(A) Features of Dual Model of GST
The significant features of Dual GST in India, are as under:
- The GST has two components – Central Goods and Service Tax (CGST) and State Goods and Service Tax (SGST)/ Union Territory Goods and Service Tax (UTGST).
- CGST is to be administered by the Central Government and SGST is to be administered by State UTGST is to be administered by Administrator appointed by the Central Government for the Union Territory.
- CGST has replaced existing Central Excise, Service Tax, Additional Excise Duty, Special Additional Duty of Customs, etc. whereas SGST has replaced State VAT, CST, Luxury Tax, Octroi and Entry Tax, Purchase Tax, etc.
- Taxable Event under GST shall be supply of goods or services or both. It is an event the occurrence of which attracts the liability to tax. Under earlier system of indirect taxes there were different taxable event in each of the indirect taxes. “Manufacture” was a taxable event under Central Excise, “Transfer of property in goods” under VAT/CST, and services “Provided or agreed to be provided” in Service Tax.
- GST is based on destination based consumption tax principle. On the contrary, erstwhile Central Sales Tax was origin based tax.
Destination Based Taxation
as the name suggests is the taxation based on destination or consumption of the goods or services. This principle seeks to tax the goods and services on simple theory that the goods or services should be taxed at the place where their consumption takes place rather than the point where their origin takes place. The entire revenue relating to the goods or services should accrue in the jurisdiction where they are being ultimately consumed.
Example: If A in Delhi produces the goods and sells the goods to B in Haryana, then in such case the tax should accrue to the State of Haryana and not to the State of Delhi.
On the other hand, Origin Based Taxation as the name suggests was the taxation system where the tax accrued to the State from where the transaction originated.
Example: If A in Delhi produces the goods and sells the goods to B in Haryana, then in such case the central sales tax was levied and collected in the State of Delhi and not in the State of Haryana. The revenue in the case of origin based taxation should accrue to the place, where the transaction originates and not to the State where such goods or services or both are consumed.
- Under former indirect taxes, two separate legal entities were required to complete the transaction. Whereas in GST in specified situations even self-supply is also subject to tax. Transfer of goods from one branch of a person in a State to a branch in other State is also subject to tax under GST.
Example: If A transfer the goods from its head office in Delhi to its branch in Ludhiana (Punjab), it will be subject to GST.
- Supplies of goods or services or both as specified in Schedule-I is to be treated as Supply of goods or services or both and subject to tax under GST even if such supplies are made without consideration.
- GST is a destination based consumption tax as discussed hereinabove. Keeping in view the same principle in mind, concept of centralised registration which was hitherto provided under service tax law has been dispensed with. In GST it has been provided that every supplier has to seek registration in all those states from where they are supplying goods or services or both. However, if all the places of supplies are in the same State, single registration is required to be obtained.
- Exports is zero rated.
- GST has a list of exempted goods and of exempted services.
- Some of the commodities have been kept outside the purview of GST
- Taxes collected by Local Bodies have not been subsumed.
- States is to collect the State GST from all the registered dealers.
- Procedures for collection of Central and State GSTs/Union Territory GST is uniform.
- The payment Challan might contain some additional information.
- There is one common tax return for both taxes, with one copy given to the Central authority and the other to the relevant State authority electronically.
- GST returns are required to be filed online.
(B) IGST and its Features
IGST IGST is to be levied and collected by the Central Government on Inter-State supply of goods and services. As per Article 269A of the Constitution, the 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 State.
The following are the features of IGST
- The Central Government would administer and levy taxes on IGST.
- Seller/service provider in the origin State is to charge IGST on Inter-state supply of goods and/or services. IGST = CGST + SGST/UTGST
- Inter-State Seller/service provider shall use his input CGST and input SGST for payment of IGST, i.e., he shall pay net IGST.
- Inter-State Buyer/service recipient shall avail input tax credit on the basis of tax invoice for payment of his own IGST, CGST or SGST.
- Both, the seller/service provider and the buyer/service recipient shall report these transactions in the respective e-returns.
- The exporting state will transfer the SGST portion to Central Government and Central Government will transfer that SGST to importing State.
- Stock transfer to branch/depot in other State will also attract IGST. Where the stock transfer is from branch in one city to a branch in another city but within the same State, it does not attract any IGST or CGST and SGST unless the each branch is separately registered and it has separate verticals.
- IGST will be levied on Import of Goods and/or Services. Therefore, Import will be attract Basic Custom Duty plus IGST.
(C) Features of Goods and Services Tax (Compensation to States) Act, 2017
The Goods and Services Tax (Compensation to States) Act, 2017 provides for a mechanism to compensate the States on account of loss of revenue which may arise due to implementation of the Goods and Services Tax read together with the Constitutional (101st Amendment) Act, 2016, for a period of 5 years.
This Act, inter alia provides:
(a) That the base year during the transaction period shall be reckoned as the financial year 2015-16 for the purpose of calculating compensation amount payable to the States;
(b) That the revenue proposed to be compensated would consist of revenues from all taxes that stands subsumed into the GST law, as audited by the CAG;
(c) For reckoning the growth rate of revenue subsumed for a State at 14% p.a.;
(d) Levy of a cess over and above the GST (named as GST Compensation Cess) on certain notified goods to compensate States for 5 years on account of revenue loss suffered by them. Notified Goods are:
- Pan Masala
- Aerated Water
- Tobacco & Tobacco Product
- Cigarettes, Cigar, Hookah
- Motor vehicle
- Coal, Lignite
(e) That the proceeds of the cess will be utilized to compensate States that warrant payment of compensation;
(f) That 50% of the amount remaining unutilized in the fund at the end of the fifth year will be transferred to the Centre and the balance 50% would be distributed amongst the State and Union Territories in the ratio of total revenues from SGST/UTGST of the fifth year;
(g) GST compensation cess (under section 8 of the Act) will be levied on all intra-State and inter-State supplies of goods or services or both, including import of goods;
(h) The Cess would not be leviable on supplies made by a person who has opted for composition levy;
(i) Input tax credit on inward supplies liable to cess can be utilized only for payment of cess on outward supplies liable to cess under the Act.
(D) Acts and Rules passed for implementation of GST
As already discussed above, many indirect taxes that were levied by the Central Government or the State Governments at each stage of supply chain starting from manufacture or import and till the last retail level have been absorbed in a single tax called the goods and service tax (GST). GST is levied on the supply of goods or services or both. For this purpose, after making the amendments in the Constitution of India, the following Acts have been passed by the Parliament to give effect to the implementation of GST w.e.f. 1.7.2017:
- The Central Goods and Services Tax Act, 2017 (CGST Act)
- The Integrated Goods and Services Act, 2017 (IGST Act)
- The Goods and Services Tax (Compensation to States) Act, 2017
The Central Government has also notified the following rules to implement the above laws:
- Central Goods and Services Tax (CGST) Rules, 2017
- Integrated Goods and Services Tax Rules, 2017
- Goods and Services Tax Compensation Cess Rules, 2017
Further, India is a summation of following three categories of territories,—
- 29 States;
- Two Union Territories with Legislature (States with limited powers) (i.e. Union Territories of Delhi and Pondicherry)
- Five Union Territories without Legislature (i.e. Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli, Daman and Diu, Chandigarh).
Thus, 31 State and Goods Service Tax Act, 2017 (SGST Act) have been passed by 29 States and 2 Union Territories with Legislature to implement GST in their respective States.
In addition to the above, the Parliament has passed the Union Goods and Service Tax Act, 2017 (UGST Act) for five Union Territories to implement GST in the Union Territories
Hence, the total number of Goods and Service Tax Acts (GST Acts) are 35. Four Acts have been passed by the Parliament (including the UTGST Act) and 31 Acts have been passed by the respective State Governments/Union Territories with Legislature (States with limited powers).