GST AND CUSTOMS LAW | CS RITIKA GUPTA

BASICS OF GST
What is Tax?

 The term “Tax” is derived from the Latin word “Taxo”.

 It is a mandatory financial burden imposed on individuals or legal entities.
 It is nothing but the money that people have to pay to the Government, which is used to provide public services.

What is the need of Taxes?

In any Welfare State, it is the government's prime responsibility to fulfil the country's increasing developmental needs
and its people by way of public expenditure.

Money raised by taxation carries out many functions such as:

Infrastructure Education Health Military Defence Other socio–economic objectives of the govt.

DIRECT AND INDIRECT TAXES

Taxes are broadly classified into direct and indirect taxes.

Direct Taxes:
 A direct tax is a kind of charge, which is imposed directly on the taxpayer and paid directly to the Government
by the persons on whom it is imposed.
 A direct tax is one that cannot be shifted by the taxpayer to someone else. E.g. income tax.

Indirect Taxes:
 An indirect tax is one that can be shifted by the taxpayer to someone else.
 Its incidence is borne by the consumers who ultimately consume the product or the service, while the
immediate liability to pay the tax may fall upon another person such as a manufacturer or provider of service
or seller of goods.
 They are regressive in nature because they are not based on the principle of ability to pay.
 Indirect taxes are levied on consumption, expenditure, privilege, or right but not on income or property. E.g.
GST, Custom Duty

FEATURES OF INDIRECT TAXES

 An important source of revenue: Indirect taxes are a major source of tax revenues for Governments
worldwide and continue to grow as more countries move to consumption-oriented tax regimes. In India,
indirect taxes contribute more than 50% of the total tax revenues of Central and State Governments.
 Tax on commodities and services: It is levied on commodities at the time of manufacture or purchase or sale
or import/export thereof. Hence, it is also known as commodity taxation. It is also levied on the provision of
services.
 Shifting of burden: There is a clear shifting of the tax burden in respect of indirect taxes. For example, GST
paid by the supplier of the goods is recovered from the buyer by including the tax in the cost of the commodity.
 No perception of a direct pinch: Since, the value of indirect taxes is generally inbuilt into the price of the
commodity, most of the time the taxpayer pays the same without actually knowing that he is paying tax to the
Government. Thus, taxpayer does not perceive a direct pinch while paying indirect taxes.
 Inflationary: Tax imposed on commodities and services causes an all-round price spiral. In other words,
indirect taxation directly affects the prices of commodities and services and leads to an inflationary trend.

BASICS OF GST – INTRODUCTION by CS RITIKA GUPTA , Assistant Professor Satyawati Colllege [Eve]
1
 GST AND CUSTOMS LAW | CS RITIKA GUPTA

 Wider tax base: Unlike direct taxes, indirect taxes have a wide tax base. The majority of the products or
services are subject to indirect taxes with low thresholds.
 Promotes social welfare: High taxes are imposed on the consumption of harmful products (also known as ‘sin
goods’) such as alcoholic products, tobacco products etc. This not only checks their consumption but also
enables the State to collect substantial revenue.
 Regressive in nature: Generally, the indirect taxes are regressive in nature. The rich and the poor have to pay
the same rate of indirect taxes on certain commodities of mass consumption. This may further increase the
income disparities between the rich and the poor.

CONCEPT OF GST

 GST is a value-added tax levied on the manufacture, sale ,and consumption of goods and services.
 GST offers a comprehensive and continuous chain of tax credits from the producer's point/service provider's
point upto the retailer's level/consumer’s level thereby taxing only the value added at each stage of the supply
chain.
 The supplier at each stage is permitted to avail credit of GST paid on the purchase of goods and/or services
and can set off this credit against the GST payable on the supply of goods and services to be made by him.
Thus, only the final consumer bears the GST charged by the last supplier in the supply chain, with set-off
benefits at all the previous stages.
 Since, only the value added at each stage is taxed under GST, there is no tax on tax or cascading of taxes under
GST system. GST does not differentiate between goods and services and thus, the two are taxed at a single
rate.

Why India Needed GST

Following reasons demanded the implementation of GST:

 Double taxation of a transaction as both goods and services

 Non-inclusion of several local levies in State VAT such as luxury tax, entertainment tax, etc.
 Cascading of taxes on account of (i) levy of Non-VATable CST and (ii) inclusion of CENVAT in the value for
imposing VAT.
 Non-integration of VAT & service tax
 No CENVAT after the manufacturing stage

FRAMEWORK OF GST AS INTRODUCED IN INDIA

Dual GST

 India has adopted a Dual GST model in view of the federal structure of the country.
 Centre and States simultaneously levy GST on the taxable supply of goods or services or both, which takes
place within a State or Union Territory. Thus, tax is imposed concurrently by the Centre and States, i.e. Centre
and States simultaneously tax goods and services.
 GST is a destination-based tax applicable on all transactions involving the supply of goods and services for
consideration subject to exceptions thereof. GST in India comprises of:
o On intra-State supplies of taxable goods and/or services
 Central Goods and Services Tax (CGST) - levied and collected by Central Government,
 State Goods and Services Tax (SGST) - levied and collected by State Governments/Union
Territories with Legislatures and
 Union Territory Goods and Services Tax (UTGST) - levied and collected by Union Territories
without Legislatures.

BASICS OF GST – INTRODUCTION by CS RITIKA GUPTA , Assistant Professor Satyawati Colllege [Eve]
2
 GST AND CUSTOMS LAW | CS RITIKA GUPTA

o Interstate supplies of taxable goods and/or services are subject to Integrated Goods and Services Tax
(IGST). IGST is the sum total of CGST and SGST/UTGST and is levied by the Centre on all inter-State
supplies.

BENEFITS OF GST

GST is a win-win situation for the entire country. It brings benefits to all the stakeholders of the industry, the
Government, and the consumer. The significant benefits of GST are discussed hereunder:

Benefits to economy

1. Creation of a unified national market: GST aims to make India a common market with common tax rates and
procedures and remove the economic barriers thus paving the way for an integrated economy at the national
level.
2. Boost to ‘Make in India' initiative: GST gives a major boost to the ‘Make in India' initiative of the Government of
India by making goods and services produced in India competitive in the national as well as international markets.
This will create India as a ― Manufacturing hub.
3. Enhanced investment and employment: The subsuming of major Central and State taxes in GST, complete and
comprehensive setoff of input tax on goods and services, and phasing out of Central Sales Tax (CST) reduces the
cost of locally manufactured goods and services and increases the competitiveness of Indian goods and services
in the international market and thus, gives a boost to investments and Indian exports. With a boost in exports and
manufacturing activity, more employment is generated and GDP is increased.

Simplified tax structure

1. Ease of doing business: Simpler tax regime with fewer exemptions along with a reduction in the multiplicity of
taxes under GST has led to simplification and uniformity. The uniformity in laws, procedures, and tax rates across
the country makes doing business easier.
2. Certainty in tax administration: Common system of classification of goods and services ensures certainty in tax
administration across India.

Easy tax compliance

1. Automated procedures with greater use of IT: There are simplified and automated procedures for various
processes such as registration, returns, refunds, tax payments. All interaction is through the common GSTN portal,
therefore, less public interface between the taxpayer and the tax administration.
2. Reduction in compliance costs: The compliance cost is lesser under GST as multiple recordkeeping for a variety of
taxes is not needed, therefore, there is lesser investment of resources and manpower in maintaining records. The
uniformity in laws, procedures and tax rates across the country goes a long way in reducing the compliance cost.

Advantages for trade and industry

I. Benefits to agriculture and Industry: GST has given more relief to industry, trade and agriculture through a more
comprehensive and wider coverage of input tax set-off and service tax set-off, subsuming of several Central and
State taxes in the GST, and phasing out of CST. The transparent and complete chain of set-offs which results in the
widening of the tax base and better tax compliance also leads to the lowering of tax burden on an average dealer
in industry, trade, and agriculture.
II. Mitigation of ill effects of cascading: By subsuming most of the Central and State taxes into a single tax and by
allowing a set-off of prior-stage taxes for the transactions across the entire value chain, it helps in mitigating the
ill effects of cascading, improving competitiveness and improving liquidity of the businesses.
III. Benefits to small traders and entrepreneurs: GST has increased the threshold for GST registration for small
businesses. Further, a single registration is needed in one State. Small businesses have also been provided the
additional benefit of a composition scheme. With the creation of a seamless national market across the country,
small enterprises have an opportunity to expand their national footprint with minimal investment.

BASICS OF GST – INTRODUCTION by CS RITIKA GUPTA , Assistant Professor Satyawati Colllege [Eve]
3
 GST AND CUSTOMS LAW | CS RITIKA GUPTA

Constitutional Provisions regarding GST.

The Constitution of India is the Supreme law in India. The Parliament can make law only with regard to the matters
which are allowed as per the constitution otherwise the law made by parliament shall be called Ultra vires i.e. it is not
enforceable. The constitution consists of a preamble, 25 parts containing 448 articles and 12 Schedules.
India has a three-tier federal structure, comprising the Union Government, the State Governments and the local
Government. The power to levy taxes and duties is distributed among the three tiers of Governments, in accordance
with the provision of the Indian Constitution.

The power to levy taxes emerges from the Constitution of India.

 Article 265: No tax shall be levied or collected except by authority of Law.

 Article 245: Subject to the provisions of the Constitution, Parliament may make laws for the whole or any part of
the territory of India, and the Legislature of a State may make laws for the whole or any part of the State.
 Article 246: It gives the respective authority to Union and state Governments for levying tax and such authority is
given in the Seventh Schedule of the Indian Constitution and there are three lists in Seventh Schedule.
o Union List – If any matter is mentioned in Union List, parliament can make law with regard to such matter.
(there are 97 entries)
o State List – If a matter is mentioned in State List, the State legislature, can make law with regard to such
matter. (there are 66 entries)
o Concurrent List – If a matter is mentioned in Concurrent List, both governments can make law with regard
to such matter. (there are 47 entries)

Some of the important entries in the Union List are as given below:

82. Taxes on income other than agricultural income.

83. Duties of customs including export duties.

84. Duties of excise on following goods manufactured or produced in India, namely

(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.

Some of the important entries in the State List are as given below:

46. Taxes on agricultural income

51. Duties of excise on alcoholic liquors for human consumption; opium, Indian hemp and other narcotic drugs.

53. Taxes on the consumption or sale of electricity.

54. Taxes on the sale of petroleum crude, high-speed diesel, motor spirit (commonly known as petrol), natural Gas,
aviation turbine fuel, and alcoholic liquor for human consumption, but not including sale in the course of international
trade or commerce of such goods.

BASICS OF GST – INTRODUCTION by CS RITIKA GUPTA , Assistant Professor Satyawati Colllege [Eve]
4
 GST AND CUSTOMS LAW | CS RITIKA GUPTA

Amendment in the Constitution for the purpose of GST

(Constitution (101st Amendment) act, 2016)

Article 246A: Power to make laws with respect to Goods and Services Tax:

1. This article grants power to Centre and State Governments to make laws with respect to GST - imposed by the
Centre or such State for Intra state supply.
2. The Centre has the exclusive power to make laws with respect to GST in case of inter-state goods/services/
services.
3. However, with respect to the following goods, GST shall apply from the date recommended by the - GST Council.
 Petroleum crude
 High-speed diesel
 Motor spirit (commonly known as petrol)
 Natural gas
 Aviation turbine fuel

Article 269A: Levy and collection of GST on inter-state supply

1. Article 269A stipulates that GST

 on supplies in the course of inter-state trade or commerce
 shall be levied and collected by the Government of India and
 such tax shall be apportioned between the Union and the States in the manner as may be provided by
Parliament by law on the recommendations of the Goods and Services Tax Council.
2. Import of goods/services into India will also be deemed to be Inter-State supply.

GST Council: Article 279A

1. Article 279A of the Constitution empowers the President to constitute a joint forum of the Centre and States
namely, the Goods & Services Tax Council (GST Council).
2. The provisions relating to GST Council came into force on 12th September 2016. President constituted the GST
Council on 15th September 2016.
3. The Union Finance minister is the Chairman of this Council and Ministers in charge of Finance/Taxation or any
other Minister nominated by each of the States & UTs with Legislatures are its members. Besides, the Union
Minister of State in charge of revenue or Finance is also its member.
4. The function of the Council is to make recommendations to the Union and the States on important issues like tax
rates, exemptions, threshold limits, dispute resolution etc.
5. It shall also recommend the date on which GST be levied on petroleum crude, high speed diesel, motor spirit,
natural gas and aviation turbine fuel.

Special cases

Special cases Taxes

TOBACCO &  Tobacco is within the purview of GST, i.e. GST is leviable on tobacco.
TOBACCO  However, Union Government has also retained the power to levy excise duties on tobacco
PRODUCT and tobacco products manufactured in India.
 Resultantly, tobacco is subject to GST as well as central excise duty.
Alcoholic liquor  It is outside the realm of GST.
for human  The manufacture/production of alcoholic liquor continues to be subjected to State
consumption excise duty and inter- State/intra-State sale of the same is subject to CST/VAT
respectively.
Opium, Indian  Opium, Indian hemp and other narcotic drugs and narcotics are within the purview of
hemp and other GST, i.e. GST is leviable on them.
narcotic drugs

BASICS OF GST – INTRODUCTION by CS RITIKA GUPTA , Assistant Professor Satyawati Colllege [Eve]
5
 GST AND CUSTOMS LAW | CS RITIKA GUPTA

and narcotics:  However, State Governments have also retained the power to levy excise duties on such
products manufactured in India.
 Resultantly, Opium, Indian hemp and other narcotic drugs and narcotics are subject to
GST as well as State excise duties
Petroleum  At present, Petroleum crude, diesel, petrol, ATF, and natural gas are not leviable to GST.
crude,  GST will be levied on these products from a date to be notified on the recommendations
diesel, petrol, of the GST Council.
ATF and natural  But, there is a levy of:-
gas o Central excise duty on the manufacture/production of petroleum crude, diesel,
petrol, ATF and natural gas &
o CST/ VAT on inter-State/intra-State sale of the same respectively
Real Estate Real estate sector has been kept out of ambit of GST, i.e. GST will not be levied on sale/purchase
of immovable property

GST COUNCIL

Article 279A of the Constitution:- It empowers the President to constitute a joint forum of the Centre and States
namely, the GST Council. The provisions relating to GST Council came into force on 12th Sep 2016. President
constituted the GST Council on 15thSep, 2016.

Constitution:- The GST Council shall consist of the following members, namely:-
(a) The Union Finance Minister is the Chairman;
(b) The Union Minister of State in charge of Revenue or Finance is the Member;
(c) The Minister in charge of Finance or Taxation or any other Minister nominated by each State Government is
the Members.
The Members of the GST Council referred to clause (c) above shall, as soon as may be, choose one amongst themselves
to be the Vice-Chairperson of the Council for such period as they may decide.

Decision:-
 by a majority >= 3/4th of weighted votes of members present & voting.
 weightage of center = 1/3rd of total votes cast and for all SGs = together of 2/3rd of total votes cast, in that
meeting.

RECOMMENDATION OF GST COUNCIL

The Goods and Services Tax Council shall make recommendations to the Union and the States on—
a) Taxes to be subsumed in GST
b) Exemption in GST
c) model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on
supplies in the course of inter-State trade or commerce under article 269A and the principles that govern the
place of supply;
d) the threshold limit of turnover below which goods and services may be exempted from goods and services
tax;
e) the rates including floor rates with bands of goods and services tax; any special rate or rates for a specified
period, to raise additional resources during any natural calamity or disaster;
f) special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur,
Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and
g) any other matter relating to the goods and services tax, as the Council may decide.

BASICS OF GST – INTRODUCTION by CS RITIKA GUPTA , Assistant Professor Satyawati Colllege [Eve]
6