Module – I

Basic Concepts under GST

CONCEPT OF INDIRECT TAX:

Indirect tax refers to a type of tax that is not directly imposed on an individual’s
income or wealth but is instead levied on goods and services. It is collected by
intermediaries (such as businesses, retailers, or service providers) and ultimately
paid by the end consumer.

Key Aspects of Indirect Tax:

1. Tax on Goods and Services – Indirect taxes are included in the price of
products and services, meaning consumers pay the tax when they make a
purchase.
2. Shiftable Burden – The tax burden is transferred from businesses to
consumers, unlike direct taxes (such as income tax), where the taxpayer
bears the burden directly.
3. Collected at Different Stages – Indirect taxes are often collected at multiple
stages in the supply chain, such as production, distribution, and final sale.
4. Encourages Tax Compliance – Since the tax is built into the price of goods
and services, individuals pay it automatically, reducing the chances of tax
evasion.
5. Regressive in Nature – Indirect taxes can be regressive, as they affect
everyone equally regardless of their income level, potentially placing a
higher relative burden on lower-income individuals.

Examples of Indirect Taxes:

 Goods and Services Tax (GST) – A unified tax on the supply of goods and
services.
 Value Added Tax (VAT) – A tax levied at each stage of production and
distribution.
 Excise Duty – A tax on the manufacture of specific goods like alcohol,
tobacco, and fuel.
  Customs Duty – A tax on imported and exported goods.
 Sales Tax – A tax levied on the sale of goods at the retail level.

FEATURES OF INDIRECT TAX

Indirect tax has several key features that distinguish it from direct taxes. Here are
the main features:

1. Shiftable Burden – The burden of indirect tax is transferred from the

taxpayer to the end consumer. The seller collects the tax and remits it to the
government.
2. Tax on Consumption – Indirect tax is levied on goods and services rather
than on income or wealth. It is paid when goods are purchased or services
are availed.
3. No Direct Impact on Income – Unlike direct taxes (e.g., income tax),
indirect taxes do not depend on an individual’s earnings or financial status.
4. Collected by Intermediaries – The government collects indirect tax
through businesses, such as manufacturers, retailers, and service providers,
who then pass the tax on to consumers.
5. Regressive in Nature – Since indirect taxes apply equally to all consumers,
they can be regressive, affecting lower-income individuals more, as they
spend a larger portion of their income on taxed goods and services.
6. Encourages Compliance – Since indirect taxes are included in the price of
goods and services, consumers pay them automatically, reducing tax evasion
compared to direct taxes.
7. Wide Coverage – Indirect taxes apply to a broad range of goods and
services, ensuring that a large portion of the population contributes to
government revenue.
8. Boosts Government Revenue – Indirect taxes contribute significantly to
government income, funding public services and infrastructure development.
9. Influences Market Prices – Indirect taxes increase the cost of goods and
services, which may impact consumer behavior and demand.
10.Examples of Indirect Taxes – Common indirect taxes include Goods and
Services Tax (GST), Value Added Tax (VAT), Excise Duty, Customs Duty,
and Sales Tax.
DIFFERENCE BETWEEN DIRECT AND INDIRECT TAX

Basis of Direct Tax Indirect Tax

Differences
Definition A tax paid directly to the A tax collected by an
government by individuals intermediary (business) and
or organizations. passed on to the government.

Burden of tax Cannot be shifted to another Can be shifted from one person
person; the taxpayer bears to another (e.g., businesses
the tax. collect from consumers).

Nature Based on income or wealth. Based on consumption of

goods and services.

Example Income Tax, Corporate Tax, GST, VAT, Sales Tax, Excise
Property Tax, Wealth Tax. Duty, Customs Duty.

Collection Paid directly to the Collected by businesses and

government. then paid to the government.

Impact on prices Does not affect the price of Increases the price of goods
goods and services. and services.
CONCEPT OF GST (GOODS AND SERVICES TAX)

The Goods and Services Tax (GST) is a comprehensive, indirect tax levied on
the supply of goods and services. It is a single tax system that has replaced
multiple indirect taxes like VAT, excise duty, and service tax, simplifying taxation
in many countries, including India.

Key Concepts of GST

1. One Nation, One Tax – GST creates a uniform tax structure across the
country.
2. Destination-Based Tax – GST is collected in the state where goods or
services are consumed, not where they are produced.
3. Multi-Stage Tax – Applied at every stage of the supply chain (manufacturer
→ wholesaler → retailer → consumer).
4. Input Tax Credit (ITC) – Businesses can claim credit for the tax paid on
inputs, reducing the cascading effect (tax on tax).
5. Tax on Value Addition – GST is imposed only on the value added at each
stage, making it more transparent and efficient.

Types of GST in India

1. CGST (Central GST) – Collected by the Central Government on intra-state

transactions.
2. SGST (State GST) – Collected by the State Government on intra-state
transactions.
3. IGST (Integrated GST) – Collected by the Central Government on inter-
state transactions.
4. UTGST (Union Territory GST) – Applied in Union Territories without a
legislature.

Example of GST Calculation

If a manufacturer sells a product for ₹1,000 and GST is 18%, the final price will
be:
✅ GST Amount = ₹1,000 × 18% = ₹180
✅ Final Price = ₹1,000 + ₹180 = ₹1,180

If a retailer buys this product and sells it for ₹1,500, they charge GST again but can
claim Input Tax Credit (ITC) for the ₹180 already paid.

Benefits of GST

✔ Removes multiple taxes, making compliance easier.

✔ Reduces the cascading effect (tax-on-tax).
✔ Promotes ease of doing business by simplifying tax laws.
✔ Encourages transparency and reduces tax evasion.
✔ Boosts interstate trade by removing state barriers.

Would you like to know the different GST tax rates applicable to various goods
and services?

RELEVANT DEFINITIONS UNDER GST LAW

Here are some key definitions as per the Goods and Services Tax (GST) law in
India:

1. Goods (Section 2(52))

o Any kind of movable property, excluding money and securities.
o Includes growing crops, grass, and things attached to land that can be
severed.
2. Services (Section 2(102))
o Anything other than goods, money, and securities.
o Includes activities like renting, construction, and intellectual property
rights.
3. Supply (Section 7)
o Encompasses the sale, transfer, barter, exchange, rental, lease, or
disposal of goods/services for consideration.
o Includes import of services, even if done without consideration.
4. Taxable Person (Section 2(107))
o Any individual, business, company, or entity registered under GST.
5. Aggregate Turnover (Section 2(6))
o The total value of taxable supplies, exempt supplies, exports, and
inter-state supplies under one PAN.
6. Input Tax Credit (ITC) (Section 2(63))
o The credit a registered person can claim for GST paid on inputs, input
services, and capital goods.
7. Intra-State Supply (Section 8)
o When the supply of goods/services occurs within the same state or
Union Territory.
o Attracts CGST + SGST/UTGST.
8. Inter-State Supply (Section 7)
o When goods/services move from one state to another.
o Attracts IGST.
9. Reverse Charge Mechanism (RCM) (Section 2(98))
o In certain cases, the recipient (buyer) pays the tax instead of the
supplier.
10.Composite Supply (Section 2(30))

 A combination of goods/services where one is the principal supply (e.g., a

phone with a charger).

11.Mixed Supply (Section 2(74))

 A combination of two or more independent supplies sold together (e.g., a

gift hamper with chocolates and perfume).
CONSTITUTIONAL ASPECTS OF GST:

The Goods and Services Tax (GST) in India has a strong constitutional foundation,
established through the 122nd Constitutional Amendment Bill, which became the
101st Constitutional Amendment Act, 2016. Here are the key constitutional aspects
of GST:

1. Amendment of the Constitution

 The 101st Amendment Act, 2016 inserted multiple provisions to facilitate

the implementation of GST.
 It provides for a uniform tax structure across India by subsuming various
indirect taxes.

2. New Articles Introduced

Article 246A – Special Provision for GST

 Grants simultaneous power to both the Parliament and State Legislatures to

make laws on GST.
 However, in case of an inter-state trade (IGST), only Parliament has the
power to legislate.

Article 269A – Levy and Collection of GST on Inter-State Trade

 Integrated GST (IGST) is levied on inter-state transactions.

 The revenue collected is shared between the Centre and the State as per law.

Article 279A – GST Council

 Establishes the GST Council, a constitutional body to regulate and make

recommendations regarding GST.
 The GST Council consists of:
o Union Finance Minister (Chairperson)
o Union Minister of State for Finance
o State Finance Ministers
 It decides tax rates, exemptions, threshold limits, and special provisions.
3. Changes in Taxation Powers

 Entry 84 (List I - Union List): The power of the Union to levy excise duty is
now restricted to specific items like petroleum and tobacco.
 Entry 92 & 92C (List I): These were removed, as sales tax and service tax
were subsumed into GST.
 Entry 52 (List II - State List): The power of states to levy octroi and entry
tax was removed.
 Entry 54 (List II): Sales tax powers of states were restricted to only certain
items like petroleum and alcohol.

4. Compensation to States

 A new compensation mechanism was introduced under Section 18 of the

101st Amendment Act, ensuring states are compensated for revenue losses
due to GST for five years.

5. Cooperative Federalism

 GST follows a dual model (CGST, SGST, IGST), ensuring cooperative

federalism between the Centre and States.
 The GST Council plays a vital role in resolving tax-related disputes and
making joint decisions.

6. Legal Challenges and Interpretations

 The constitutional validity of GST has been upheld by courts, reinforcing the
balance of power between the Centre and the States.
 Landmark cases like Mohit Minerals Pvt. Ltd. v. Union of India (2022) have
clarified GST's constitutional framework.

Conclusion

The constitutional framework of GST in India is a landmark reform ensuring a

unified tax structure, promoting ease of doing business, and strengthening federal
cooperation through the GST Council.
GST COUNCIL

The GST Council, established under Article 279A of the 101st Constitutional
Amendment Act, 2016, is a constitutional body governing India's Goods and
Services Tax (GST). Chaired by the Union Finance Minister, it includes the Union
Minister of State for Finance and State Finance Ministers. The Council makes
recommendations on tax rates, exemptions, revenue sharing, and procedural
aspects of GST. Decisions require 75% weighted votes, with the Centre holding
1/3rd and States 2/3rd. It ensures uniform tax policies, cooperative federalism, and
dispute resolution, making GST implementation smoother across India through
periodic meetings and policy revisions.

STRUCTURE OF GST COUNCIL

The GST Council is a constitutional body established under Article 279A of the
101st Constitutional Amendment Act, 2016. It is responsible for making decisions
related to the Goods and Services Tax (GST) in India.

1. Composition of GST Council

The GST Council consists of members from both the Central Government and
State Governments, ensuring a cooperative federal structure.

(a) Chairperson

 Union Finance Minister (Ex-officio Chairperson of the GST Council)

(b) Central Government Representative

 Union Minister of State for Finance (Member)

(c) State Government Representatives

 Finance Ministers or Tax Ministers of all States and Union Territories

with Legislatures (Members)

(d) Special Invitees

  The Chairperson may invite officials, experts, or stakeholders as needed.

2. Voting Structure & Decision-Making

 The Central Government has 1/3rd of the total votes.

 All States (combined) have 2/3rd of the total votes.
 A decision requires at least 75% of the weighted votes.
 This ensures that no single entity (Centre or States) can dominate decisions.

3. Meetings & Functioning of GST Council

 The GST Council meets periodically to review and update GST policies.
 Decisions are made through voting or consensus.
 It makes recommendations on tax rates, exemptions, procedural rules, and
revenue sharing.

4. Role of the GST Council in India's Tax System

 Sets tax slabs and exemptions for goods and services.

 Resolves disputes between the Centre and States.
 Advises on digital taxation and compliance rules.
 Ensures uniform tax policies across India.

Conclusion

The GST Council plays a crucial role in ensuring a harmonized tax structure and
cooperative federalism in India, balancing the interests of both the Centre and
States.

FUNCTIONING OF GST COUNCIL

The GST Council, established under Article 279A of the 101st Constitutional
Amendment Act, 2016, is responsible for governing the Goods and Services Tax
(GST) system in India. It ensures cooperative federalism between the Centre and
States by making joint decisions on GST-related policies.
1. Meetings & Decision-Making Process

 The GST Council meets periodically (usually once in a few months) to

discuss and decide on GST-related matters.
 Decisions are made through voting with the following weight age:
o Centre: 1/3rd of the total votes.
o States (combined): 2/3rd of the total votes.
o At least 75% of weighted votes are needed to approve a decision.
 In practice, most decisions are taken by consensus to ensure smooth
implementation.

2. Key Functions of GST Council

(a) GST Rate Structure & Tax Policy

 Decides the GST tax slabs (e.g., 5%, 12%, 18%, 28%).
 Revises tax rates based on economic needs.
 Determines special rates for certain goods & services.

(b) Exemptions & Threshold Limits

 Identifies goods and services exempted from GST.

 Fixes the GST registration threshold limit (e.g., ₹20 lakh for services, ₹40
lakh for goods).

(c) Revenue Sharing & Compensation to States

 Ensures fair distribution of GST revenue between Centre and States.

 Implements GST compensation scheme (for five years) to compensate
States for revenue losses.

(d) Rules for Compliance & Digital Taxation

 Governs the GST Network (GSTN), the IT system for GST filing.
 Introduces simplified tax filing systems like e-invoicing & QR codes.
 Monitors tax evasion and suggests reforms.
(e) Dispute Resolution

 Resolves conflicts between the Centre and States or among States regarding
GST policies.

3. Implementation of Council Decisions

 Once a decision is taken, Central and State Governments amend their

respective GST laws accordingly.
 The GST Network (GSTN) updates the tax system based on these changes.
 Businesses and taxpayers are notified of updates via official circulars and
press releases.

4. Role in GST Evolution & Policy Changes

 The GST Council plays a dynamic role in reviewing tax policies based on
economic conditions.
 It has reduced GST rates on essential goods, introduced e-invoicing, and
simplified compliance for small businesses.

Conclusion

The GST Council functions as India’s highest decision-making body on GST,

ensuring a harmonized tax system through regular meetings, policy adjustments,
and collaborative governance between the Centre and States.