GST - Introduction, Features, Merits and Demerits

1. GST
GST is an Indirect Tax which has replaced many Indirect Taxes in India. The
Goods and Service Tax Act was passed in the Parliament on 29th March 2017. The
Act came into effect on 1st July 2017; Goods & Services Tax Law in India is a
comprehensive, multi-stage, destination-based tax that is levied on every value
addition.
In simple words, Goods and Service Tax (GST) is an indirect tax levied on the
supply of goods and services. This law has replaced many indirect tax laws that
previously existed in India.
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. Inter-state sales are
chargeable to Integrated GST.
“GST is a comprehensive, multi-stage, destination-based tax that is levied on
every value addition.”
Goods and services tax means a tax on supply of goods or services, or both,
except taxes on supply of alcoholic liquor for human consumption (Article 366 (12A)
of Constitution of India).
 GST is a value added tax levy on sale or service or both.
 GST is a destination based consumption tax.
 GST offers comprehensive and continuous chain of tax credit.
 GST where burden borne by final consumer.
 GST eliminate cascading effect of tax.
 GST brings uniform tax structure all over India.
Objectives :
 No cascading of taxes
 Reduced compliance cost
 Seamless flow of credit

2.  Less wastage of time and effort to comply
 Few number of taxes
 Transparent and corruption free
 Supportive to compete at Domestic and International Market
 Buoyancy in tax collection both for Central and State/UT
 Tax impact on inflation should be minimal.
CONSTITUTION [101ST AMENDMENT] ACT, 2016
Constitution (122nd Amendment) Bill, 2014 received the assent of the
President of India on 8th September, 2016 and became Constitution (101st
Amendment) Act, 2016, which paved the way for introduction of GST in India.
Constitution (101st Amendment) Act, 2016 was enacted on 8th September, 2016,
with following significant amendments:
(a) Concurrent powers on Parliament and State Legislatures to make laws
governing goods and services. It means there will be dual control of State and
Central authorities for all assessees.
(b) As per Article 246A, the power to levy GST has been given to the Parliament
as well as to Legislature of every State.
a. CGST – enacted by Central Government of India.
b. IGST – enacted by Central Government of India.
c. SGST – enacted by respective State Governments
d. UTGST – enacted by Central Government of India
(c) IGST will be apportioned between Centre and the States in the manner provided by
Parliament by Law as per the recommendation of the GST Council.
(d) GST will be levied on all supply of goods and services except alcoholic liquor for
human consumption.
(e) The explanation to Article 269A of Constitution of India provides that the import
of goods or services will be deemed as supply of goods or services or both in the
course of inter-State trade or commerce. In case of import of goods IGST will be

3. levied along with the Basic Customs duty. It means IGST is levied in replacement
of CVD + Spl. CVD. In case of import of services only IGST will be levied.
(f) Principles for determining the place of supply and when a supply takes place in the
course of inter-state trade or commerce shall be decided by the Parliament.
(g) The power to levy Central Excise duty on goods manufactured or produced in
India is available in respect of the following products:
a. Petroleum crude;
b. High speed diesel;
c. Motor spirit (commonly known as petrol);
d. Natural gas;
e. Aviation turbine fuel; and
f. Tobacco and tobacco products.
However, once GST is imposed there will be no duty on manufacture of these
goods.
(h) The power to impose tax on sale of the following products is still provided to the
State Governments:
a. Petroleum crude;
b. High speed diesel;
c. Motor spirit (commonly known as petrol);
d. Natural gas;
e. Aviation turbine fuel; and
f. Alcoholic liquor for human consumption.
However, once GST Council is recommend the date from which GST is
imposed on these products (except alcoholic liquor for human consumption), and no
sales tax will be imposed on these products.
As per definition given in article 366(12A), GST covers all the goods except
alcoholic liquor for human consumption. It means no GST can be levied on Alcoholic
liquor for human consumption. Present system of State Excise duty and sales tax on
Alcoholic liquor for human consumption will continue.

4. As a result, the following bills became an Act on 12th April 2017:
 Central Goods and Services Tax Bill, 2017
 Integrated Goods and Services Tax Bill, 2017
 Union Territory Goods and Services Tax Bill, 2017
 Goods and Services Tax (Compensation to States) Bill, 2017
The Central Government notified 1st July, 2017 as the date from which the much
awaited indirect tax reform in India, i.e Goods and Services Tax (GST) will be
implemented.
Accordingly, Goods and Services Tax (GST) has been implemented in India w.e.f.
1st July, 2017.
Salient Features
1. Levy of Tax:
The State GST (SGST) and Central GST (CGST) shall be levied on all the
transactions of goods and services, concurrently.
2. Utilization of Levy:
Levies from State GST (SGST) & Central GST (CGST) shall form part of State
and the Centre respectively and no cross-utilization shall be allowed.
3. Availability of Tax Credit:
In respect of taxes paid on any supply of goods or services or both used or
intended to be used in the course business.
4. Destination based Tax:
The GST is a destination based tax on consumption of Goods and Services.
Hence the credit of SGST shall be transferred to the Destination State in the form of
Integrated GST (IGST). IGST will be imposed on all Inter-State Transactions.
5. Assessment :

5. Registered person will be allowed himself to assess the taxes payable under the
GST Laws and furnish a return for each Tax Period.
6. Threshold Limit:
There shall be a taxable limit (presently, INR 10 Lakhs in North Eastern States
& INR 20 Lakhs in rest of the county)
7. Composition Scheme
The GST Laws will provide a composition scheme for small dealers (presently,
turnover of INR 75 Lakhs).
8. GSTIN or GST Identification Number
Every registrants or dealers ( including Exporters and Importers) shall be given
a PAN based TIN number which shall be a common to the both the State GST and
Central GST.
9. Compensation to States
The GST Laws provides for payment of compensation to the States for loss of
revenue, if any, arising out of implementing of the Goods and Services Tax for a
period of 5 years.
10. The GST Council
The Council is a quasi – judicial body of States and the Centre, represented by
the State Finance Ministers or Taxation Ministers and the Finance Minister of India.
The key role of this Council is to make recommendations on various provisions of
GST Laws to the State and the Centre.
11. Anti-Profiteering Measures –
It is expected the GST Laws will bring down the prices of goods and services
once implemented. To ensure the pass of such benefits to end users or the customers,
the government has put anti-profiteering measures.
12. Transition

6. Elaborate ‘Transitions Provisions” for smooth transition of existing tax payers
to new Indirect Tax Regime provided.
It is expected that the GST Laws or new indirect tax regime, brings benefits to
all the stakeholders viz. industry, government and the citizens. Further, lower the cost
of goods and services, boost the economy and make our products and services
globally competitive.
Central Goods and Services Tax Act, 2017 (CGST):
CGST levied and collected by Central Government. It is a revenue source to
the Central Government of India, on intra-state supplies of taxable goods or services
or both.
Under GST, CGST is a tax levied on Intra State supplies of both goods and
services by the Central Government and will be governed by the CGST Act. SGST
will also be levied on the same Intra State supply but will be governed by the State
Government.
This implies that both the Central and the State governments will agree on
combining their levies with an appropriate proportion for revenue sharing between
them. However, it is clearly mentioned in Section 8 of the GST Act that the taxes be
levied on all Intra-State supplies of goods and/or services but the rate of tax shall not
be exceeding 14%, each.
State Goods and Services Tax Act, 2017 (SGST):
SGST levied and collected by State Governments/Union Territories with State
Legislatures (namely Delhi and Pondicherry) on intra-state supplies of taxable goods
or services or both.
It is a revenue source of the respective State Government.
Under GST, SGST is a tax levied on Intra State supplies of both goods and
services by the State Government and will be governed by the SGST Act. As

7. explained above, CGST will also be levied on the same Intra State supply but will be
governed by the Central Government.
Integrated Goods and Services Tax Act, 2017 (IGST):
IGST is a mechanism to monitor the inter-state trade of goods and services and
ensure that the SGST component accrues to the Consumer State. It would maintain the
integrity of ITC chain in inter-state supplies. The IGST rate would broadly be equal to
CGST rate plus SGST rate. IGST would be levied and collected by the Central
Government on all inter-State transactions of taxable goods or services.
The revenue of inter-state sales will not accrue to the exporting state and the
exporting state will be required to transfer to the Centre the credit of SGST/UTGST
used in payment of IGST.
Advantages of GST:
 One Nation One Tax.
 Removal of bundled indirect taxes such as VAT, CST, Service tax, CAD, SAD,
and Excise.
 Removal of cascading effect of taxes i.e. removes tax on tax.
 Increased ease of doing business.

8.  Lower cost of production, increases demand will lead to increase supply.
Hence, this will ultimately lead to rise in the production of goods. Resultantly
boost to make in India initiative.
 It will boost export and manufacturing activity,
generate more employment and thus increase GDP with gainful employment
leading to substantive economic growth.
 Higher threshold for registration.
 Composition scheme for small businesses.
 Defined treatment for E-commerce operators
 Unorganized sector is regulated under GST.
Disadvantages of GST:
 Increased costs due to software purchase.
 GST will mean an increase in operational costs.
 GST is an online taxation system.
 SMEs will have a higher tax burden.
 Compliance Under GST is High.
 Challenging for small taxpayers.
 Increased Cost for Businesses.
 Complex Structured in GST Rate.