Goods & Service Tax

Goods and Services Tax (GST) is one of the most transformational reforms in India’s indirect tax structure. It is a destination-based, comprehensive, multi-stage tax that is levied on every value addition made throughout the supply chain.

What is GST?

GST is a single tax on the supply of goods and services, right from the manufacturer to the final consumer.
However, the credit of taxes paid at previous stages is available at each step, making only the value addition at each stage taxable, not the entire transaction.

GST = One Nation, One Tax, One Market

Background and Evolution

• The idea of GST was first suggested by the Kelkar Committee (2004).
• It was formally proposed in the 2006-07 Union Budget.
• Initially planned for implementation from 1st April 2010, it faced delays.
• Finally, after the 101st Constitutional Amendment Act, GST came into effect on 1st July 2017.
• This amendment introduced a new Article 246A to empower both Centre and States to levy and collect GST.

Why was a Constitutional Amendment Needed?

• Under Article 246, taxation powers were clearly divided between Centre and States.
• GST required a concurrent power to tax the same transaction by both.
• Thus, Article 246A was inserted to allow both levels of government to simultaneously tax goods and services.

Taxes Subsumed Under GST

GST replaced several Central and State taxes:

(i) Central Taxes Subsumed:

• Central Excise Duty
• Additional Excise Duties
• Service Tax
• Countervailing Duty (CVD)
• Special Additional Duty of Customs (SAD)
• Central Surcharges & Cesses related to supply

(ii) State Taxes Subsumed:

• State VAT
• Central Sales Tax (CST)
• Luxury Tax
• Entry Tax
• Entertainment & Amusement Tax (except by local bodies)
• Taxes on Advertisements
• Purchase Tax
• Betting, Gambling & Lotteries Tax
• State Surcharges & Cesses related to supply

GST: A Destination-Based Tax

Unlike earlier taxes which were origin-based, GST is destination-based, meaning:

• Tax accrues to the state where the goods/services are finally consumed.
• For example, if a product is manufactured in Gujarat and consumed in Odisha, the GST revenue goes to Odisha.

Current Status of Certain Goods under GST

• Excluded from GST: Alcohol for human consumption
• To be included later (date to be decided by GST Council):
  • Petroleum crude
  • Motor spirit (petrol)
  • High-speed diesel
  • Natural gas
  • Aviation turbine fuel
• Included in GST + Excise Duty: Tobacco and tobacco products

GST Council

Formed under Article 279A, the GST Council decides all key matters related to GST.

Composition:

• Chairperson: Union Finance Minister
• Union Minister of State for Finance
• State Finance Ministers (or nominated Ministers from each state)

Voting Structure:

• Centre: ⅓rd weightage
• States together: ⅔rd weightage
• Decision requires ¾th majority of weighted votes

GSTN – The Technology Backbone

Goods and Services Tax Network (GSTN) is the IT backbone of the GST system.

• It is a Section 8 non-profit company, now fully owned (100%) by the Central and State governments.
• GSTN provides the common platform for registration, filing returns, payment, refund, and compliance.

GST Rate Structure

• 5%, 12%, 18%, and 28% are the main tax slabs.
• Special rates:
  • 0.25%: Rough precious & semi-precious stones
  • 3%: Gold and jewellery
• Exempted goods: At 0% tax rate
• GST Compensation Cess: Levied on demerit goods like:
  • Luxury cars
  • Aerated drinks
  • Pan masala
  • Tobacco
    • The cess will remain for 5 years to compensate States for revenue loss.

Features Under GST

1. E-Way Bill

• Mandatory for transporting goods worth ₹50,000+.
• Generated electronically through the GSTN portal.

2. Upper Cap on GST Rate

• Upper ceiling is 40% (20% CGST + 20% SGST) to give GST Council flexibility to raise rates without Constitutional amendment.

3. E-Invoicing System

• Introduced from 1st October 2020 (₹500 crore+ turnover) and 1st Jan 2021 (₹100–500 crore turnover).
• Ensures:
  • Invoice standardization
  • Real-time reporting to government (IRN & QR code)
  • Elimination of fake invoices
  • Instant loan approval by banks
  • Pre-filled returns

National Anti-Profiteering Authority (NAA)

• Established to ensure tax reductions under GST are passed on to consumers via lower prices.
• Powers:
  • Order reduction in prices
  • Order refund with interest
  • Deposit unclaimed refunds to Consumer Welfare Fund
  • Impose penalty
  • Cancel registration of violators

GSTAT – GST Appellate Tribunal

• Second level of appeal under GST law.
• Common platform for resolving disputes under CGST and SGST.
• Appeals against first appellate authority orders lie here.

Benefits of GST

• Eliminates Cascading Effect of multiple taxes
• Wider Tax Base and Unified Tax System
• Ease of Doing Business improved through simplified compliance
• Reduction in Logistics Cost due to dismantling of inter-state check posts
• Boosts Revenue Collection due to better compliance and formalization
• Promotes Cooperative Federalism via GST Council

Challenges of GST Implementation

• Technical Glitches and portal-related issues in initial phases
• Compliance Burden on small traders
• Delay in Compensation to States
• Multiple Rate Slabs lead to complexity
• Exclusion of key items (petrol, liquor) limits tax base

Conclusion

GST has marked a significant step towards economic integration, tax simplification, and ease of doing business in India. Despite initial hiccups, GST has stabilized and continues to evolve with inputs from stakeholders. It reflects the spirit of cooperative federalism and holds the potential to streamline India’s taxation regime for the long term.

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Subject: Economics

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