT TAXES

Taxes are broadly classified into direct and indirect taxes.
Direct Taxes: A direct tax is a kind of charge, which is imposed directly on the
taxpayer and paid directly to the Government by the persons (juristic or natural)
on whom it is imposed. A direct tax is one that cannot be shifted by the taxpayer
to someone else. A significant direct tax imposed in India is income tax.
Indirect Taxes: If the taxpayer is just a conduit and at every stage the tax-
incidence is passed on till it finally reaches the consumer, who really bears the
brunt of it, such tax is indirect tax. An indirect tax is one that can be shifted by
the taxpayer to someone else.
Its incidence is borne by the consumers who ultimately consume the product or
the service, while the immediate liability to pay the tax may fall upon another
person such as a manufacturer or provider of service or seller of goods.
Also called consumption taxes, they are regressive in nature because they are not
based on the principle of ability to pay. All the consumers, including the
economically challenged bear the brunt of the indirect taxes equally.
Indirect taxes are levied on consumption, expenditure, privilege, or right but not
on income or property. Earlier, a number of indirect taxes were levied in India,
namely, excise duty, customs duty, service tax, central sales tax (CST), value added
tax (VAT), entry tax, purchase tax, entertainment tax, tax on lottery, betting and
gambling, luxury tax, tax on advertisements, etc.
However, indirect taxation in India witnessed a paradigm shift on July 01, 2017 with
usherance into a unified indirect tax regime wherein a large number of Central and
State indirect taxes were amalgamated into a single tax – Goods and Services Tax
(GST). The introduction of GST has been a very significant step in the field of indirect
tax reforms in India. Customs duty continues in post-GST regime.
Economists world over agree that direct and indirect taxes are complementary and
therefore, a rational tax structure should incorporate in itself both types of taxes.

At Intermediate level, we will study the basic concept of Goods

and Services Tax (GST) - concept of supply, charge of GST,
exemptions, basic concepts of time and value of supply, input
tax credit, registration, tax invoice, credit and debit notes,
returns and payment. Customs law will be discussed at the Final level

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 1.4 INDIRECT TAXES

TAX
INDIRECT TAX
DIRECT TAX
* The person paying the tax to the
* The person paying the tax to
Government collects the same
the Government directly
from the ultimate consumer.
bears the incidence of
Thus, incidnece of the tax is
the tax.
shifted to the other person.
* Progressive in nature - high
* Regressive in nature - All the
rate of taxes for people
consumers equally bear the
having higher ability to
burden, irrespective of their
pay.
ability to pay.

Burden of tax borne Burden of tax shifted

by the person himself to another person

Direct Tax Indirect Tax

Goods and
Major direct and
indirect taxes

Services Tax
Indirect taxes
Customs Duty

Direct taxes Income tax

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 GST IN INDIA – AN INTRODUCTION 1.5

3. 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 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 manufacture or purchase or sale or import/export thereof. Hence, it is
also known as commodity taxation. It is also levied on provision 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 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: 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: 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 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.

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 1.6 INDIRECT TAXES

4. GENESIS OF GST IN INDIA

In the year 2000, the then Prime Minister mooted the
concept of GST and set up a committee to design a `
Goods and Services Tax (GST) model for the country. In
2003, the Central Government formed a task force
under Vijay Kelkar, which in 2004 strongly
recommended fully integrated ‘GST’ on national basis.
Subsequently, the then Union Finance Minister, Shri P. Chidambaram, while
presenting the Union Budget (2006-2007), announced that GST would be
introduced from April 1, 2010. Since then, GST missed several deadlines
and continued to be shrouded by the clouds of uncertainty.
The talks of ushering in GST, however, gained
momentum in the year 2014 when the NDA
Government tabled the Constitution
(122 Amendment) Bill, 2014 on GST in the
nd

Parliament on 19th December, 2014. The Lok

Sabha passed the Bill on 6th May, 2015 and Rajya
Sabha on 3rd August, 2016. Subsequent to ratification of the Bill by more
than 50% of the States, Constitution (122nd Amendment) Bill, 2014 received
the assent of the President on 8th September, 2016 and became
Constitution (101st Amendment) Act, 2016, which paved the way for
introduction of GST in India.
In the following year, on 27th March, 2017,
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. Lok Sabha passed these bills on 29th March, 2017 and with the
receipt of the President’s assent on 12th April, 2017, the Bills were enacted.
The enactment of the Central Acts was followed by the enactment of the
State GST laws by various State Legislatures. Telangana, Rajasthan,
Chhattisgarh, Punjab, Goa and Bihar were among the first ones to pass their
respective State GST laws. By 30th June, 2017, all States and Union
Territories had passed their respective SGST and UTGST Acts except Jammu

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 GST IN INDIA – AN INTRODUCTION 1.7

and Kashmir. With effect from 1st July, 2017, the historic indirect tax reform -
GST was introduced. GST law was extended to Jammu and Kashmir on
8th July, 2017.
In the year 2000, the then Prime The Constitution
Minister introduced the concept of (122nd Amendment)
GST and set up a committee to design Bill was introduced in
a GST model for the country. 2006 the Lok Sabha.
Aug 2016

Announcement by Union 2014

2000 Finance Minister, during
The
Constitution
budget of 2006-07 that (101st
GST would introduced Amendment)
from 1 April 2010. GST Council Act was enacted
Recommends CGST,
GST Council SGST, IGST, UTGST &
recommends Compensation Cess
all the rules. Apr 2017 Bill. Sep 2016
1st GST
May 2017 CGST, IGST, UTGST Mar 2017
and Compensation Council
Cess Acts passed. Meeting
All States
except J & K 30th June
passed their
SGST Act
2017

1st July 2017 8th July 2017

Journey
SGST Act passed by J&K; continues
GST launched CGST and IGST
Ordinances promulgated
to extend GST to J&K.

GST is a path breaking indirect tax reform which attempts to create a

common national market. GST has subsumed multiple indirect taxes like
excise duty, service tax, VAT, CST, luxury tax, entertainment tax, entry tax,
etc.
VAT and GST are often used inter-changeably
as the latter denotes comprehensiveness of
VAT by coverage of goods and services.
France was the first country to implement
VAT/GST in 1954. Presently, more than 160
countries have implemented VAT/GST in some
form or the other because this tax has the

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 1.8 INDIRECT TAXES

capacity to raise revenue in the most transparent and neutral manner. Most
of the countries follow unified GST i.e., a single tax applicable throughout
the country. However, in federal polities like Brazil and Canada, a dual GST
system is prevalent. Under dual system, GST is levied by both the federal
and the State Governments. India, too, has adopted a dual GST.

5. CONCEPT OF GST
What is GST?

Before we proceed with the finer nuances of Indian GST, let us first understand
the basic concept of GST.

GST is a value added tax levied on manufacture,

sale and consumption of goods and services.

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.

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.

Since, only the value added at each stage is

taxed under GST, there is no tax on tax or
cascading of taxes under GST system. GST does not differentiate between
goods and services and thus, the two are taxed at a single rate.

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 GST IN INDIA – AN INTRODUCTION 1.9

6. NEED FOR GST IN INDIA

Deficiencies in the A cure for ills of existing

has led to GST
existing value added indirect tax regime
taxation

Under the earlier indirect tax regime, despite the introduction of the principle of
taxation of value added in India – at the Central level in the form of CENVAT and
at the State level in the form of State VAT - its application always remained
piecemeal and fragmented on account of the following reasons:
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.
CENVAT did not include chain of value addition in the distributive trade
below the stage of production. Similarly, in the State-level VAT, CENVAT
load on the goods was not removed leading to the cascading of taxes. To
illustrate, when the goods were manufactured and sold, both central excise
duty (CENVAT) and State-Level VAT were levied.
Though CENVAT and State-Level VAT were essentially value added taxes, set
off of one against the credit of another was not possible as CENVAT was a
central levy and State-Level VAT was a State levy.
There were several taxes in the States, such as, Luxury Tax, Entertainment
Tax, etc. which were not subsumed in the VAT.
VAT on goods was not integrated with tax on services, at the State level, to
remove the cascading effect of service tax. With service sector being the
fastest growing sector in the economy, the exclusion of services from the
tax base of the States potentially eroded their tax- buoyancy.
CST was another source of distortion in terms of its cascading nature since
it was non-VATABLE. Being an origin based tax, CST was also against one of
the basic principles of consumption taxes that tax should accrue to the
jurisdiction where consumption takes place.

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 1.10 INDIRECT TAXES

Non-inclusion of several Cascading of taxes on account of (i) levy of

local levies in State VAT Non-VATable CST and (ii) inclusion of
such as luxury tax, CENVAT in the value for imposing VAT
entertainment tax, etc.

No CENVAT after Non-integration Double taxation of a

manufacturing stage of VAT & service transaction as both goods
tax and services

A comprehensive tax structure covering both goods and services viz. Goods
and Services Tax (GST) addresses the above-mentioned problems.
Simultaneous introduction of GST at both Centre and State levels has
integrated taxes on goods and services for the purpose of set-off relief and
ensures that both the cascading effects of CENVAT and service tax are
removed and a continuous chain of set-off from
the original producer’s point/ service provider’s
point upto the retailer’s level/ consumer’s level is
established.
In the GST regime, the major indirect taxes have
been subsumed in the ambit of GST. The erstwhile

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 GST IN INDIA – AN INTRODUCTION 1.11

concepts of manufacture or sale of goods or rendering of services are no

longer applicable since the tax is now levied on “Supply of Goods and/or
services”.

7. FRAMEWORK OF GST AS INTRODUCED IN INDIA

I. Dual GST:
India has adopted a Dual GST model in view of the federal
structure of the country. Consequently, Centre and States
simultaneously levy GST on taxable supply of goods or services
or both, which takes place within a State or Union Territory.
Thus, tax is imposed concurrently by the Centre and States, i.e.
Centre and States simultaneously tax goods and services. Now,
the Centre also has the power to tax intra-State sales & States
are also empowered to tax services. GST extends to whole of
India including the State of Jammu and Kashmir.

II. CGST/SGST/UTGST/IGST
GST is a destination based tax
applicable on all transactions
involving supply of goods
and services for a consideration subject to exceptions thereof.
GST in India comprises of Central Goods and Services Tax (CGST)
- levied and collected by Central Government, State Goods and

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 1.12 INDIRECT TAXES

Services Tax (SGST) - levied and collected by State

Governments/Union Territories with Legislatures and Union
Territory Goods and Services Tax (UTGST) - levied and collected
by Union Territories without Legislatures, on intra-State supplies
of taxable goods and/or services.
Inter-State supplies of taxable goods and/or services are subject
to Integrated Goods and Services Tax (IGST). IGST is the sum
total of CGST and SGST/UTGST and is levied by Centre on all
inter-State supplies.

III. Legislative Framework

There is single legislation – CGST Act,
2017 - for levying CGST. Similarly,
Union Territories without Legislatures
[Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar
Haveli, Daman and Diu and Chandigarh] are governed by UTGST
Act, 2017 for levying UTGST. States and Union territories with
their own legislatures [Delhi and Puducherry] have their own GST
legislation for levying SGST.
Though there are multiple SGST legislations, the basic features
of law, such as chargeability, definition of taxable event and
taxable person, classification and valuation of goods and
services, procedure for collection and levy of tax and the like are

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 GST IN INDIA – AN INTRODUCTION 1.13

uniform in all the SGST legislations, as far as feasible. This is

necessary to preserve the essence of dual GST.
IV. Classification of goods and services
HSN (Harmonised System of
Nomenclature) is used for
classifying the goods under
the GST. Chapters referred in the Rate Schedules for goods are
the Chapters of the First Schedule to the Customs Tariff Act,
1975.
A new Scheme of Classification of Services has been devised
wherein the services of various descriptions have been classified
under various sections, headings and groups. Each group
consists of various Service Codes (Tariff).
V. Composition Scheme
In GST regime, tax (i.e. CGST and SGST/UTGST for intra-State
supplies and IGST for inter-State supplies) is payable by every
taxable person and in this regard provisions have been
prescribed in the law.
However, for providing relief to small
businesses, primarily manufacturers,
suppliers of food articles, traders, etc.,
making intra-State supplies, a simpler method of paying taxes is
prescribed, known as Composition Levy. Further, for small
service providers also, a scheme prescribing concessional rate of
tax has been formulated.
VI. Registration
Every supplier of goods and/ or services is
required to obtain registration in the State/UT
from where he makes the taxable supply if his
aggregate turnover exceeds the threshold limit during a FY.

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 1.14 INDIRECT TAXES

States with States with States with

threshold limit of threshold limit of threshold limit of
` 10 lakh for both ` 20 lakh for both ` 20 lakh for
goods and goods and services and ` 40
services services lakh for goods**
•Manipur •Arunachal •Jammu and
•Mizoram Pradesh Kashmir
•Nagaland •Meghalaya •Assam
•Tripura •Sikkim •Himachal Pradesh
•Uttarakhand •All other States
•Puducherry
•Telangana

**persons engaged exclusively in intra-State supply of goods

VII. Exemptions
Apart from providing relief to small-scale
business, the law also contains provisions for
granting exemption from payment of tax on
essential goods and/or services.
VIII. Seamless flow of credit
Since GST is a destination based
consumption tax, revenue of SGST
ordinarily accrues to the consuming
States. The inter-State supplier in the exporting State is allowed
to set off the available credit of IGST, CGST and SGST/UTGST (in
that order) against the IGST payable on inter-State supply made
by him.
The buyer in the importing State is allowed to avail the credit of
IGST paid on inter-State purchases made by him. Thus, unlike
the earlier scenario where the credit chain used to break in case
of inter-State sales on account of non-VATable CST, under GST

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 GST IN INDIA – AN INTRODUCTION 1.15

regime there is a seamless credit flow in case of inter-State

supplies too.
The revenue of inter-State sale does not accrue to the exporting
State and the exporting State transfers to the Centre the credit
of SGST/UTGST used in payment of IGST.
The Centre transfers to the importing State the credit of IGST
used in payment of SGST/UTGST.
The seamless flow of credit under GST, in case of intra-State and
inter-State supplies, can be better understood with the help of
the following illustrations:

Intra-State Supply
ILLUSTRATION
In case of local supply of goods/ services, the supplier would charge
dual GST i.e., CGST and SGST at specified rates on the supply.
I. Supply of goods/ services by A to B

Amount (in `)

Value charged for supply of goods/ 10,000

services

Add: CGST @ 9% 900

Add: SGST @ 9% 900

Total price charged by A from B for local 11,800

supply of goods/ services
The CGST & SGST charged on B for supply of goods/services will
be remitted by A to the appropriate account of the Central and
State Government respectively.
A is the first stage supplier of goods/services and hence, does
not have credit of CGST, SGST or IGST.

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 1.16 INDIRECT TAXES

II. Supply of goods/services by B to C – Value addition @ 20%

B will avail credit of CGST and SGST paid by him on the purchase
of goods/ services and will utilise such credit for being set off
against the CGST and SGST payable on the supply of
goods/services made by him to C.

Amount
(in `)

Value charged for supply of goods/ services (` 12,000

10,000 x 120%)

Add: CGST @ 9% 1080

Add: SGST @ 9% 1080

Total price charged by B from C for local supply of 14160

goods/ services

Computation of CGST, SGST payable by B to Government

Amount (in `)

CGST payable 1080

Less: Credit of CGST 900

CGST payable to Central Government 180

SGST payable 1080

Less: Credit of SGST 900

SGST payable to State Government 180

Note: Rates of CGST and SGST have been assumed to be 9% each

for the sake of simplicity.

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 GST IN INDIA – AN INTRODUCTION 1.17

Statement of revenue earned by Central and State

Government

Transaction Revenue to Revenue to

Central State
Government Government
(`) (`)

Supply of 900 900

goods/services by A to
B

Supply of 180 180

goods/services by B to
C

Total 1080 1080

Inter-State Supply
ILLUSTRATION

In case of inter-State supply of goods/ services, the supplier would

charge IGST at specified rates on the supply.

I. Supply of goods/services by X of State 1 to A of State 1

Amount (in `)

Value charged for supply of goods/services 10,000

Add: CGST @ 9% 900

Add: SGST @ 9% 900

Total price charged by X from A for intra- 11,800

State supply of goods/services

X is the first stage supplier of goods/services and hence, does

not have any credit of CGST, SGST or IGST.

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 1.18 INDIRECT TAXES

II. Supply of goods/services by A of State 1 to B of State 2 –

Value addition @ 20%

Amount (in
`)

Value charged for supply of goods/services (` 12,000

10,000 x 120%)

Add: IGST @ 18% 2,160

Total price charged by A from B for inter- 14,160

State supply of goods/services

Computation of IGST payable to Government

Amount (in `)

IGST payable 2,160

Less: Credit of CGST 900

Less: Credit of SGST 900

IGST payable to Central Government 360

The IGST charged on B of State 2 for supply of goods/services

will be remitted by A of State 1 to the appropriate account of
the Central Government. State 1 (Exporting State) will transfer
SGST credit of ` 900 utilised in the payment of IGST to the
Central Government.
III. Supply of goods/services by B of State 2 to C of State 2 –
Value addition @ 20%
B will avail credit of IGST paid by him on the purchase of
goods/services and will utilise such credit for being set off
against the CGST and SGST payable on the local supply of
goods/services made by him to C.

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 GST IN INDIA – AN INTRODUCTION 1.19

Amount (in `)
Value charged for supply of goods/ services 14,400
(` 12,000 x 120%)
Add: CGST @ 9% 1,296
Add: SGST @ 9% 1,296
Total price charged by B from C for local 16,992
supply of goods/services

Computation of CGST, SGST payable to Government

Amount (in `)
CGST payable 1,296
Less: Credit of IGST 1,296
CGST payable to Central Government Nil
SGST payable 1,296
Less: Credit of IGST (` 2,160 - ` 1,296) 864
SGST payable to State Government 432

Central Government will transfer IGST credit of ` 864 utilised in

the payment of SGST to State 2 (Importing State).
Note: Rates of CGST, SGST and IGST have been assumed to be 9%,
9% and 18% respectively for the sake of simplicity.
Statement of revenue earned by Central and State
Governments

Transaction Revenue to Revenue to Revenue to

Central Government Government
Government of State 1 of State 2
(`) (`) (`)

Supply of 900 900

goods/services by

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 1.20 INDIRECT TAXES

X to A

Supply of 360
goods/services by
A to B

Transfer by State 1 900 (900)

to Centre

Supply of 432
goods/services by
B to C

Transfer by Centre (864) 864

to State 2

Total 1,296 Nil 1,296

IX. GST Common Portal
Before GST, since, the Centre and State indirect tax administrations
worked under different laws, regulations, procedures and formats,
their IT infrastructure and systems were also independent of each
other. Integrating them for GST implementation was complex since it
required integrating the entire indirect tax ecosystem so as to bring all
the tax administrations (Centre, State and Union Territories) to the
same level of IT maturity with uniform formats and interfaces for
taxpayers and other external stakeholders.
Besides, GST being a destination based tax, the inter-State trade of
goods and services (IGST) needed a robust settlement mechanism
amongst the States and the Centre. A Common Portal was needed
which could act as a clearing house and verify the claims and inform
the respective Governments to transfer the funds. This was possible
only with the help of a strong IT Infrastructure.
Resultantly, Common GST Electronic Portal – www.gst.gov.in – a
website managed by Goods and Services Network (GSTN) [a company
incorporated under the provisions of section 8 of the Companies Act,
2013] is set by the Government to establish a uniform interface for the
tax payer and a common and shared IT infrastructure between the
Centre and States.

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 GST IN INDIA – AN INTRODUCTION 1.21

The GST portal is accessible over Internet (by taxpayers and their
CAs/Tax Advocates etc.) and Intranet by Tax Officials etc. The portal is
one single common portal for all GST related services.
A common GST system provides
linkage to all State/ UT Commercial
Tax Departments, Central Tax authorities, Taxpayers, Banks and other
stakeholders. The eco-system consists of all stakeholders starting
from taxpayer to tax professional to tax officials to GST portal to Banks
to accounting authorities.

The functions of the GSTN include facilitating registration; forwarding

the returns to Central and State authorities; computation and
settlement of IGST; matching of tax payment details with banking
network; providing various MIS reports to the Central and the State
Governments based on the taxpayer return information; providing
analysis of taxpayers' profile.
However, it is important
to note that the
Common GST Electronic
Portal for furnishing
electronic way bill is
www.ewaybillgst.gov.in
[managed by the
National Informatics
Centre, Ministry of
Electronics & Information Technology, Government of India]. E-way
bill is an electronic document generated on the GST portal evidencing
movement of goods.

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 1.22 INDIRECT TAXES

X. 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 shop for GST related services.
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.
XI. Compensation Cess
A GST Compensation Cess at
specified rate has been imposed
under the Goods and Services
Tax (Compensation to States) Cess Act, 2017 on the specified
luxury items or demerit goods, like pan masala, tobacco, aerated
waters, motor cars etc., computed on value of
taxable supply. Compensation cess is leviable
on intra-State supplies and inter-State supplies
with a view to provide for compensation to the
States for the loss of revenue arising on
account of implementation of the GST.
XII. GST – A tax on goods and services
GST is levied on all goods and services, except alcoholic liquor for
human consumption and petroleum crude, diesel, petrol, ATF and
natural gas.
Alcoholic liquor for human consumption:
is outside the realm of GST. The
manufacture/production of alcoholic liquor
continues to be subjected to State excise
duty and inter-State/intra-State sale of the
same is subject to CST/VAT respectively.

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 GST IN INDIA – AN INTRODUCTION 1.23

Petroleum crude, diesel, petrol, ATF and natural gas: As

regards petroleum crude, diesel, petrol, ATF and natural gas are
concerned, they are not presently leviable to GST. GST will be
levied on these products from a date to be notified on the
recommendations of the GST Council.
Till such date, central excise duty continues to be levied on
manufacture/production of petroleum crude, diesel, petrol, ATF
and natural gas and inter-State/intra-State sale of the same is
subject to CST/ VAT respectively.
Tobacco: Tobacco is within the purview of GST, i.e. GST is
leviable on tobacco. However, Union Government has also
retained the power to levy excise duties on tobacco and tobacco
products manufactured in India. Resultantly, tobacco is subject
to GST as well as central excise duty.
Further, real estate sector has been kept out of ambit of GST, i.e.
GST will not be levied on sale/purchase of immovable property.

Central Taxes State Taxes

 Central Excise Duty & Additional  State surcharges and cesses in so far
Excise Duties as they relate to supply of goods &
 Service Tax services

 Excise Duty under Medicinal & Toilet

 Entertainment Tax (except those
levied by local bodies)
Preparation Act
 Tax on lottery, betting and gambling
 CVD & Special CVD
 Entry Tax (All Forms) & Purchase Tax
 Central Sales Tax  VAT/ Sales tax
 Central surcharges & Cesses in so far  Luxury Tax
as they relate to supply of goods &  Taxes on advertisements
services

GST

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 1.24 INDIRECT TAXES

Within GST or outside GST?

Alcohol for human Power to tax remains with the

consumption State

Five petroleum products GST Council to decide the date

– crude oil, diesel, petrol, from which GST will be
natural gas and ATF applicable

Entertainment tax levied Power to tax remains with the

by local bodies local bodies

Tobacco Within the purview of GST. Power

to levy excise duties, also
retained.

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 GST IN INDIA – AN INTRODUCTION 1.25

8. BENEFITS OF GST
GST is a win-win situation for the entire country. It brings benefits to all the
stakeholders of industry, Government and the consumer. The significant benefits
of GST are discussed hereunder:

Benefits to economy
Creation of unified national market: GST aims to make India a common
market with common tax rates and procedures and
remove the economic barriers thus paving the way for
an integrated economy at the national level.
Boost to ‘Make in India' initiative: GST gives a major boost to the ‘Make
in India' initiative of the Government of India by
making goods and services produced in India
competitive in the national as well as international
market. This will create India as a ― Manufacturing
hub.
Enhanced investment and employment: The subsuming of major Central
and State taxes in GST,
complete and comprehensive
setoff of input tax on goods
and services and phasing out
of Central Sales Tax (CST)
reduces the cost of locally manufactured goods and services and increases
the competitiveness of Indian goods and services in the international
market and thus, gives boost to investments and Indian exports. With a
boost in exports and manufacturing activity, more employment is generated
and GDP is increased.

Simplified tax structure

Ease of doing business: Simpler tax regime
with fewer exemptions along with reduction in
multiplicity of taxes under GST has led to
simplification and uniformity. The uniformity in
laws, procedures and tax rates across the country makes doing business
easier.

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 1.26 INDIRECT TAXES

Certainty in tax administration: Common system of classification of goods

and services ensures certainty in tax administration across India.

Easy tax compliance

Automated procedures with greater use of IT: There are simplified and
automated procedures for various
processes such as registration, returns,
refunds, tax payments. All interaction
is through the common GSTN portal,
therefore, less public interface between the taxpayer and the tax
administration.
Reduction in compliance costs: The compliance cost is lesser under GST
as multiple record-keeping for a variety of taxes is not needed, therefore,
there is lesser investment of resources and manpower in maintaining
records. The uniformity in laws, procedures and tax rates across the country
goes a long way in reducing the compliance cost.

Advantages for trade and industry

Benefits to agriculture and Industry: GST has given more relief to
industry, trade and
agriculture through a
more comprehensive
and wider coverage of
input tax set-off and
service tax set-off,
subsuming of several
Central and State taxes
in the GST and phasing out of CST. The transparent
and complete chain of set-offs which results in widening of tax base and
better tax compliance also leads to lowering of tax burden on an average
dealer in industry, trade and agriculture.
Mitigation of ill effects of cascading: By subsuming most of the Central
and State taxes into a single tax and by allowing a set-off of prior-stage
taxes for the transactions across the entire value chain, it helps in mitigating
the ill effects of cascading, improving competitiveness and improving
liquidity of the businesses.

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 GST IN INDIA – AN INTRODUCTION 1.27

Benefits to small traders and entrepreneurs: GST has increased the

threshold for GST registration for small businesses. Further, single
registration is needed in one State. Small
businesses have also been provided the
additional benefit of composition scheme. With
the creation of a seamless national market
across the country, small enterprises have an
opportunity to expand their national footprint
with minimal investment.

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 1.28 INDIRECT TAXES

9. CONSTITUTIONAL PROVISIONS
India has a three-tier federal structure, comprising the Union Government, the
State Governments and the Local Government.
The power to levy taxes and duties is distributed among the three tiers of
Governments, in accordance with the provisions of the Indian Constitution.
The Constitution of India is the supreme law of India. It consists of a Preamble,
25 parts containing 448 Articles and 12 Schedules.
Power to levy and collect taxes whether, direct or indirect emerges from the
Constitution of India. In case any tax law, be it an act, rule, notification or order is
not in conformity with the Constitution, it is called ultra vires the Constitution and
is illegal and void.
Thus, a study of the basic provisions of the Constitution is essential for
understanding the genesis of the various taxes being imposed in India.

25 Parts
Preamble
(containing
448 articles)

12
Schedul
es

Constitution of India
The significant provisions of the Constitution relating to taxation are:
I. Article 265: Article 265 of the Constitution of India prohibits arbitrary
collection of tax. It states that “no tax shall be levied or collected except
by authority of law”. The term “authority of law” means that tax proposed
to be levied must be within the legislative competence of the Legislature
imposing the tax.
II. Article 245: Part XI of the Constitution deals with relationship between the
Union and States. The power for enacting the laws is conferred on the

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 GST IN INDIA – AN INTRODUCTION 1.29

Parliament and on the Legislature of a State by Article 245 of the

Constitution. The said Article provides as under:

Subject to the provisions of this Constitution, Parliament may make

laws for the whole or any part of the territory of India, and the
legislature of a State may make laws for the whole or any part of the
State.

No law made by the Parliament shall be deemed to be invalid on the

ground that it would have extra-territorial operation.
III. Article 246: It gives the respective authority to Union and State
Governments for levying tax. Whereas Parliament may make laws for the
whole of India or any part of the territory of India, the State Legislature may
make laws for whole or part of the State.
IV. Seventh Schedule to Article 246: It contains three lists which enumerate
the matters under which the Union and the State Governments have the
authority to make laws.

LIST – I LIST – II LIST – III CONCURRENT

UNION LIST STATE LIST
LIST

It contains the It contains It contains the

matters in the matters matters in
respect of in respect of respect of
which the which the which both
Parliament State the Central &
(Central Government State
Government) has the Governments
has the exclusive have power to
exclusive right right to make laws.
to make laws. make laws .

Entries 82 to 91 of List I enumerate the subjects where the Central

Government has power to levy taxes. Entries 45 to 63 of List II enumerate

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 1.30 INDIRECT TAXES

the subjects where the State Governments have the power to levy taxes.
Parliament has a further power to make any law for any part of India not
comprised in a State even if such matter is included in the State List.
Income tax is levied by virtue of Entry 82 - Taxes on income other than
agricultural income and customs duty vide Entry 83 - Duties of customs
including export duties of the Union List.
Power to levy
Goods and
Services Tax (GST)
has been conferred by Article 246A of the Constitution which was
introduced by the Constitution (101st Amendment) Act, 2016. Before
discussing the significant provisions of the Constitution (101st Amendment)
Act, 2016, let us first understand why there arose a need for such
constitutional amendment.

Need for constitutional amendment

The Constitutional provisions hitherto had delineated separate powers for
the Centre and the States to impose various taxes. Whereas the Centre
levied excise duty on all goods produced or manufactured in India, the
States levied Value Added Tax once the goods entered the stream of trade
upon completion of manufacture.
In the case of inter-State sales, the Centre had the power to levy a tax (the
Central Sales Tax), but the tax was collected and retained entirely by the
States. Services were exclusively taxed by the Centre together with
applicable cesses, if any. Besides, there were State specific levies like entry
tax, Octroi, luxury tax, entertainment tax, lottery and betting tax, local taxes
levied by Panchayats etc.
With respect to goods imported from outside the country into India, Centre
levied basic customs duty and additional duties of customs together with
applicable cesses, if any.
Introduction of the GST required amendment in the Constitution so as to
enable integration of the central excise duty, additional duties of customs,
State VAT and certain State specific taxes and service tax into a
comprehensive Goods and Services Tax and to empower both Centre and
the States to levy and collect it.

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 GST IN INDIA – AN INTRODUCTION 1.31

Consequently, Constitution (101st Amendment Act), 2016 (hereinafter

referred to as Constitution Amendment Act) was passed. It has 20 sections.
Newly inserted Article 279A empowering President to constitute GST
Council was notified on 12.09.2016. Remaining provisions were notified
with effect from 16.09.2016.

Significant provisions of Constitution (101st Amendment) Act, 2016

Significant amendments made by Constitution Amendment Act are
discussed below:
V. Article 246A: Power to make laws with respect to Goods and
Services Tax

Newly inserted Article 246A

(1) Notwithstanding anything contained in Articles 246 and 254,
Parliament, and, subject to clause (2), the Legislature of every
State, have power to make laws with respect to goods and
services tax imposed by the Union or by such State.
(2) Parliament has exclusive power to make laws with respect to
goods and services tax where the supply of goods, or of services,
or both takes place in the course of inter-State trade or
commerce.
Explanation.—The provisions of this article, shall, in respect of goods
and services tax referred to in clause (5) of article 279A, take effect
from the date recommended by the Goods and Services Tax Council.

This article grants power to Centre and

State Governments to make laws with
respect to GST imposed by Centre or such
State.
Centre has the exclusive power to make laws with respect to GST in
case of inter-State supply of goods and/or services.
However, in respect to the following goods, the aforesaid provisions
shall apply from the date recommended by the GST Council:

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 1.32 INDIRECT TAXES

motor
high spirit aviation
petroleum natural
speed ((commonly turbine
crude gas
diesel known as fuel
petrol)

The provisions of Article 246A are notwithstanding anything contained

in Articles 246 and 254. Article 254 deals with the supremacy of the
laws made by Parliament.
VI. Article 269A: Levy and collection of GST on inter-State supply
Article 269A stipulates that GST on
supplies in the course of inter-State trade
or commerce shall be levied and collected
by the Government of India and such tax
shall be apportioned between the Union and the States in the manner
as may be provided by Parliament by law on the recommendations of
the Goods and Services Tax Council.
In addition to above, import of goods or services or both into India
will also be deemed to be supply of goods and/ or services in the
course of Inter-State trade or Commerce.
This will give power to Central Government to levy IGST on the import
transactions which were earlier subject to Countervailing duty under
the Customs Tariff Act, 1975.
Where an amount collected as IGST has been used for payment of
SGST or vice versa, such amount shall not form part of the
Consolidated Fund of India. This is to facilitate transfer of funds
between the Centre and the States.
Parliament is empowered to formulate the principles regarding place
of supply and when supply of goods, or of services, or both occurs in
inter-State trade or commerce.

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 GST IN INDIA – AN INTRODUCTION 1.33

VII. Definitions of ‘Goods and Services Tax’, ‘Services’ and ‘State’

incorporated under Article 366
The terms Goods and Services Tax, services and State have been
defined under respective clauses of Article 366 as follows:

Goods and services tax means any tax

on supply of goods, or services or both
except taxes on the supply of the
alcoholic liquor for human consumption. Consequently, GST can
be levied on supply of all goods and services except alcoholic
liquor for human consumption.

Services means anything other than

goods.

State, with reference to articles 246A, 268,

269, 269A and article 279A, includes a
Union territory with Legislature.
Definition of “goods”: The term goods has already been defined
under clause (12) of Article 366 in an inclusive manner to provide that
“goods includes all materials, commodities, and articles”.
VIII.GST Council: Article 279A
Article 279A of the Constitution empowers the President to constitute
a joint forum of the Centre and States namely, Goods & Services Tax
Council (GST Council).
The provisions relating to GST Council came into force on 12th
September, 2016. President constituted the GST Council on 15th
September, 2016.
The Union Finance Minister is the
Chairman of this Council and Ministers
in charge of Finance/Taxation or any GST COUNCIL
other Minister nominated by each of
the States & UTs with Legislatures are
its members. Besides, the Union
Minister of State in charge of Revenue or Finance is also its member.

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 1.34 INDIRECT TAXES

The function of the Council is to make recommendations to the Union

and the States on important issues like tax rates, exemptions,
threshold limits, dispute resolution etc.
It shall recommend the special provisions with respect to the Special
Category States. There are 11 Special Category States, namely, States
of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur,
Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh
and Uttarakhand. Special threshold limits for registration,
composition, exemptions, etc. have been recommended for some or
all of these States.
GST Council shall also recommend the date on which GST be levied on
petroleum crude, high speed diesel, motor spirit, natural gas and
aviation turbine fuel.
Every decision of the GST Council is taken by a majority of not less
than three-fourths of the weighted votes of the members present and
voting. Vote of the Centre has a weightage of one-third of total votes
cast and votes of all the State Governments taken together has a
weightage of two-thirds of the total votes cast, in that meeting.

10. TEST YOUR KNOWLEDGE

1. Which of the following taxes have been subsumed in GST?
(a) Central Sales Tax
(b) Central Excise Duty
(c) VAT
(d) All of the above
2. List-I of the Constitution contains matters in respect of which ____________ has
the exclusive right to make laws.
(a) Central Government
(b) State
(c) Both Centre and State Governments
(d) None of the above
3. GST is levied on supply of all goods and services except:
(a) Alcoholic liquor for human consumption

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 GST IN INDIA – AN INTRODUCTION 1.35

(b) Tobacco
(c) Health care services
(d) All of the above
4. On Petroleum Crude, High Speed Diesel, Motor Spirit (commonly known as
Petrol), Natural Gas and Aviation Turbine Fuel:
(a) GST will not be levied at all
(b) GST will be levied from a date to be notified on the recommendations of
the GST Council
(c) GST is levied, but exempt
(d) None of the above
5. The functions of Goods and Services Network (GSTN) include:
(a) facilitating registration
(b) forwarding the returns to Central and State authorities
(c) computation and settlement of IGST
(d) All of the above
6. Which article of the Constitution outlines the composition and functions of
the GST Council?
(a) 270
(b) 279A
(c) 246A
(d) 269A
7. Differentiate between direct and indirect taxes.
8. Enumerate different types of direct and indirect taxes.
9. Explain the salient features of indirect taxes.
10. Write a short note on various Lists provided under Seventh Schedule to the
Constitution of India.
11. Discuss how GST resolved the double taxation dichotomy under previous
indirect tax laws.
12. Enumerate the deficiencies of the existing indirect taxes which led to the need
for ushering into GST regime.
13. Discuss the dual GST model as introduced in India.

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14. List the Central and State levies which have been subsumed in GST in India.

11. ANSWERS/HINTS
1. (d) 2. (a) 3. (a) 4. (b) 5. (d) 6. (b)
7. Refer Para 2.
8. Refer Para 2.
9. Refer Para 3.
10. Refer Para 9.
11. Refer Para 6.
12. Refer Para 6.
13. Refer Para 7.
14. Refer Para 7.

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