2. GST AND CENTRE STATE FINANCIAL
RELATION
• Fiscal powers between the Centre and the
States are clearly demarcated in the
Constitution
• The Centre has the powers to levy tax on the
manufacture of goods (except alcoholic liquor
for human consumption, opium, narcotics
etc.)
• States have the powers to levy tax on the sale
of goods.
3. • In the case of inter-State sales, the Centre has the
power to levy a tax (the Central Sales Tax)but, the
tax is collected and retained entirely by the
originating States.
• Since the States are not empowered to levy any
tax on the sale or purchase of goods in thecourse
of their importation into or exportation from
India, the Centre levies and collects thistax as
additional duties of customs, which is in addition
to the Basic Customs Duty.
•
4. • Introduction of the GST would require
amendments in the Constitution so as to
concurrently empower the Centre and the
States to levy and collect the GST.
• Concurrent jurisdiction to the Centre and the
States for the levy of GST would require an
institutional mechanism that would ensure
that decisions about the structure, design and
operation of GST are taken jointly by the two.
5. • GST will affect mainly fiscal relations between
Centre and State.
• With the implementation of GST, the taxes
now need to be shared by both the
governments.
• It is to be made clear that implementation of
GST is not giving any fiscal relief to the tax
payer.
6. • With the implementation of GST, the richer states
are going to loose much of revenues. This is
because GST will be collected at the point of sale
and not the point of manufacturing. That means,
if a manufacturing unit in Maharashtra is selling
its product in Orissa, then the government of
Orissa can collect the tax and not the state of
Maharashtra. This means, the states who are not
financially strong will get an opportunity to gain
revenue.
7. • To compensate this, the central government
has decided to compensate the state
governments with the losses they may incur
post implementation of GST for the first 5
years.
8. CONSTITUTIONAL AMENDMENTS
REQUIRED FOR INTRODUCTION OF
GST
• The Constitution contains the Union List and the
State List within which the power to levy separate
taxes is given to the Centre and States
respectively. GST was to be levied in such a way
that both the Centre and the States received the
power to levy and collect it. Further, the
legislation had to remain consistent across the
Centre and the various State/Union Territory
Legislatures. To provide for this, an amendment
in the Constitution was necessary.
9. • Constitution (101st Amendment) Act, 2016
• In order to suitably implement the GST legislation, this Act resulted
in the insertion, deletion and amendment of certain Articles of the
Constitution. The following matters were dealt with as a result of
these changes:
• The delineation of powers to levy and make laws with respect to
GST
• The applicability and scope of the GST law
• The manner of apportionment of revenue from GST among Centre
and States
• The constitution, powers and duties of the GST Council
• The discontinuation of existing taxes to give way for GST
• The manner of providing compensation to States for loss of revenue
on account of the introduction of GST
10. • Article 246A: Special Provision for GST
• This Article was newly inserted to give power to the Parliament and
the respective State/Union Legislatures to make laws on GST
respectively imposed by each of them. However, the Parliament of
India is given the exclusive power to make laws with respect to
inter-state supplies. The IGST Act deals with inter-state supplies.
Thus, the power to make laws under the IGST Act will rest
exclusively with the Parliament. Further, the article excludes the
following products from the scope of GST until a date
recommended by the GST Council:
• Petroleum Crude
• High-Speed Diesel
• Motor Spirit
• Natural Gas
• Aviation Turbine Fuel
11. • Article 269A: Levy and Collection of GST for
Inter-State Supply
• While Article 246A gives the Parliament the
exclusive power to make laws with respect to
inter-state supplies, the manner of
distribution of revenue from such supplies
between the Centre and the State is covered
in Article 269A.
12. • Article 279A: GST Council
• This Article gives power to the President to
constitute a joint forum of the Centre and
States called the GST Council. The GST
Council is an apex member committee to
modify, reconcile or to procure any law or
regulation based on the context of Goods and
Services Tax in India.
13. • Article 286: Restrictions on Tax Imposition
• This was an existing article which restricted
states from passing any law that allowed them
to collect tax on sale or purchase of goods
either outside the state or in the case of
import transactions. It was further amended
to restrict the passing of any laws in case of
services too. Further, the term ‘supply’
replaces ‘sale or purchase’.
14. • Article 366: Addition of Important definitions
• Article 366 was an existing article amended to
include the following definitions:
• Goods and Services Tax means the tax on supply
of goods, services or both. It is important to note
that the supply of alcoholic liquor for human
consumption is excluded from the purview of
GST.
• Services refer to anything other than goods.
• State includes Union Territory with legislature.
15. • Compensation to States Under GST
• This Act also contains a provision to provide
for relief to states on account of the revenue
loss to the states arising due to the
implementation of GST. It has a validity period
of five years. The Goods and Services Tax
(Compensation to States) Act, 2017 was born
as a result.
16. TAXES SUBSUMED IN GST
• Central Taxes Subsumed
• Additional duties of excise
• Central Excise Duty
• Excise duty levied under Medicinal & Toiletries
Preparation Act
• Additional duties of Excise levied under Textiles &
Textile Products
• Additional duties of Customs(CVD & SAD)
• Service Tax
• Surcharges & Cesses
• Central Sales tax
17. • State level taxes subsumed
• State VAT/Sales Tax
• Central Sales Tax
• Purchase Tax
• Entertainment Tax(Other than those levied by local
bodies)
• Luxury Tax
• Entry Tax(All Forms)
• Taxes on lottery, betting & gambling
• Surcharges & Cesses
• Taxes on advertisements
18. • Taxes Not Covered by GST
• 1. Property Tax & Stamp Duty
• 2. Electricity Duty
• 3. Excise Duty on Alcohol
• 4. Basic Custom Duty
• 5. Petroleum crude, Diesel, Petrol, ATF &
Natural Gas
19. BASIC PRINCIPLE FOR SUBSUMATION
OF TAXES
• “(i) Taxes or levies to be subsumed should be primarily in the nature
of indirect taxes, either on the supply of goods or on the supply of
services.
• (ii) Taxes or levies to be subsumed should be part of the transaction
chain which commences with import/ manufacture/ production of
goods or provision of services at one end and the consumption of
goods and services at the other.
• (iii) The subsumation should result in free flow of tax credit in intra
and inter-State levels.
• (iv) The taxes, levies and fees that are not specifically related to
supply of goods & services should not be subsumed under GST.
• (v) Revenue fairness for both the Union and the States individually
would need to be attempted.”
20. MEANING OF DUAL GST MODEL
• Dual GST means that GST will be levied
simultaneously by Center and State
Governments. Hence, every transaction of supply
of goods or services shall suffer Central GST
(CGST) and State GST (SGST), when the
transaction is within the State. However, when
the transaction is between states, there will be
Integrated GST (CGST + SGST), which will be
collected by the Central Government and then
the SGST component paid to the State
Government where the goods or services have
been consumed.
21. • Example — If a dealer in Rajasthan, selling
goods to consumers within the state, makes a
sale of INR 20,000 at 18% GST rate. Then the
dealer will collect INR 3,600 as total tax. In this
case CGST and SGST will be shared by Centre
and State equally as INR 1,800 each.
22. TYPES OF DUAL GST MODEL:
• Normally, there is two type of Dual GST Model. Which
are as follows.
• Non Concurrent Dual GST Model: In Non Concurrent
Dual GST Model Centre levies GSTon services and levies
GST on goods.
• Concurrent Dual GST Model: Tax levied by Centre &
state on the both goods and services.This model is
adopted in many countries. For example, Brazil, Canada
and India. Therefore,
• India has adopted a Dual GST Model in view of the
federal structure of the country.
• India has adopted “Concurrent dual GST” model.
24. SALIENT FEATURES OF DUAL GST
MODEL
• GST have two components one levied by the
Centre (referred to as Central GST), and the other
levied by the States (referred to as State GST)
• Central GST and the State GST are applicable to
all transactions of goods and services
• Central GST and State GST are to be paid to the
accounts of the Centre and the States individually
• Central GST and State GST are treated
individually, therefore taxes paid against the
Central GST are allowed to be taken as input tax
credit (ITC)
25. • Cross utilization of ITC between the Central GST
and the State GST is not permitted except in the
case of inter-State supply of goods and services
Cross utilization of ITC between the Central GST
and the State GST is not permitted except in the
case of inter-State supply of goods and services
• Credit accumulation on account of refund of GST
should be avoided by both the Centre and the
States except in the cases such as exports,
purchase of capital goods, input tax at higher rate
than output tax etc.
26. Advantages of Dual GST:
• 1. Simple and transparent tax: Dual GST is the best solution
for countries like India because it will reduce the number of
taxes at central and state level. This will also be easy to
implement and create accountability for.
• 2. Decreasing tax rate: Dual GST will also result in reduction
in the effective tax rates for many goods.
• 3. Removal of cascading effect of taxes: The
implementation of GST will reduce the cascading effects of
the present taxation system
• 4. Simplified tax compliance: By reducing the transaction
costs of taxpayers, dual GST will bring about simplified tax
compliance.
27. • 5. Increase in the amount of tax collection: Better
compliance and a wider tax base will lead to increased
tax collections
• 6. Dual GST most practical for federal India: As Centre
already levies CENVAT and tax services, CGST will work
well with some harmonisation as will SGST with
symmetry in a dual GST system.
• 7. Easily attainable: The dual GST system is easy to
attain in the current structure, given that India is
following an indirect taxation system. Certain
amendments may be required, but on the whole, the
transition will be easier.
28. GST CESS:
• GST cess is a compensation cess levied under
section 8 of The Goods and Services Tax
(Compensation to State) Act, 2017. GST cess is
levied on intra-state supply of goods or
services and inter-state supply of goods or
services to provide compensation to the
States for loss of revenue due to
implementation of GST in India.
29. STRUCTURE / TYPES OF GST
• there are four types of GST:
• Central Goods and Services Tax
• State Goods and Services Tax
• Integrated Goods and Services Tax
• Union Territory Goods and Services Tax
30. – CENTRAL GST/ CGST: (CENTRAL GOODS AND SERVICES TAX):
• CGST refers to the Central GST that is levied by the Central
Government of India on any transaction of goods and services
taking place within a state. It is one of the two taxes charged on
every intrastate (within one state) transaction, the other one being
SGST (or UTGST for Union Territories). CGST replaces all the existing
Central taxes including Service Tax, Central Excise Duty, CST,
Customs Duty, SAD, etc. The rate of CGST is usually equal to the
SGST rate. Both taxes are charged on the base price of the product.
• Example: - Suresh from Rajasthan sales a product to Pradeep in the
same state (Rajasthan), he has to pay two taxes. CGST is for the
central government while SGST is for the state. The rate of CGST is
9%, same as SGST. After the application of CGST (9% of Rs 10,000),
the final cost of the product will become Rs 11,800.
31. STATE GST/ SGST (STATE GOODS AND SERVICES TAX):
• SGST (State GST) is one of the two taxes levied on every intrastate
(within one state) transaction of goods and services. The other one
is CGST. SGST is levied by the state where the goods are being
sold / purchased. It will replace all the existing state taxes including
VAT, State Sales Tax, Entertainment Tax, Luxury Tax, Entry Tax, State
Cesses and Surcharges on any kind of transaction involving goods
and services. The State Government is the sole claimer of the
revenue earned under SGST. Let’s understand this with an example.
• e.g. – Suresh from Rajasthan wants to sell some goods to Pradeep
in Rajasthan. The product, originally priced at Rs 10,000, will attract
GST at 18% rate comprising of 9% CGST rate and 9% SGST rate. The
SGST tax amount here is Rs 900 (9% of Rs 10,000) which is fully
claimed by the Rajasthan State Government. The rate of the
product after SGST will be Rs 10,900.
32. INTEGARTED GST/ IGST (INTEGRATED
GOODS AND SERVICES TAX)
• Integrated GST (IGST) is applicable on interstate (between two
states) transactions of goods and services, as well as on imports.
This tax will be collected by the Central government and will
further be distributed among the respective states. IGST is charged
when a product or service is moved from one state to another. IGST
is in place to ensure that a state has to deal only with the Union
government and not with every state separately to settle the
interstate tax amounts. Let’s try to understand IGST with an
example.
• E.g., – Ganesh is a manufacturer in Odisha who sold goods worth Rs
10,000 to Suresh in Rajasthan. Since it is an interstate transaction,
IGST will be applicable here. Let’s assume the GST rate is 18% for
the particular item. So, the IGST amount charged by the Central
Government will be Rs 1800 (18% of Rs 10,000), and the revised
rate of the product will be Rs 11,800.
33. UTGST (or UGST) (UNION TERRITORY GOODS AND SERVICES
TAX)
• The Union Territory Goods and Services Tax, commonly
referred to as UTGST, is the GST applicable on the goods
and services supply that takes place in any of the five Union
Territories of India, including Andaman and Nicobar Islands,
Dadra and Nagar Haveli, Chandigarh, Lakshadweep and
Daman and Diu. This UTGST will be charged in addition to
the Central GST (CGST) explained above. For any
transaction of goods/services within a Union Territory:
CGST + UTGST
• The reason why a separate GST was implemented for the
Union Territories is that the common State GST (SGST)
cannot be applied in a Union Territory without legislature.
Delhi and Puducherry UTs already have their own
legislatures, so SGST is applicable to them.
34.
35. KEY DIFFERENCES BETWEEN GST AND
THE PREVIOUS TAX STRUCTURE.
• 1. Broad scheme
• Previously, there were separate laws for separate levy. For instance,
Central Excise Act, 1944, respective State VAT laws etc. With GST
regime, there will only be one such law, as GST will subsume various
indirect taxes.
• 2. Tax Rates
• The previous tax regime had separate rates, such as, Excise @ 12.36
% and Service Tax @ 14%. With GST, there is only one CGST rate and
a uniform rate of SGST across all states.
• 3. Cascading Effect
• Credit of Central Sales Tax and various other indirect taxes isn’t
allowed in the previous tax structure, whereas under GST the entire
concept of CST has been eliminated with introduction of IGST.
36. • 4. Tax burden on Tax Payer
• Previously the tax burden on tax payer was considerably high. With GST on
board, tax burden has reduced significantly since all taxes are integrated,
and the burden is split equitably between manufacturing and services.
• 5. Cost Burden on Consumers
• Certain taxes became part of cost due to presence of cascading effect. But,
with the simple mechanism of GST, cost burden has been reduced by
removing such effect and providing credit.
• 6. Concurrent Power
• In Pre-GST,era there was no such power to both Centre and State on same
subject of tax matter. With GST on board, both Centre and State are
vested with the concurrent power to make laws with respect to goods and
services tax, as in Article 246A of the Constitution. The intra-state trade
now comes under the jurisdiction of both centre and state; while inter-
state trade and commerce is “exclusively” under central government
jurisdiction.
37. • 7. Compliance
• Previously, tax compliance was complicated owing to the
multiplicity of laws and their provisions to be followed.
With GST, tax compliance would be much easier, as only
one law subsuming other taxes would need to be followed.
• 8. Transparent Tax Administration
• Previously, tax was levied at two stages in broad manner
production and consumption, i.e., when product moves out
of factory. and also at retail outlet. GST is to be levied only
at final destination of consumption and not at various
points. This brings more transparency and corruption free
tax administration.
