GST – Introduction, Meaning, Historical background,Components

 Introduction

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 and Services Tax is a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India. GST is one indirect tax for the entire country.

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What is GST

Clause 366(12A) of the Constitution Bill defines GST as “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. Further the clause 366(26A) of the Bill defines “Services” means anything other than Goods.Thus it can be said that GST is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level. The proposed tax will be levied on all transactions involving supply of goods and services, except those which are kept out of its purview.

Historical background of GST

A task force that was headed by Vijay L. Kelkar the advisor to the finance ministry, indicated that the existing tax structure had many issues that would be mitigated by the GST system.But the First  Discussion Paper on Goods and Services Tax in India was presented by  the Empowered Committee of State Finance Ministers dtd.10th Nov,2009.

In 2011, the Constitution (115th Amendment) Bill, 2011 was introduced in Parliament to enable the levy of GST. However, the Bill lapsed with the dissolution of the 15th Lok Sabha.

Subsequently, in December 2014, the Constitution (122nd Amendment) Bill, 2014 was introduced in Lok Sabha. The Bill was passed by Lok Sabha in May 2015 and referred to a Select Committee of Rajya Sabha for examination.

In August 2016, The Congress-led opposition finally agrees to the Government’s proposal on the four broad amendments to the Bill. The Bill was passed in the Rajya Sabha. In September 2016, The Honourable President of India gives his consent for the Constitution Amendment Bill to become an Act.

ADVANTAGES OF GST

  • Single Taxation
  • Transparency
  • Lesser compliances
  • Elimination of cascading effect of tax
  • Online filing of returns which makes it easy for everyone

Components of GST 

  • CGST: Collected by the Central Government on an intra-state sale (Eg: transaction happening within same state like Rajasthan )
  • SGST: Collected by the State Government on an intra-state sale (Eg: transaction happening within same state like Rajasthan )
  • IGST: Collected by the Central Government for inter-state sale (Eg: transaction happening between two states like Rajasthan and Gujarat )

In general, the tax regime under the GST act will be as follows:

Transaction As per GST As per earlier acts applicable Comments
Sale within the State CGST + SGST VAT + Central Excise/Service tax Revenue will be shared equally between the Centre and the State
Sale to another State IGST Central Sales Tax + Excise/Service Tax There will only be one type of tax (central) in case of inter-state sales. The Centre will then share the IGST revenue based on the destination of goods.

 

Non applicability of GST on certain products:

 (and therefore to continue with the Union or State as the case may be) are:

  • Petroleum products such as
    1. Petroleum crude;
    2. High-speed diesel
    3. Motor spirit (commonly known as petrol);
    4. Natural gas;
    5. Aviation turbine fuel
  • Alcoholic liquor for human consumption 

in respect of following transactions only:

  • Resale
  • Use in manufacturing or processing
  • Use in the telecommunication network or in mining or in the generation or distribution of electricity or any other power

Credit Mechanism under GST

Under proposed GST system,

CGST credit would be taken against CGST

SGST Credit shall be available against SGST.

It means, already paid CGST will not be available as credit against SGST and amount of already paid SGST will not be available as credit against CGST.

Furthermore, in case of Interstate Supply of goods and services i.e. in case of IGST, Credit shall be available in the method given hereunder:

  1. IGST against IGST
  2. CGST against IGST
  3. SGST against IGST