Unit I: Constitutional Framework and Evolution of GST
1. Indirect Taxes Before GST: The Legacy System
Before GST, India’s indirect tax system was highly fragmented. The Centre and States
imposed separate taxes:
● Central Taxes: Included Central Excise Duty (on manufacturing), Service Tax (on
services), and Customs Duty (on imports/exports).
● State Taxes: Included Value Added Tax (VAT) on goods, Entry Tax, Luxury Tax,
Entertainment Tax, and more.
This led to a cascading effect-tax on tax-because taxes paid at one stage were not
always credited against taxes due at the next. For example, excise paid on a product at
manufacture could not be set off against VAT paid at sale, increasing the final price for
consumers62.
2. Concept of VAT (Value Added Tax)
VAT was introduced to tax only the value addition at each stage of production or
distribution. While it helped reduce the cascading effect within a state, it was limited:
● State Boundaries: VAT applied only within the state; inter-state transactions were
taxed separately.
● Multiple Registrations: Businesses operating in multiple states needed separate
VAT registrations, increasing compliance burden.
3. Defects in the Previous Tax Structure
● Multiplicity: Too many taxes, each with its own rules and authorities.
● Compliance Burden: Businesses had to file multiple returns and maintain
extensive records.
● Tax Evasion: Complexity led to loopholes and evasion.
● Lack of Transparency: Difficult for authorities and taxpayers to track the tax
flow6.
4. Overview of GST
GST (Goods and Services Tax) is a comprehensive, destination-based indirect tax that
replaced most central and state indirect taxes. Launched on 1st July 2017, GST aims to:
● Simplify the tax structure
● Eliminate the cascading effect
● Ensure seamless flow of input tax credit (ITC)
● Increase transparency and compliance267
5. Structure of GST
India adopted a dual GST model:
● CGST (Central GST): Levied by the Central Government on intra-state supplies.
● SGST (State GST): Levied by State Governments on intra-state supplies.
● IGST (Integrated GST): Levied by the Centre on inter-state supplies and imports,
later apportioned between Centre and States63.
6. GST Council
The GST Council is the apex decision-making body for GST. It is constituted under
Article 279A of the Constitution:
● Chairperson: Union Finance Minister
● Members: State Finance Ministers
● Role: Decides tax rates, exemptions, rules, and procedures. Its recommendations
shape the GST framework3.
Unit II: Supply, Place of Supply, and Types of Supplies
1. Definition of Supply
Under GST, supply is broadly defined to cover all forms of transfer of goods or services,
including:
● Sale, transfer, barter, exchange, license, rental, lease, or disposal
● Applies to both goods and services, and includes imports6.
2. Place of Supply
GST is a destination-based tax, meaning tax revenue goes to the state where
goods/services are consumed, not produced. The place of supply determines:
● Whether a transaction is intra-state (CGST + SGST) or inter-state (IGST)
● Which state receives the tax revenue
Rules for Place of Supply vary by transaction type:
● Goods: Usually, the place where delivery terminates.
● Services: More complex, often the recipient’s location, but can vary for services
like telecom, banking, or transportation4.
3. Types of Supplies
● Intra-State Supply: Supplier and recipient are in the same state/UT; CGST and
SGST apply.
● Inter-State Supply: Supplier and recipient are in different states/UTs; IGST
applies4.
4. Composite & Mixed Supply
● Composite Supply: Two or more goods/services naturally bundled and supplied
together (e.g., a machine with installation). Tax rate of the principal supply
applies.
● Mixed Supply: Two or more goods/services supplied together but not naturally
bundled (e.g., a gift hamper with unrelated items). Highest tax rate among the
items applies.
5. Import & Export
● Import: Treated as inter-state supply; IGST applies.
● Export: Treated as zero-rated supply; GST rate is 0%, and input credits can be
claimed.
6. Time of Supply
This is the point when the liability to pay GST arises. Rules differ for goods and services,
but generally, it is the earlier of:
● Date of issue of invoice
● Date of receipt of payment
7. Reverse Charge
In certain cases, the recipient-not the supplier-must pay GST. This applies to:
● Supplies from unregistered persons
● Specific notified goods/services
8. Zero/Nil/Exempt Supplies
● Zero-rated: Exports and supplies to SEZs; eligible for input tax credit.
● Nil-rated: GST rate is 0%, but input credit is not available.
● Exempted: Not subject to GST at all.
Unit III: Registration, Documentation, and Returns
1. Registration
● Mandatory: For businesses exceeding the threshold turnover (₹40 lakh for goods,
₹20 lakh for services, lower for special category states)5.
● PAN-based: Each registration is linked to the PAN and is state-specific.
● Composition Scheme: For small taxpayers (turnover up to ₹1.5 crore), allows
payment of tax at a lower rate with reduced compliance75.
2. Documentation
● Tax Invoice: Must be issued for every taxable supply.
● Bill of Supply: For exempted goods/services or composition dealers.
● Receipt/Payment Vouchers: For advances received.
● Credit/Debit Notes: For correcting taxable value or tax charged.
3. Returns
GST returns are periodic statements of sales, purchases, tax collected, and tax paid.
Key returns include:
● GSTR-1: Details of outward supplies (sales).
● GSTR-2: Details of inward supplies (purchases)-currently suspended.
● GSTR-3B: Monthly summary return (sales, purchases, tax liability, and payment).
● GSTR-9: Annual return.
Other returns exist for special cases (composition scheme, non-residents, TDS, e-
commerce, etc.)5.
4. Time & Procedure for Filing Returns
● Returns are filed monthly or quarterly, depending on turnover and scheme.
● All returns must be filed online through the GST portal (gst.gov.in).
● Invoices must be uploaded for credit matching.
● Late filing attracts penalties and interest5.
Unit IV: Input Tax Credit, Payment, E-Way Bill, and GST
Portal
1. Input Tax Credit (ITC)
ITC is the backbone of GST, allowing businesses to claim credit for GST paid on
purchases used for business purposes, thus removing the cascading effect:
● Conditions: Valid tax invoice, receipt of goods/services, supplier has paid tax,
returns filed.
● Restrictions: Not available for personal use, exempt supplies, or certain blocked
credits.
● Matching: ITC can be claimed only if invoices match between supplier and
recipient in the GST system7.
2. Payment of Tax
● Utilization: ITC is used first to pay output tax liability; any remaining liability is
paid in cash.
● Modes: Payment is made online via the GST portal using net banking,
credit/debit cards, or challan.
3. E-Way Bill
● Required for movement of goods valued over ₹50,000.
● Generated electronically before movement begins.
● Contains details of goods, consignor, consignee, and transporter.
● Ensures tracking and reduces tax evasion.
4. GST Portal
● The official portal (gst.gov.in) is the digital interface for all GST compliance:
registration, return filing, payment, and ITC claims.
● GST Suvidha Providers (GSPs): Authorized intermediaries that help taxpayers
interact with the GST system7.
How GST Works in Practice
1. Manufacture to Sale
● Manufacturer buys raw materials (pays GST), manufactures goods, and
sells to wholesaler (charges GST).
● Wholesaler claims ITC on GST paid, adds value, sells to retailer (charges
GST).
● Retailer claims ITC on GST paid, sells to consumer (charges GST).
● Consumer bears the final GST; all others claim ITC on their purchases,
paying GST only on value addition7.
2. Destination-Based Taxation
● GST revenue accrues to the state where the final consumption occurs, not
where goods are produced.
3. Compliance and Transparency
● All transactions are recorded electronically, increasing transparency and
reducing evasion.
Conclusion
GST has revolutionized India’s indirect tax system by:
● Unifying multiple taxes into one
● Simplifying compliance
● Eliminating cascading tax effects
● Making India a single market
It is a dynamic system, with rules and rates subject to change based on GST Council
recommendations. Businesses must stay updated and compliant to fully benefit from
GST’s advantages.
