Ch 1 - GST : An Overview | GST Saral by CA Dhruv Aggarwal PDF Download

 Page 1


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
CHAPTER 1 - GST - An overvi ew 
 
 
 
 
 
 
 
 
 
1.1 Background of GST 
CHAPTER 1 
 
GST - An overview 
 
The present structure of Indirect Taxes in India is based on three lists in Seventh Schedule to Constitution of 
India, which came into effect on 26-1-1950. These lists are mostly based on Government of India Act, 1935. 
 
The provisions were based on situation prevailing in 1935. That structure has become outdated due to changes 
in situations, technology etc. 
World has moved towards common Goods and Services Tax (GST) long ago. However, so far as India is 
concerned, GST is the tax for twenty first century [It is ri ghtly said that India is like elephant. It takes time to 
start, but once started, it is very di fficult to stop it]. 
Barring unforeseen circumstances, GST is likely to come into effect on 1-7-2017. 
 
1.1-1 Major defects in present structure of indirect taxes 
 
Fo lowing can be summarized as major defects in present structure of indirect taxes : 
 
?   Central Sales Tax (CST) is payable for every movement of goods from one State to other. If the 
sale is direct, CST is payable, Even in case of stock transfers or branch transfers, there is incidence 
of tax as input service credit (set off) of input taxes is not fully  available. 
?   Central Sales Tax is an orphan. Hence, if there is any di fficulty, there is no authority to sort it out and 
find solutions. This creates numerous problems in CST. 
?   Cascading effect of taxes cannot be avoided due to CST and Entry Tax. 
?   Movement of goods in European Union (EU) is free across al l countries without any incidence of 
tax. However, in India, movement of goods from one State to other is not tax free. 
?   India does not have a national market due to invisible barriers of central sales tax, Entry Tax and 
State Vat and visible barriers of check posts. 
?   Mil lions of man-hours and truck hours are lost at check posts. Besides, huge corruption is involved. 
?   Central Government cannot impose tax on goods beyond manufacturing level [CST though levied by 
Central Government is col lected and retained by State Government only]. 
?   State Government cannot impose service tax. 
?   Over the years, distinction between goods and services has become hazy, due to which there is 
overlapping of State Vat and Central Service Tax on transactions like works contract, food rated 
services (restaurants, outdoor catering, mandap services), Software, IPR Related services, lottery, 
SIM cards, renting of movable property etc. 
?   Same transaction is taxed both by Central and State Government which creates confusion, litigation 
and double taxation in many cases. 
Page 2


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
CHAPTER 1 - GST - An overvi ew 
 
 
 
 
 
 
 
 
 
1.1 Background of GST 
CHAPTER 1 
 
GST - An overview 
 
The present structure of Indirect Taxes in India is based on three lists in Seventh Schedule to Constitution of 
India, which came into effect on 26-1-1950. These lists are mostly based on Government of India Act, 1935. 
 
The provisions were based on situation prevailing in 1935. That structure has become outdated due to changes 
in situations, technology etc. 
World has moved towards common Goods and Services Tax (GST) long ago. However, so far as India is 
concerned, GST is the tax for twenty first century [It is ri ghtly said that India is like elephant. It takes time to 
start, but once started, it is very di fficult to stop it]. 
Barring unforeseen circumstances, GST is likely to come into effect on 1-7-2017. 
 
1.1-1 Major defects in present structure of indirect taxes 
 
Fo lowing can be summarized as major defects in present structure of indirect taxes : 
 
?   Central Sales Tax (CST) is payable for every movement of goods from one State to other. If the 
sale is direct, CST is payable, Even in case of stock transfers or branch transfers, there is incidence 
of tax as input service credit (set off) of input taxes is not fully  available. 
?   Central Sales Tax is an orphan. Hence, if there is any di fficulty, there is no authority to sort it out and 
find solutions. This creates numerous problems in CST. 
?   Cascading effect of taxes cannot be avoided due to CST and Entry Tax. 
?   Movement of goods in European Union (EU) is free across al l countries without any incidence of 
tax. However, in India, movement of goods from one State to other is not tax free. 
?   India does not have a national market due to invisible barriers of central sales tax, Entry Tax and 
State Vat and visible barriers of check posts. 
?   Mil lions of man-hours and truck hours are lost at check posts. Besides, huge corruption is involved. 
?   Central Government cannot impose tax on goods beyond manufacturing level [CST though levied by 
Central Government is col lected and retained by State Government only]. 
?   State Government cannot impose service tax. 
?   Over the years, distinction between goods and services has become hazy, due to which there is 
overlapping of State Vat and Central Service Tax on transactions like works contract, food rated 
services (restaurants, outdoor catering, mandap services), Software, IPR Related services, lottery, 
SIM cards, renting of movable property etc. 
?   Same transaction is taxed both by Central and State Government which creates confusion, litigation 
and double taxation in many cases. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
1.3 What  is Goods and Services Tax? 
 
Goods and Services Tax means a tax on supply of goods or services, or both, except taxes on supply of 
alcoholic liquor for human consumption [Article 366(12A) of Constitution of India inserted w.e.f. 16-9-2016] 
Note that the word used is 'supply' and not 'sale'. Thus, stock transfers, branch transfers will also get covered 
under GST net. 
GST will be payable on free supplies made to related persons. GST will not be payable to free gifts and free 
samples to unrelated person, but input tax credit in respect of such goods will have to be reversed. 
IGST will be payable on inter-state stock transfers and branch transfers [Though CGST Act and IGST Act 
have not been extended to J&K, IGST will be payable]. 
For stock transfers or branch transfer within the State (except J&K), SGST and CGST will be payable only 
where the taxable person has more than one GST registrations within the State. If there is single registration 
within State, 'Bill of Supply' (challan) will be sufficient. 
Basic scheme of GST is as follows — 
 
 
?   Goods and Services Tax (GST) will be on 'supply' of goods or services or both, in India except 
Jammu and Kashmir. Area upto 200 nautical miles inside sea is 'India' for purpose of GST. 
?   For supplies within the State or Union Territory - (a) Central GST (CGST) will be payable to 
Central Government and (b) State GST (SGST) or UTGST (Union Territory GST) will be payable 
to State Government or Union Territory (as applicable). Area upto 12 nautical miles inside sea is  
part of State or Union Territory which is nearest. 
?   For  inter-state  supplies  (supply from one  State  or  Union Territory  to  another  State  or  Union 
Territory), Integrated GST (IGST) will be payable to Central Government. IGST is payable if supply 
is beyond 12 nautical miles but upto 200 nautical miles. 
?   In addition,  GST Compensation  Cess  of about  12%  will be payable  on pan masala,  tobacco 
products, coal, aerated waters and motor cars. 
?   Basic customs duty. Education Cess and Secondary and Higher Education Cess of Customs, IGST 
and GST Compensation Cess (on goods were Compensation Cess is applicable) will be payable on 
import of goods. 
?   Distinction between goods and services will be mostly eliminated. This will eliminate problem of dual 
taxation  presently  faced  by  construction  industry,  works  contract,  food  related  services  like 
restaurant and outdoor catering, leasing and hire services and software services. 
?   GST is based on Vat concept of a lowing input tax credit of tax paid on inputs, input services and 
capital goods, for payment of output tax. This will avoid cascading effect of taxes. 
?   GST is consumption based tax i.e. tax is payable in the State where goods or services or both are 
finally consumed. 
?   The rates of GST - (CGST + SGST/UTGST) -Nil, 3%, 5%, 12%, 18% and 28%. These rates will 
apply to IGST also. 
?   Though tax is payable to both Central Government and State Government, control will be exercised 
by State Government  Authorities  on 90%  of GSTN holder having supply upto rupees1.5 crore 
and 50%  of GSTN holder having supply above Rupees 1.5 crore  and  Central Government  
Authorities on 10% and 50%  respectively  on random basis . For Fresh GSTN Holder ,one case 
will go to centre and other to state  This will avoid dual control. 
Page 3


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
CHAPTER 1 - GST - An overvi ew 
 
 
 
 
 
 
 
 
 
1.1 Background of GST 
CHAPTER 1 
 
GST - An overview 
 
The present structure of Indirect Taxes in India is based on three lists in Seventh Schedule to Constitution of 
India, which came into effect on 26-1-1950. These lists are mostly based on Government of India Act, 1935. 
 
The provisions were based on situation prevailing in 1935. That structure has become outdated due to changes 
in situations, technology etc. 
World has moved towards common Goods and Services Tax (GST) long ago. However, so far as India is 
concerned, GST is the tax for twenty first century [It is ri ghtly said that India is like elephant. It takes time to 
start, but once started, it is very di fficult to stop it]. 
Barring unforeseen circumstances, GST is likely to come into effect on 1-7-2017. 
 
1.1-1 Major defects in present structure of indirect taxes 
 
Fo lowing can be summarized as major defects in present structure of indirect taxes : 
 
?   Central Sales Tax (CST) is payable for every movement of goods from one State to other. If the 
sale is direct, CST is payable, Even in case of stock transfers or branch transfers, there is incidence 
of tax as input service credit (set off) of input taxes is not fully  available. 
?   Central Sales Tax is an orphan. Hence, if there is any di fficulty, there is no authority to sort it out and 
find solutions. This creates numerous problems in CST. 
?   Cascading effect of taxes cannot be avoided due to CST and Entry Tax. 
?   Movement of goods in European Union (EU) is free across al l countries without any incidence of 
tax. However, in India, movement of goods from one State to other is not tax free. 
?   India does not have a national market due to invisible barriers of central sales tax, Entry Tax and 
State Vat and visible barriers of check posts. 
?   Mil lions of man-hours and truck hours are lost at check posts. Besides, huge corruption is involved. 
?   Central Government cannot impose tax on goods beyond manufacturing level [CST though levied by 
Central Government is col lected and retained by State Government only]. 
?   State Government cannot impose service tax. 
?   Over the years, distinction between goods and services has become hazy, due to which there is 
overlapping of State Vat and Central Service Tax on transactions like works contract, food rated 
services (restaurants, outdoor catering, mandap services), Software, IPR Related services, lottery, 
SIM cards, renting of movable property etc. 
?   Same transaction is taxed both by Central and State Government which creates confusion, litigation 
and double taxation in many cases. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
1.3 What  is Goods and Services Tax? 
 
Goods and Services Tax means a tax on supply of goods or services, or both, except taxes on supply of 
alcoholic liquor for human consumption [Article 366(12A) of Constitution of India inserted w.e.f. 16-9-2016] 
Note that the word used is 'supply' and not 'sale'. Thus, stock transfers, branch transfers will also get covered 
under GST net. 
GST will be payable on free supplies made to related persons. GST will not be payable to free gifts and free 
samples to unrelated person, but input tax credit in respect of such goods will have to be reversed. 
IGST will be payable on inter-state stock transfers and branch transfers [Though CGST Act and IGST Act 
have not been extended to J&K, IGST will be payable]. 
For stock transfers or branch transfer within the State (except J&K), SGST and CGST will be payable only 
where the taxable person has more than one GST registrations within the State. If there is single registration 
within State, 'Bill of Supply' (challan) will be sufficient. 
Basic scheme of GST is as follows — 
 
 
?   Goods and Services Tax (GST) will be on 'supply' of goods or services or both, in India except 
Jammu and Kashmir. Area upto 200 nautical miles inside sea is 'India' for purpose of GST. 
?   For supplies within the State or Union Territory - (a) Central GST (CGST) will be payable to 
Central Government and (b) State GST (SGST) or UTGST (Union Territory GST) will be payable 
to State Government or Union Territory (as applicable). Area upto 12 nautical miles inside sea is  
part of State or Union Territory which is nearest. 
?   For  inter-state  supplies  (supply from one  State  or  Union Territory  to  another  State  or  Union 
Territory), Integrated GST (IGST) will be payable to Central Government. IGST is payable if supply 
is beyond 12 nautical miles but upto 200 nautical miles. 
?   In addition,  GST Compensation  Cess  of about  12%  will be payable  on pan masala,  tobacco 
products, coal, aerated waters and motor cars. 
?   Basic customs duty. Education Cess and Secondary and Higher Education Cess of Customs, IGST 
and GST Compensation Cess (on goods were Compensation Cess is applicable) will be payable on 
import of goods. 
?   Distinction between goods and services will be mostly eliminated. This will eliminate problem of dual 
taxation  presently  faced  by  construction  industry,  works  contract,  food  related  services  like 
restaurant and outdoor catering, leasing and hire services and software services. 
?   GST is based on Vat concept of a lowing input tax credit of tax paid on inputs, input services and 
capital goods, for payment of output tax. This will avoid cascading effect of taxes. 
?   GST is consumption based tax i.e. tax is payable in the State where goods or services or both are 
finally consumed. 
?   The rates of GST - (CGST + SGST/UTGST) -Nil, 3%, 5%, 12%, 18% and 28%. These rates will 
apply to IGST also. 
?   Though tax is payable to both Central Government and State Government, control will be exercised 
by State Government  Authorities  on 90%  of GSTN holder having supply upto rupees1.5 crore 
and 50%  of GSTN holder having supply above Rupees 1.5 crore  and  Central Government  
Authorities on 10% and 50%  respectively  on random basis . For Fresh GSTN Holder ,one case 
will go to centre and other to state  This will avoid dual control. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
?   GST Council (Goods and Services Tax Council) is Apex Constitutional body which will determine 
policies of GST. 
1.3-1 Broad definition of 'service' 
 
'Services' means anything other than goods [Article 366(26A) of Constitution of India inserted w.e.f. 16-9- 
2016]. 
 
Definition of 'service' is risky. As it is presently worded, it can cover even immovable property. However, sale 
of land and fully  constructed and completed buildings have been excluded from purview of GST. 
The definition of 'service' is so broad that practically  ,there  is no limit for imposing any tax by Union or State 
Governments. 
 
1.3-2 Dual GST for supply of goods and services within State 
 
There will be dual GST - State GST (SGST) and Central GST (CGST) on supply of goods and services 
within the State [Article 246A of Constitution of India inserted w.e.f. 16-9-2016]. 
Territorial waters (i.e. 12 nautical miles inside the sea) will be part of State so far as GST is concerned. 
SGST will also apply in Union Territories having legislature. These are - Delhi and Puducherry. 
Both CGST and SGST will be on supply of goods and services within the State. 
 
1.3-3 Union Territory Goods and Service Tax (UTGST) 
 
In case of Union Territories which do not have legislature, UTGST (Union Territory Goods and Services Tax 
will be payable. These are as follows [section 2(8) of UTGST Act and section 2(114) of CGST Act— 
 
(a)   the Andaman and Nicobar Islands; 
(b)   Lakshadweep; 
(c)   Dadra and Nagar Haveli; 
(d)   Daman and Diu; 
(e)   Chandigarh; and 
(f)  other territory. 
For the purposes of CGST Act and UTGST Act, each of the territories specified in sub-clauses (a) to (f) shall 
be considered to be a separate Union territory. 
Delhi and Puducherry have their own legislatures and they will pass their own SGST Act. 
 
'Other Territory' - "Other territory" includes territories other than those comprising in a State and those 
referred to in sub-clauses (a) to (e) of section 2(114) - section 2(81) of CGST Act. 
This will cover Exclusive Economic Zone (except territorial waters). Thus, 'other territory' means area inside 
sea between 12 nautical miles to 200 nautical miles inside the sea. 
UTGST will apply for supply of goods and services within that area. 
 
'Other Territory' will not cover Jammu and Kashmir and CGST Act and IGST Act have not been extended to 
J&K [see section 1(2) of IGST Act and section 1(2) of CGST Act]. 
 
1.3-4 IGST for interstate transactions 
 
In case  of Inter State  supply of goods  and  services,  there  will be integrated  GST (IGST)  imposed  by 
Government of India [Article 269A(1) of Constitution of India inserted w.e.f. 16-9-2016]. 
 
Equivalent IGST (CVD) will also be imposed on imports [Explanation to Article 269A(1) of Constitution of 
India] 
 
The IGST Rate is double the CGST rate. 
 
Page 4


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
CHAPTER 1 - GST - An overvi ew 
 
 
 
 
 
 
 
 
 
1.1 Background of GST 
CHAPTER 1 
 
GST - An overview 
 
The present structure of Indirect Taxes in India is based on three lists in Seventh Schedule to Constitution of 
India, which came into effect on 26-1-1950. These lists are mostly based on Government of India Act, 1935. 
 
The provisions were based on situation prevailing in 1935. That structure has become outdated due to changes 
in situations, technology etc. 
World has moved towards common Goods and Services Tax (GST) long ago. However, so far as India is 
concerned, GST is the tax for twenty first century [It is ri ghtly said that India is like elephant. It takes time to 
start, but once started, it is very di fficult to stop it]. 
Barring unforeseen circumstances, GST is likely to come into effect on 1-7-2017. 
 
1.1-1 Major defects in present structure of indirect taxes 
 
Fo lowing can be summarized as major defects in present structure of indirect taxes : 
 
?   Central Sales Tax (CST) is payable for every movement of goods from one State to other. If the 
sale is direct, CST is payable, Even in case of stock transfers or branch transfers, there is incidence 
of tax as input service credit (set off) of input taxes is not fully  available. 
?   Central Sales Tax is an orphan. Hence, if there is any di fficulty, there is no authority to sort it out and 
find solutions. This creates numerous problems in CST. 
?   Cascading effect of taxes cannot be avoided due to CST and Entry Tax. 
?   Movement of goods in European Union (EU) is free across al l countries without any incidence of 
tax. However, in India, movement of goods from one State to other is not tax free. 
?   India does not have a national market due to invisible barriers of central sales tax, Entry Tax and 
State Vat and visible barriers of check posts. 
?   Mil lions of man-hours and truck hours are lost at check posts. Besides, huge corruption is involved. 
?   Central Government cannot impose tax on goods beyond manufacturing level [CST though levied by 
Central Government is col lected and retained by State Government only]. 
?   State Government cannot impose service tax. 
?   Over the years, distinction between goods and services has become hazy, due to which there is 
overlapping of State Vat and Central Service Tax on transactions like works contract, food rated 
services (restaurants, outdoor catering, mandap services), Software, IPR Related services, lottery, 
SIM cards, renting of movable property etc. 
?   Same transaction is taxed both by Central and State Government which creates confusion, litigation 
and double taxation in many cases. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
1.3 What  is Goods and Services Tax? 
 
Goods and Services Tax means a tax on supply of goods or services, or both, except taxes on supply of 
alcoholic liquor for human consumption [Article 366(12A) of Constitution of India inserted w.e.f. 16-9-2016] 
Note that the word used is 'supply' and not 'sale'. Thus, stock transfers, branch transfers will also get covered 
under GST net. 
GST will be payable on free supplies made to related persons. GST will not be payable to free gifts and free 
samples to unrelated person, but input tax credit in respect of such goods will have to be reversed. 
IGST will be payable on inter-state stock transfers and branch transfers [Though CGST Act and IGST Act 
have not been extended to J&K, IGST will be payable]. 
For stock transfers or branch transfer within the State (except J&K), SGST and CGST will be payable only 
where the taxable person has more than one GST registrations within the State. If there is single registration 
within State, 'Bill of Supply' (challan) will be sufficient. 
Basic scheme of GST is as follows — 
 
 
?   Goods and Services Tax (GST) will be on 'supply' of goods or services or both, in India except 
Jammu and Kashmir. Area upto 200 nautical miles inside sea is 'India' for purpose of GST. 
?   For supplies within the State or Union Territory - (a) Central GST (CGST) will be payable to 
Central Government and (b) State GST (SGST) or UTGST (Union Territory GST) will be payable 
to State Government or Union Territory (as applicable). Area upto 12 nautical miles inside sea is  
part of State or Union Territory which is nearest. 
?   For  inter-state  supplies  (supply from one  State  or  Union Territory  to  another  State  or  Union 
Territory), Integrated GST (IGST) will be payable to Central Government. IGST is payable if supply 
is beyond 12 nautical miles but upto 200 nautical miles. 
?   In addition,  GST Compensation  Cess  of about  12%  will be payable  on pan masala,  tobacco 
products, coal, aerated waters and motor cars. 
?   Basic customs duty. Education Cess and Secondary and Higher Education Cess of Customs, IGST 
and GST Compensation Cess (on goods were Compensation Cess is applicable) will be payable on 
import of goods. 
?   Distinction between goods and services will be mostly eliminated. This will eliminate problem of dual 
taxation  presently  faced  by  construction  industry,  works  contract,  food  related  services  like 
restaurant and outdoor catering, leasing and hire services and software services. 
?   GST is based on Vat concept of a lowing input tax credit of tax paid on inputs, input services and 
capital goods, for payment of output tax. This will avoid cascading effect of taxes. 
?   GST is consumption based tax i.e. tax is payable in the State where goods or services or both are 
finally consumed. 
?   The rates of GST - (CGST + SGST/UTGST) -Nil, 3%, 5%, 12%, 18% and 28%. These rates will 
apply to IGST also. 
?   Though tax is payable to both Central Government and State Government, control will be exercised 
by State Government  Authorities  on 90%  of GSTN holder having supply upto rupees1.5 crore 
and 50%  of GSTN holder having supply above Rupees 1.5 crore  and  Central Government  
Authorities on 10% and 50%  respectively  on random basis . For Fresh GSTN Holder ,one case 
will go to centre and other to state  This will avoid dual control. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
?   GST Council (Goods and Services Tax Council) is Apex Constitutional body which will determine 
policies of GST. 
1.3-1 Broad definition of 'service' 
 
'Services' means anything other than goods [Article 366(26A) of Constitution of India inserted w.e.f. 16-9- 
2016]. 
 
Definition of 'service' is risky. As it is presently worded, it can cover even immovable property. However, sale 
of land and fully  constructed and completed buildings have been excluded from purview of GST. 
The definition of 'service' is so broad that practically  ,there  is no limit for imposing any tax by Union or State 
Governments. 
 
1.3-2 Dual GST for supply of goods and services within State 
 
There will be dual GST - State GST (SGST) and Central GST (CGST) on supply of goods and services 
within the State [Article 246A of Constitution of India inserted w.e.f. 16-9-2016]. 
Territorial waters (i.e. 12 nautical miles inside the sea) will be part of State so far as GST is concerned. 
SGST will also apply in Union Territories having legislature. These are - Delhi and Puducherry. 
Both CGST and SGST will be on supply of goods and services within the State. 
 
1.3-3 Union Territory Goods and Service Tax (UTGST) 
 
In case of Union Territories which do not have legislature, UTGST (Union Territory Goods and Services Tax 
will be payable. These are as follows [section 2(8) of UTGST Act and section 2(114) of CGST Act— 
 
(a)   the Andaman and Nicobar Islands; 
(b)   Lakshadweep; 
(c)   Dadra and Nagar Haveli; 
(d)   Daman and Diu; 
(e)   Chandigarh; and 
(f)  other territory. 
For the purposes of CGST Act and UTGST Act, each of the territories specified in sub-clauses (a) to (f) shall 
be considered to be a separate Union territory. 
Delhi and Puducherry have their own legislatures and they will pass their own SGST Act. 
 
'Other Territory' - "Other territory" includes territories other than those comprising in a State and those 
referred to in sub-clauses (a) to (e) of section 2(114) - section 2(81) of CGST Act. 
This will cover Exclusive Economic Zone (except territorial waters). Thus, 'other territory' means area inside 
sea between 12 nautical miles to 200 nautical miles inside the sea. 
UTGST will apply for supply of goods and services within that area. 
 
'Other Territory' will not cover Jammu and Kashmir and CGST Act and IGST Act have not been extended to 
J&K [see section 1(2) of IGST Act and section 1(2) of CGST Act]. 
 
1.3-4 IGST for interstate transactions 
 
In case  of Inter State  supply of goods  and  services,  there  will be integrated  GST (IGST)  imposed  by 
Government of India [Article 269A(1) of Constitution of India inserted w.e.f. 16-9-2016]. 
 
Equivalent IGST (CVD) will also be imposed on imports [Explanation to Article 269A(1) of Constitution of 
India] 
 
The IGST Rate is double the CGST rate. 
 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
IGST and CGST rates will be same allover India and will not vary from State to State. Otherwise there will 
be utter chaos. 
Revenue from IGST will be apportioned among Union and States by Parliament on basis of recommendation 
of Goods and Service Tax Council [Article 269A(2) and Article 270(1A) of Constitution of India inserted 
w.e.f. 16-9-2016]. 
This apportionment will be required as input tax credit of IGST can be used for SGST and vice versa. 
 
Since IGST will be on 'supply of goods or services', IGST will be payable on inter-state stock transfers, 
branch transfers etc. 
However, CGST, SGST, UTGST or IGST will not be payable if goods are sent for job work outside the 
factory. 
1.3-4A GST is consumption based tax based on Vat principle 
 
GST is consumption based tax, i.e. tax will be payable in the State in which goods and services are finally 
consumed. GST will be based on Vat system of a lowing input tax credit for payment of tax on output supply. 
The States from which goods are supplied will not get any tax as goods are consumed in another State. 
 
In case of inter-state supplies, IGST will be payable. Input Tax Credit of IGST paid in one State will be 
available to receiver of goods or services in another State. 
1.3-5 Input Tax Credit 
 
Allowability  of input tax credit for payment of output tax is one of the key features of GST. This will 
avoid 
Page 5


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
CHAPTER 1 - GST - An overvi ew 
 
 
 
 
 
 
 
 
 
1.1 Background of GST 
CHAPTER 1 
 
GST - An overview 
 
The present structure of Indirect Taxes in India is based on three lists in Seventh Schedule to Constitution of 
India, which came into effect on 26-1-1950. These lists are mostly based on Government of India Act, 1935. 
 
The provisions were based on situation prevailing in 1935. That structure has become outdated due to changes 
in situations, technology etc. 
World has moved towards common Goods and Services Tax (GST) long ago. However, so far as India is 
concerned, GST is the tax for twenty first century [It is ri ghtly said that India is like elephant. It takes time to 
start, but once started, it is very di fficult to stop it]. 
Barring unforeseen circumstances, GST is likely to come into effect on 1-7-2017. 
 
1.1-1 Major defects in present structure of indirect taxes 
 
Fo lowing can be summarized as major defects in present structure of indirect taxes : 
 
?   Central Sales Tax (CST) is payable for every movement of goods from one State to other. If the 
sale is direct, CST is payable, Even in case of stock transfers or branch transfers, there is incidence 
of tax as input service credit (set off) of input taxes is not fully  available. 
?   Central Sales Tax is an orphan. Hence, if there is any di fficulty, there is no authority to sort it out and 
find solutions. This creates numerous problems in CST. 
?   Cascading effect of taxes cannot be avoided due to CST and Entry Tax. 
?   Movement of goods in European Union (EU) is free across al l countries without any incidence of 
tax. However, in India, movement of goods from one State to other is not tax free. 
?   India does not have a national market due to invisible barriers of central sales tax, Entry Tax and 
State Vat and visible barriers of check posts. 
?   Mil lions of man-hours and truck hours are lost at check posts. Besides, huge corruption is involved. 
?   Central Government cannot impose tax on goods beyond manufacturing level [CST though levied by 
Central Government is col lected and retained by State Government only]. 
?   State Government cannot impose service tax. 
?   Over the years, distinction between goods and services has become hazy, due to which there is 
overlapping of State Vat and Central Service Tax on transactions like works contract, food rated 
services (restaurants, outdoor catering, mandap services), Software, IPR Related services, lottery, 
SIM cards, renting of movable property etc. 
?   Same transaction is taxed both by Central and State Government which creates confusion, litigation 
and double taxation in many cases. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
1.3 What  is Goods and Services Tax? 
 
Goods and Services Tax means a tax on supply of goods or services, or both, except taxes on supply of 
alcoholic liquor for human consumption [Article 366(12A) of Constitution of India inserted w.e.f. 16-9-2016] 
Note that the word used is 'supply' and not 'sale'. Thus, stock transfers, branch transfers will also get covered 
under GST net. 
GST will be payable on free supplies made to related persons. GST will not be payable to free gifts and free 
samples to unrelated person, but input tax credit in respect of such goods will have to be reversed. 
IGST will be payable on inter-state stock transfers and branch transfers [Though CGST Act and IGST Act 
have not been extended to J&K, IGST will be payable]. 
For stock transfers or branch transfer within the State (except J&K), SGST and CGST will be payable only 
where the taxable person has more than one GST registrations within the State. If there is single registration 
within State, 'Bill of Supply' (challan) will be sufficient. 
Basic scheme of GST is as follows — 
 
 
?   Goods and Services Tax (GST) will be on 'supply' of goods or services or both, in India except 
Jammu and Kashmir. Area upto 200 nautical miles inside sea is 'India' for purpose of GST. 
?   For supplies within the State or Union Territory - (a) Central GST (CGST) will be payable to 
Central Government and (b) State GST (SGST) or UTGST (Union Territory GST) will be payable 
to State Government or Union Territory (as applicable). Area upto 12 nautical miles inside sea is  
part of State or Union Territory which is nearest. 
?   For  inter-state  supplies  (supply from one  State  or  Union Territory  to  another  State  or  Union 
Territory), Integrated GST (IGST) will be payable to Central Government. IGST is payable if supply 
is beyond 12 nautical miles but upto 200 nautical miles. 
?   In addition,  GST Compensation  Cess  of about  12%  will be payable  on pan masala,  tobacco 
products, coal, aerated waters and motor cars. 
?   Basic customs duty. Education Cess and Secondary and Higher Education Cess of Customs, IGST 
and GST Compensation Cess (on goods were Compensation Cess is applicable) will be payable on 
import of goods. 
?   Distinction between goods and services will be mostly eliminated. This will eliminate problem of dual 
taxation  presently  faced  by  construction  industry,  works  contract,  food  related  services  like 
restaurant and outdoor catering, leasing and hire services and software services. 
?   GST is based on Vat concept of a lowing input tax credit of tax paid on inputs, input services and 
capital goods, for payment of output tax. This will avoid cascading effect of taxes. 
?   GST is consumption based tax i.e. tax is payable in the State where goods or services or both are 
finally consumed. 
?   The rates of GST - (CGST + SGST/UTGST) -Nil, 3%, 5%, 12%, 18% and 28%. These rates will 
apply to IGST also. 
?   Though tax is payable to both Central Government and State Government, control will be exercised 
by State Government  Authorities  on 90%  of GSTN holder having supply upto rupees1.5 crore 
and 50%  of GSTN holder having supply above Rupees 1.5 crore  and  Central Government  
Authorities on 10% and 50%  respectively  on random basis . For Fresh GSTN Holder ,one case 
will go to centre and other to state  This will avoid dual control. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
?   GST Council (Goods and Services Tax Council) is Apex Constitutional body which will determine 
policies of GST. 
1.3-1 Broad definition of 'service' 
 
'Services' means anything other than goods [Article 366(26A) of Constitution of India inserted w.e.f. 16-9- 
2016]. 
 
Definition of 'service' is risky. As it is presently worded, it can cover even immovable property. However, sale 
of land and fully  constructed and completed buildings have been excluded from purview of GST. 
The definition of 'service' is so broad that practically  ,there  is no limit for imposing any tax by Union or State 
Governments. 
 
1.3-2 Dual GST for supply of goods and services within State 
 
There will be dual GST - State GST (SGST) and Central GST (CGST) on supply of goods and services 
within the State [Article 246A of Constitution of India inserted w.e.f. 16-9-2016]. 
Territorial waters (i.e. 12 nautical miles inside the sea) will be part of State so far as GST is concerned. 
SGST will also apply in Union Territories having legislature. These are - Delhi and Puducherry. 
Both CGST and SGST will be on supply of goods and services within the State. 
 
1.3-3 Union Territory Goods and Service Tax (UTGST) 
 
In case of Union Territories which do not have legislature, UTGST (Union Territory Goods and Services Tax 
will be payable. These are as follows [section 2(8) of UTGST Act and section 2(114) of CGST Act— 
 
(a)   the Andaman and Nicobar Islands; 
(b)   Lakshadweep; 
(c)   Dadra and Nagar Haveli; 
(d)   Daman and Diu; 
(e)   Chandigarh; and 
(f)  other territory. 
For the purposes of CGST Act and UTGST Act, each of the territories specified in sub-clauses (a) to (f) shall 
be considered to be a separate Union territory. 
Delhi and Puducherry have their own legislatures and they will pass their own SGST Act. 
 
'Other Territory' - "Other territory" includes territories other than those comprising in a State and those 
referred to in sub-clauses (a) to (e) of section 2(114) - section 2(81) of CGST Act. 
This will cover Exclusive Economic Zone (except territorial waters). Thus, 'other territory' means area inside 
sea between 12 nautical miles to 200 nautical miles inside the sea. 
UTGST will apply for supply of goods and services within that area. 
 
'Other Territory' will not cover Jammu and Kashmir and CGST Act and IGST Act have not been extended to 
J&K [see section 1(2) of IGST Act and section 1(2) of CGST Act]. 
 
1.3-4 IGST for interstate transactions 
 
In case  of Inter State  supply of goods  and  services,  there  will be integrated  GST (IGST)  imposed  by 
Government of India [Article 269A(1) of Constitution of India inserted w.e.f. 16-9-2016]. 
 
Equivalent IGST (CVD) will also be imposed on imports [Explanation to Article 269A(1) of Constitution of 
India] 
 
The IGST Rate is double the CGST rate. 
 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
IGST and CGST rates will be same allover India and will not vary from State to State. Otherwise there will 
be utter chaos. 
Revenue from IGST will be apportioned among Union and States by Parliament on basis of recommendation 
of Goods and Service Tax Council [Article 269A(2) and Article 270(1A) of Constitution of India inserted 
w.e.f. 16-9-2016]. 
This apportionment will be required as input tax credit of IGST can be used for SGST and vice versa. 
 
Since IGST will be on 'supply of goods or services', IGST will be payable on inter-state stock transfers, 
branch transfers etc. 
However, CGST, SGST, UTGST or IGST will not be payable if goods are sent for job work outside the 
factory. 
1.3-4A GST is consumption based tax based on Vat principle 
 
GST is consumption based tax, i.e. tax will be payable in the State in which goods and services are finally 
consumed. GST will be based on Vat system of a lowing input tax credit for payment of tax on output supply. 
The States from which goods are supplied will not get any tax as goods are consumed in another State. 
 
In case of inter-state supplies, IGST will be payable. Input Tax Credit of IGST paid in one State will be 
available to receiver of goods or services in another State. 
1.3-5 Input Tax Credit 
 
Allowability  of input tax credit for payment of output tax is one of the key features of GST. This will 
avoid 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
cascading effect of taxes. 
 
IGST will ensure seamless movement of goods across the country (except J&K) as taxes will move along with 
goods. 
1.3-6 Finance  Cost will increase 
 
Since IGST will be payable on inter-state branch transfers and stock transfers, finance will be blocked and 
interest burden of dealers having inter-state transactions will increase considerably. 
1.3-7 Central Excise duty on petroleum and tobacco products 
 
Central Excise duty will continue on petroleum products and tobacco products [Entry 84 of List I (Union List) 
of Seventh Schedule to Constitution of India as amended w.e.f. 16-9-2016]. 
Tobacco products will be subject to excise duty plus GST. 
1.3-8 Sales tax on petroleum products and alcoholic liquor within State 
 
States will have powers to impose sales tax on sale within the State on petroleum products and alcoholic liquor 
for human consumption [Entry 54 of List II (State List) of Seventh Schedule  to Constitution of India as 
amended w.e.f. 16-9-2016]. 
Thus, petroleum products will be presently out of GST. 
 
Petroleum Products means petroleum crude, high speed diesel, motor spirit (commonly known as petrol), 
natural gas and aviation turbine fuel. 
Petroleum products will be brought in GST network at a later stage on recommendation of GST Council - 
section 5(2) of IGST Act. 
1.3-9 Tax on entertainment only by Municipalities, panchayat, regional council and district council 
 
Municipality,   Panchayat,  Regional  Council  and  District  Council  will  have  powers  to  impose  tax  on 
entertainment and amusement [Entry 62 of List II (State List) of Seventh Schedule to Constitution of India as 
amended w.e.f. 16-9-2016] 
District Councils for administration of Tribal Areas in States of Assam, Meghalaya, Tripura and Mizoram will 
have  powers  to impose  entertainment  tax [paragraph 8(3)(d)  of Sixth Schedule  to Constitution  of India 
inserted w.e.f. 16-9-2016]. 
1.4 Expected rates of GST 
 
The IGST and CGST Acts do not indicate GST rate structure. 
 
As per section 9 of CGST Act, rate of CGST will be as notified by Central/State Government. The rate shall 
not exceed 20%. Same provision will be in SGST Act of each State. 
Thus, total GST rate for intra-state supplies will not exceed 40% [20% CGST and 20% SGST]. 
 
As per section 5 of IGST Act, rate of IGST will be as notified by Central Government. The rate shall not 
exceed 40%. 
Most probably, the GST rates will be notified based on HSN Code. Customs Tariff Act will be taken as base. 
GST rates will be contained in notification giving references to HSN code as per Customs Tariff Act. 
GST rates on supply of services will be determined by GST. In a l probabilities, the present classification of 
services in Finance Act, 1994 [service tax law] is likely to continue. 
The GST Council has decided and has agreed upon various slabs of rates. The slabs fixed are 5%, 12%, 18% 
and 28%.