Goods and Services Tax (GST) is a comprehensive, multi-stage, destination-based indirect tax levied on every value addition in the supply chain. Introduced on 1 July 2017 through the 101st Constitutional Amendment, it replaced over 17 Central and State indirect taxes with a unified tax structure under the principle of "One Nation, One Tax."
Legal Framework
| Provision | Content |
|---|---|
| Art.246A | Special provision: both Parliament and State Legislatures have power to levy GST |
| Art.269A | Levy and collection of IGST on inter-state supply |
| Art.279A | Constitution of GST Council |
| CGST Act, 2017 | Central Goods and Services Tax (intra-state, Central component) |
| SGST Acts | State Goods and Services Tax (intra-state, State component) |
| IGST Act, 2017 | Integrated Goods and Services Tax (inter-state supply) |
| UTGST Act, 2017 | Union Territory GST (for UTs without legislature) |
| GST (Compensation to States) Act, 2017 | Compensation for revenue loss to States (5 years, expired June 2022) |
Historical Background
| Year | Development |
|---|---|
| 2000 | Vajpayee Government constitutes Empowered Committee under Asim Dasgupta |
| 2003 | Kelkar Task Force recommends GST |
| 2006 | Finance Minister announces GST introduction target: April 2010 |
| 2011 | 115th Constitutional Amendment Bill introduced (lapsed) |
| 2014 | 122nd Constitutional Amendment Bill introduced |
| 2016 | 101st Constitutional Amendment Act passed (8 September 2016) |
| 2017 | GST rolled out on midnight of 1 July 2017 |
Taxes Subsumed Under GST
| Central taxes subsumed | State taxes subsumed |
|---|---|
| Central Excise Duty | State VAT / Sales Tax |
| Additional Excise Duties | Purchase Tax |
| Service Tax | Entry Tax (all forms) |
| Countervailing Duty (CVD) | Luxury Tax |
| Special Additional Duty (SAD) | Entertainment Tax (except local bodies) |
| Central Sales Tax (CST) | Taxes on lottery, betting, gambling |
| Cesses and surcharges (on supply) | State cesses and surcharges (on supply) |
Why: The pre-GST regime suffered from cascading (tax on tax), multiplicity of taxes, checkpost delays, and lack of input credit across State borders. GST eliminates cascading through a seamless credit chain and creates a common national market.
Salient Features
| Feature | Explanation |
|---|---|
| Comprehensive | Covers all goods and services (except excluded: alcohol, petroleum, electricity) |
| Multi-stage | Levied at every point of supply chain (manufacturer → wholesaler → retailer → consumer) |
| Destination-based | Tax accrues to consuming State, not producing State |
| Dual structure | Centre (CGST) and State (SGST) levy simultaneously on same transaction |
| Input Tax Credit | Seamless credit across value chain eliminates cascading |
| Technology-driven | GSTN portal handles registration, returns, payments, refunds |
| Threshold-based | Small taxpayers below Rs.40 lakh (goods) / Rs.20 lakh (services) exempt |
| GST Council | Federal body (Centre + States) decides rates, rules, procedures |
Recall Check
- What constitutional amendment introduced GST?
- What principle does "destination-based" taxation mean?
- Name five central taxes subsumed under GST.
Key Cases
Mohit Minerals v. Union of India (2022) Mohit-Minerals-v-Union-of-India-2022 Issue: Whether IGST can be levied on ocean freight paid by the foreign seller in CIF contracts (reverse charge). Rule: Art.246A, Art.269A, IGST Act S.5(3); the taxable event must be a "supply" within the meaning of S.7. Held: Levy of IGST on ocean freight under reverse charge in CIF imports amounts to double taxation (as customs duty already includes the freight component in assessable value). The GST Council's recommendations are not binding on Parliament/State Legislatures but have persuasive value. The notification was struck down.
Distinctions
| Feature | Pre-GST Regime | GST Regime |
|---|---|---|
| Number of taxes | 17+ Central and State taxes | 1 tax (CGST + SGST or IGST) |
| Cascading | Tax on tax (no credit across value chain) | No cascading (seamless ITC) |
| Inter-state movement | CST + Entry tax + Checkposts | IGST (single tax, settled between states) |
| Tax base | Manufacture (excise) / Sale (VAT) / Service (service tax) | Supply (unified concept) |
| Compliance | Multiple returns, multiple authorities | Single portal (GSTN), unified returns |
| Rate uniformity | Different rates in different states | Uniform rates across India |
| Constitutional power | Multiple entries in List I and List II | Art.246A (concurrent power) |
Flashcards
Q: When was GST introduced in India? A: 1 July 2017.
Q: Which constitutional amendment enabled GST? A: 101st Constitutional Amendment Act, 2016.
Q: What does "destination-based" tax mean? A: Tax revenue accrues to the State where goods/services are consumed (destination), not where they are produced (origin).
Q: What is the GST Council? A: A constitutional body under Art.279A comprising Union Finance Minister (Chair) + Union MoS (Revenue) + Finance Ministers of all States/UTs. It recommends rates, exemptions, rules.
Q: Name three taxes NOT subsumed under GST. A: Alcohol for human consumption, petroleum products (petrol, diesel, ATF, natural gas, crude oil), electricity duty.
Q: What was the main defect of the pre-GST regime? A: Cascading effect (tax on tax): no input credit available across the value chain or across state borders.
Q: How many indirect taxes did GST replace? A: Over 17 Central and State indirect taxes.
Exam Scenario
State X argues that the GST Council's recommendation to increase the rate on a particular commodity is binding and the State Legislature must comply. The Union argues the Council's recommendations are advisory. Analyse the constitutional position.
Approach: Per Mohit Minerals v. Union of India (2022), the SC held that GST Council recommendations under Art.279A are not binding but have "persuasive value." Art.246A grants independent legislative power to both Parliament and State Legislatures. The GST Council is a collaborative federal body; its recommendations carry great weight due to the cooperative federalism model, but legally, neither Parliament nor a State Legislature is bound to implement every recommendation. However, in practice, the unified rate structure requires consensus-based compliance.