GST – It’s Meaning and Scope

Goods and Services Tax is a destination-based, multi-stage,

comprehensive tax levied at each stage of value addition. Having
replaced multiple indirect taxes in the country, it has successfully
helped the Indian Government achieve its ‘One Nation One Tax’
agenda.

The tax is levied on goods and services sold within India’s domestic
boundary for consumption. Implemented by a majority of nations
worldwide with respective customisations, the tax has been
successful in simplifying the indirect taxation structure of India.

GST is levied on the final market price of goods and services

manufactured internally, thereby reflecting the maximum retail
price. Customers are required to pay this tax on a purchase of goods
or services as an inclusion in their final price. Collected by the
seller, it is then required to be paid to the government, thus implying
the indirect incidence.

The GST rates on different goods and services are uniformly

applied across the country. Goods and services have, however, been
categorised under different slab rates for tax payment. While luxury
and comfort goods are categorised under higher slabs, necessities
have been included in lower and nil slab rates. The main aim of this
classification is to ensure uniform distribution of wealth among
residents of India.With this understanding, now let’s have a look at
other necessary GST details
Main Features of GST

 Applicable On supply side: GST is applicable on ‘supply’ of

goods or services as against the old concept on the manufacture of
goods or on sale of goods or on provision of services.
 Destination based Taxation: GST is based on the principle of
destination-based consumption taxation as against the present
principle of origin-based taxation.
 Dual GST: It is a dual GST with the Centre and the States
simultaneously levying tax on a common base. GST to be levied
by the Centre is called Central GST (CGST) and that to be levied
by the States is called State GST (SGST).

o Import of goods or services would be treated as inter-

state supplies and would be subject to Integrated Goods &
Services Tax (IGST) in addition to the applicable customs
duties.
 GST rates to be mutually decided: CGST, SGST & IGST are
levied at rates to be mutually agreed upon by the Centre and the
States. The rates are notified on the recommendation of the GST
Council.
 Multiple Rates: Initially GST was levied at four rates viz. 5%,
12%, 16% and 28%. The schedule or list of items that would fall
under these multiple slabs are worked out by the GST council.

Legislative Basis Of GST

 In India, GST Bill was first introduced in 2014 as The
Constitution (122nd Amendment) Bill.
 This got an approval in 2016 and was renumbered in the statute
by Rajya Sabha as The Constitution (101st Amendment) Act,
2016. Its provisions:
 o Central GST to cover Excise duty, Service tax etc, State
GST to cover VAT, luxury tax etc.
o Integrated GST to cover inter-state trade. IGST per se is
not a tax but a system to coordinate state and union taxes.
o Article 246A – States have power to tax goods and
services.
 GST Council

o Article 279A - GST Council to be formed by the

President to administer & govern GST. It's Chairman is
Union Finance Minister of India with ministers nominated by
the state governments as its members.
o The council is devised in such a way that the centre will
have 1/3rd voting power and the states have 2/3rd.
o The decisions are taken by 3/4th majority.

 Reforms Brought About by GST

o Creation of common national market: By
amalgamating a large number of Central and State taxes into
a single tax.
o Mitigation of cascading effect: GST mitigated ill
effects of cascading or double taxation in a major way and
paved the way for a common national market.
o Reduction in Tax burden: From the consumers’ point
of view, the biggest advantage would be in terms of reduction
in the overall tax burden on goods.
o Making Indian products more
competitive: Introduction of GST is making Indian products
more competitive in the domestic and international markets
owing to the full neutralization of input taxes across the value
chain of production.
 o Easier to administer: Because of the transparent and
self-policing character of GST, it would be easier to
administer.

Advantages of GST

For the Government

 Create a unified common market: Will help to create a

unified common national market for India. It will also give a
boost to foreign investment and “Make in India” campaign.
 Streamline Taxation: Through harmonization of laws,
procedures and rates of tax between Centre and States and across
States.
 Increase tax Compliance: Improved environment for
compliance as all returns are to be filed online, input credits to be
verified online, encouraging more paper trail of transactions at
each level of supply chain;
 Discourage Tax evasion: Uniform SGST and IGST rates will
reduce the incentive for evasion by eliminating rate arbitrage
between neighbouring States and that between intra and inter-
state sales.
For Overall Economy

 Bring about certainty: Common procedures for registration of

taxpayers, refund of taxes, uniform formats of tax return, common
tax base, common system of classification of goods and services
will lend greater certainty to taxation system;
 Reduce corruption: Greater use of IT will reduce human
interface between the taxpayer and the tax administration, which
will go a long way in reducing corruption;
 Boost secondary sector: It will boost export and
manufacturing activity, generate more employment and thus
increase GDP with gainful employment leading to substantive
economic growth;
 Ultimately it will help in poverty eradication by generating
more employment and more financial resources.
For the Trade and Industry

 Simpler tax regime with fewer exemptions.

 Increased ease of doing business.
 Reduction in multiplicity of taxes.
 Elimination of double taxation on certain sectors.
 More efficient neutralization of taxes especially for exports
 Making our products more competitive in the international
market.
 Simplified and automated procedures for registration, returns,
refunds and tax payments.
 Decrease in average tax burden on supply of goods or services.
For Consumers

 Transparent prices: Final price of goods is expected to be

transparent due to seamless flow of input tax credit between the
manufacturer, retailer and service supplier.
 Price reduction: Reduction in prices of commodities and
goods in long run due to reduction in cascading impact of
taxation;
 Poverty eradication: By generating more employment and
more financial resources.
For the States

 Expansion of the tax base: As states will be able to tax the

entire supply chain from manufacturing to retail.
 More economical empowerment: Power to tax services,
which was hitherto with the Central Government only, will boost
revenue and give States access to the fastest growing sector of the
economy.
 Enhancing Investments: GST being destination based
consumption tax will favour consuming States. Improve the
overall investment climate in the country which will naturally
benefit the development in the States.
 Increase Compliance: Largely uniform SGST and IGST rates
will reduce the incentive for evasion by eliminating rate arbitrage
between neighbouring States and that between intra and inter-
state sales

Exemptions under GST
 Custom duty will be still collected along with the levy of IGST
on imported goods.
 Petroleum and tobacco products are currently exempted.
 Excise duty on liquor, stamp duty and electricity taxes are also
exempted.

Challenges Of GST
 SCGT and CGST input credit cannot be cross utilized.
 Manufacturing states lose revenue on a bigger scale.
 High rate to tax to compensate the revenue collected now from
multiple taxes i.e High Revenue Neutral Rate.
 The reduction in the fiscal autonomy of the States.
 Concerns raised by banks and insurance companies over the
need for multiple registrations under GST.
 The levy of additional cess.
  The capacity of State tax authorities, so far used to taxing
goods and not services, to deal with the latter is an unknown
quantity.
 The success of GST depends on political consensus,
technology and the capacity of tax officials to adapt to the new
requirements.

List of Taxes Subsumed after GST Implementation

Goods & Service Tax was introduced as a comprehensive indirect
tax structure. With this introduction, the government aimed to
consolidate all indirect taxes levied under one umbrella.
Thus, except customs duty that is levied on import of goods, Goods
and Services Tax replaced multiple indirect taxes. This introduction
helped overcome the limitations of its previous indirect tax structure
regarding implementation and inefficiency in the collection process.

Following is the list of indirect taxes that were subsumed by Goods

and Service Tax.
 Indirect taxes imposed by the central government
I. Central Sales Tax

II. Service Tax

III. Central Excise Duty

IV. Excise Duty (Additional)

V. Countervailing Duty or Additional Customs Duty

VI. Special Additional Customs Duties

 Indirect taxes imposed by the state government

 I. State VAT

II. Entry Tax and Octroi Duty

III. Luxury Tax

IV. Amusement and Entertainment Tax

V. Taxes on Advertisements

VI. Goods and services related to cess and surcharges

VII. Purchase Tax

VIII. Tax on betting, lottery and gambling.

Concepts of GST Levy – Multi-Stage, destination-

based and Value Added

The comprehensive nature of Goods and Services tax levy takes into
account every stage of manufacture whereby value-added to an item
is taxable. Plus, a change of destination also attracts GST.
The various stages of GST application are discussed below –

 Meaning of multi-stage levy

From production/manufacture to consumption, an item is passed
from one link of the supply chain to another until it is finally
purchased for consumption. An indirect tax is hence, levied at every
stage, to be borne ultimately by a consumer.

The different steps of production of a finalised good and its

corresponding sale in the market comprise the following in general.
 Raw material purchase

 Manufacture/production of raw material into finished goods

 Storage of finished goods at the warehouse

 Sale of goods to the wholesaler

 Sale of goods to the retailer

 Sale to an end-user/consumer

GST charged at each link of this chain makes it a multi-stage tax.

 Meaning of destination-based levy
A destination-based levy means the item is to be taxed at a place
where it is consumed, and not at its origin. This means that the
location where an item is consumed will rightfully collect the tax.

In this context, it is essential to differentiate the concept of ‘supply’

from ‘place of supply’. The decision regarding whether a sale is
intrastate or interstate will be taken accordingly.

 Meaning of taxation on value addition

The concept of GST on value addition implies every addition made
to an item to make it saleable to the end-user is taxable under this
regime. Understand it with the help of an example.
The manufacturing unit of Britannia Industries Limited in Chennai,
Tamil Nadu manufactures a variety of biscuits. During the
manufacturing process, it goes through the following stages, with
value-added at each stage.
 Processing of flour, sugar and other materials into a dough,
and baked into biscuits increases the value of the material by
making it saleable as units.
 The biscuits are then sent to the warehousing agent for storage
and further processing. He then packs the biscuits in sets of 10 for
the next stage of the process. It is another value addition as it
increases the monetary value of the biscuits, making them
saleable.

 Each packed unit is labelled as a product with Britannia’s

brand logo. The act of labelling is the next stage of value addition.

 The biscuits are packed in smaller cartons and re-labelled to be

transported and sold to the retailer, crossing another stage of value
addition.

Thus, for each monetary value added to these stages, making the
product saleable, GST is levied thus making it a tax on value
addition.

The Concept of Input Tax Credit (ITC)

under GST 

An Input Tax credit means that when a business person or a trader is

paying tax on output, he/she can reduce the tax already paid on input
(purchase).
For example, in the case of a manufacturer selling the final product,
the output tax stands at Rs. 450. However, he already paid Rs. 300
as input tax while purchasing the product. He can thus receive an
ITC of Rs. 300 on the final product and needs to pay only the
difference of Rs. 150, i.e., Rs. 450 – Rs. 300 to the government
as Goods and Service Tax.
ITC can be claimed only by businesses registered under the Goods
and Services Tax Act. Also, all respective suppliers must be
registered under the act for you to be eligible to avail ITC.

Hence, go for Goods & Service Tax registration if you are eligible

and not yet registered. Also, file Goods and Services Tax Return and
pay your taxes within the due date to avoid any inconvenience.

Conclusion
Thus GST is a positive step towards shifting Indian economy from the
informal to formal economy. It is important to utilise experiences
from global economies that have implemented GST before us,to
overcome the impending challenges.