INTRODUCTION SATC 1.

GST IN INDIA – AN INTRODUCTION

Taxes are broadly classified into Direct and Indirect Taxes

Indirect taxes are levied on consumption, expenditure or privilege but not on income or property.
Hitherto (Until now), a number of indirect taxes were levied in India, namely, excise duty, customs
duty, service tax, central sales tax (CST), value added tax (VAT), entry tax, purchase tax,
entertainment tax, tax on lottery, betting and gambling, luxury tax, tax on advertisements, etc.

However, Indirect taxation in India has witnessed a major change on July 01, 2017 to introduced a
unified indirect tax regime wherein a large number of Central and State indirect taxes have been
amalgamated into a single tax – Goods and Services Tax (GST).

The introduction of GST is a very significant step in the field of indirect tax reforms in India. Customs
duty will continue in post-GST regime.

Difference between Direct Taxes and Indirect Taxes

S. No. Direct Taxes Indirect Taxes

1 Payer of tax and sufferer of tax one and Payer of tax not sufferer of tax whereas
same (i.e. impact and incidence on the sufferer of tax is not paying directly to the
same person) Government (i.e. impact on one head
and incidence on other head)

2 Income based taxes Supply based taxes

3 Rate of taxes are different from person to Rate of duties are not differ from
person person to person

4 Entire revenue goes to Central Revenue source to Central Government

Government of India of India as well as State Governments
(i.e. CGST and SGST)

5 Previous year income assessed in the There is no previous year and

assessment year assessment year concept

6 Central Board of Direct Taxes (CBDT) is Central Board of Indirect Taxes &
an important part of Department of Customs (CBIC) is an important part of
Revenue and responsible for Department of Revenue and responsible
implementation of Direct Tax. for implementation of Indirect Tax.

7 Progressive nature. Regressive nature.

From 7th Edition GST Book – No Amendment in this chapter

Page 1.15 & 1.16 is replaced.
CMA Exam – June 2021 & Dec 2021 Exam
We have added new 12 Examples (in SET A) in this chapter – 7th Edition.

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 INTRODUCTION SATC 1.2
FEATURES OF INDIRECT TAXES
5 Marks
(i) 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.

(ii) 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 provision of services.

(iii) Shifting of burden: There is a clear shifting of 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.

(iv) No perception of direct pinch: Since, value of indirect taxes is generally inbuilt in the price of
the commodity, most of the time the tax payer pays the same without actually knowing that he is
paying tax to the Government. Thus, tax payer does not perceive a direct pinch while paying
indirect taxes.

(v) 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
inflationary trend.

(vi) Wider tax base: Unlike direct taxes, the indirect taxes have a wide tax base. Majority of the
products or services are subject to indirect taxes with low thresholds.

(vii) 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.

(viii) 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.

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 INTRODUCTION SATC 1.3
GENESIS OF GST IN INDIA
 It has now been more than a decade since the idea of national Goods and Services Tax (GST) was
mooted by Kelkar Task Force in 2004. The Task Force strongly recommended fully integrated
‘GST’ on national basis.

 Subsequently, the then Union Finance Minister, Shri P. Chidambaram, while presenting the Central
Budget (2007-2008), announced that GST would be introduced from April 1, 2010. Since then,
GST missed several deadlines and continued to be shrouded by the clouds of uncertainty.

 The GST introduction, however, gained momentum in the year 2014 when the NDA Government
tabled the Constitution (122nd Amendment) Bill, 2014 on GST in the Parliament on 19th
December, 2014.

 The Lok Sabha passed the Bill on 6th May, 2015 and Rajya Sabha on 3rd August, 2016.
Subsequent to ratification of the Bill by more than 50% of the States, Constitution (122nd
Amendment) Bill, 2014 received the assent of the President on 8th September, 2016 and
became Constitution (101st Amendment) Act, 2016, which paved the way for introduction of
GST in India.

 In the following year, on 27th March, 2017, the Central GST legislations – (a) Central Goods
and Services Tax Bill, 2017, (b) Integrated Goods and Services Tax Bill, 2017, (c) Union
Territory Goods and Services Tax Bill, 2017 and (d) Goods and Services Tax (Compensation
to States) Bill, 2017 were introduced in Lok Sabha.

 Lok Sabha passed these bills on 29th March, 2017 and with the receipt of the President’s assent
on 12th April, 2017, the Bills were enacted. The enactment of the Central Acts was followed by
the enactment of the State GST laws by various State Legislatures.

 France was the first country to implement GST in the year 1954. Within 62 years of its advent,
about 160 countries across the world have adopted GST because this tax has the capacity to raise
revenue in the most transparent and neutral manner.

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 INTRODUCTION SATC 1.4
WHAT IS GST

2 Marks 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].

Features: 3 Marks
 GST is a value added tax levy on supply of goods or service or both.
 GST is a destination based consumption tax.
 GST offers comprehensive and continuous chain of tax credit.
 GST where burden borne by final consumer.
 GST eliminate cascading effect of tax.
 GST brings uniform tax structure all over India.
 GST does not differentiate between goods and services and thus, the two are taxed at a
single rate.

NEED FOR GST IN INDIA

The following deficiencies in the existing Indirect Tax Laws cause need to bring GST in India as
a cure for ills of existing Indirect Tax regime. 4 Marks

(1) Non-integration of VAT and Service Tax causes double taxation

(2) Non Inclusion of several Local Levies in State VAT such as Luxury Tax, Entertainment tax etc

(3) No CENVAT Credit after manufacturing stage to a dealer

(4) Cascading of taxes on account of levy of CST Inter-state purchases

(5) VAT was charged by dealer on value comprising of (basic value + excise duty charged by
manufacturer + profit by dealer)

(6) Double Taxation of a transaction as both goods and services

GST is a Cure for ills of existing Indirect Tax: 3 Marks

The given statement is true. Cascading affect of tax is one of the vital cause-to-cause ill of existing
Indirect Tax. It means, a tax that is levied on a good at each stage of the production process up to the
point of being sold to the final consumer. It is also known as tax on tax.

Simultaneous introduction of GST at both Centre and State levels has integrated taxes on goods and
services for the purpose of set-off relief and ensures that both the cascading effects of CENVAT and
VAT are removed and a continuous chain of set-off from the original producer’s point/ service provider’s
point upto the retailer’s level/ consumer’s level is established.

One of the fundamental features of GST is the seamless flow of input credit across the chain
(from the manufacture of goods till it is consumed) and across the country.

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 INTRODUCTION SATC 1.5
TAXES TO BE SUBSUMED IN GST
6 Marks
CENTRAL LEVIES TO BE SUBSUMED

a. Central Excise Duty

b. Additional Duties of excise (Goods of Special Importance)

c. Additional Duties of excise (Textiles & Textile Product)

d. Excise Duty under Medicinal & Toilet Preparation Act

e. Additional Duties of Custom - CVD & Special CVD levied under Custom Tariff Act 1975

f. Service Tax

g. Central Sales Taxes

h. Central Surcharges and Cesses in so far as they relate to Supply of Goods & Services

STATE LEVIES TO BE SUBSUMED

a. State Value Added Tax/Sales Taxes

b. Luxury Tax

c. Taxes on Advertisement

d. Entry Tax (All Forms)

e. Purchase Tax

f. Tax on Lottery, Betting & Gambling

g. Entertainment tax (Except those levied by local bodies)

h. State surcharges and cesses in so far as they relate to supply of goods & services

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 INTRODUCTION SATC 1.6
FRAMEWORK OF GST AS INTRODUCED IN INDIA

A. Dual GST:
India has adopted a dual GST which is imposed concurrently by the Centre and States, i.e. Centre
and States simultaneously tax goods and services.

Now, Centre has the power to tax intra-State sales in addition to services & States are empowered
to tax services in addition to goods. GST extends to whole of India.

B. CGST/SGST/UTGST/IGST
 GST is a destination based tax applicable on all transactions involving supply of
goods and services for a consideration subject to exceptions thereof.

 GST in India comprises of Central Goods and Service Tax (CGST) - levied and collected
by Central Government, State Goods and Service Tax (SGST) - levied and collected by
State Governments/Union Territories with State Legislatures and Union Territory Goods
and Service Tax (UTGST) - levied and collected by Union Territories without State
Legislatures, on intra-State supplies of taxable goods and/or services.

 Inter-State supplies of taxable goods and/or services are subject to Integrated Goods
and Service Tax (IGST).

 IGST is approximately the sum total of CGST and SGST/UTGST and is levied by Centre on
all inter-State supplies.

C. Legislative Framework
There is single legislation – CGST Act, 2017 for levying CGST. Similarly, Union Territories
without State legislatures are governed by UTGST Act, 2017 for levying UTGST. States and
Union territories with their own legislatures have their own GST legislation for levying SGST.

Though there are multiple SGST legislations, the basic features of law, such as chargeability,
definition of taxable event and taxable person, classification and valuation of goods and services,
procedure for collection and levy of tax and the like are uniform in all the SGST legislations, as
far as feasible. This is necessary to preserve the essence of dual GST.

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 INTRODUCTION SATC 1.7
D. Registration
Every supplier of goods and/ or services is required to obtain registration in the State/UT from
where he makes the taxable supply if his aggregate turnover exceeds a specified limit during a
FY.

E. Composition Scheme
In GST regime, tax (i.e. CGST and SGST/UTGST for intra-State supplies and IGST for inter-State
supplies) is payable by every taxable person and in this regard provisions have been prescribed.

However, for providing relief to small businesses making intra-State supplies, a simpler
method of paying taxes and accounting thereof is also prescribed, known as Composition Levy.

F. Exemptions
Apart from providing relief to small-scale business, the law also contains provisions for granting
exemption from payment of tax on essential goods and/or services.

G. Manner of utilization of ITC

Input Tax Credit (ITC) of CGST and SGST/UTGST is available throughout the supply chain, but
cross utilization of credit of CGST and SGST/UTGST is not possible, i.e. CGST credit cannot be
utilized for payment of SGST/UTGST and SGST/UTGST credit cannot be utilized for payment of
CGST.

However, cross utilization is allowed between CGST/SGST/UTGST and IGST, i.e. credit of IGST
can be utilized for the payment of CGST/SGST/UTGST and vice versa.

H. Seamless flow of credit

Since GST is a destination based consumption tax, revenue of SGST ordinarily accrues to the
consuming States.

The inter-State supplier in the exporting State is allowed to set off the available credit of IGST,
CGST and SGST/UTGST (in that order) against the IGST payable on inter-State supply made by
him.

The buyer in the importing State is allowed to avail the credit of IGST paid on inter-State purchase
made by him.

Thus, unlike the earlier scenario where the credit chain used to break in case of inter-State
sales on account of non-VATable CST, under GST regime there is a seamless credit flow in
case of inter-State supplies too.

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 INTRODUCTION SATC 1.8
The revenue of inter-State sale does not accrue to the exporting State and the exporting State
transfers to the Centre the credit of SGST/UTGST used in payment of IGST.

The Centre transfers to the importing State the credit of IGST used in payment of
SGST/UTGST.

Thus, the inter- State trade of goods and services (IGST) needed a robust settlement mechanism
amongst the States and the Centre.

A Common Portal was needed which could act as a clearing house and verify the claims and
inform the respective Governments to transfer the funds. This was possible only with the help of a
strong IT Infrastructure.

I. Compensation Cess 2 Marks

A GST Compensation Cess at specified rate has been imposed under the Goods and Services Tax
(Compensation to States) Cess Act, 2017 on the specified luxury items or demerit goods, like
pan masala, tobacco, aerated waters, motor cars etc., computed on value of taxable supply.
Compensation cess is leviable on intra-State supplies and inter-State supplies with a view to
provide for compensation to the States for the loss of revenue arising on account of
implementation of the GST.

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 INTRODUCTION SATC 1.9
GST Common Portal
5 Marks
Resultantly, Common GST Electronic Portal – www.gst.gov.in – a website managed by Goods and
Services Network (GSTN) [a non government private limited company incorporated under the
provisions of section 8 of the Companies Act, 2013] has been set by the Government to establish a
uniform interface for the tax payer and a common and shared IT infrastructure between the
Centre and States.

GST being a destination based tax, the inter- state trade of goods and services (IGST) would need a
robust settlement mechanism amongst the States and the Centre. This is possible only when there is a
strong IT Infrastructure and Service back bone which enables capture, processing and exchange of
information amongst the stakeholders (including tax payers, States and Central Governments,
Accounting Offices, Banks and RBI). As a result Goods and Services Tax Network (GSTN) has
been set up.

Primarily, GSTN provides 3 front end services to the taxpayers namely Registration, Payment and
Return through GST Common Portal.

The functions of the GSTN include: 3 Marks

a) Facilitating Registration;
b) Filing of Return: Forwarding the returns to Central and State authorities;
c) Computation and settlement of IGST;
d) Matching of tax payment details with banking network;
e) Providing various MIS reports to the Central and the State Governments based on the taxpayer
return information;
f) Providing analysis of taxpayers' profile; and running the matching engine for matching, reversal and
reclaim of input tax credit.

However, it is important to note that the Common GST Electronic Portal for furnishing electronic way bill
is www.ewaybillgst.gov.in [managed by the National Informatics Centre, Ministry of Electronics &
Information Technology, Government of India]. E-way bill is an electronic document generated on the
GST portal evidencing movement of goods.

[In addition to this, there are portals for generation of E-invoice – Refer ‘Tax Invoice’ Chapter]

GSPs/ASPs [2 Marks]
 GSTN has selected certain Information Technology, Information Technology enabled Services and
financial technology companies, to be called GST Suvidha Providers (GSPs).
 GSPs develop applications to be used by taxpayers for interacting with the GSTN. They
facilitate the tax-payers in uploading invoices as well as filing of returns and act as a single stop
shop for GST related services. They customize products that address the needs of different
segment of users.
 GSPs may take the help of Application Service Providers (ASPs) who act as a link between
taxpayers and GSPs.

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INTRODUCTION SATC 1.10
BENEFITS OF GST – 5 Marks
GST is a win-win situation for the entire country. It brings benefits to all the stakeholders of industry,
Government and the consumer.
Benefits to economy
Creation of 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.

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 market. This will create India as a - Manufacturing hub.

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 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
Ease of doing business: Simpler tax regime with fewer exemptions along with reduction in 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.

Certainty in tax administration: Common system of classification of goods and services ensures
certainty in tax administration across India.

Easy tax compliance

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.

Reduction in compliance costs: The compliance cost is lesser under GST as multiple record-keeping
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

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 widening of tax base and better tax compliance also leads to
lowering of tax burden on an average dealer in industry, trade and agriculture.

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.

Benefits to small traders and entrepreneurs:

GST has increased the threshold for GST registration for small businesses. Further, single registration
is needed in one State. Small businesses have also been provided the additional benefit of 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.
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INTRODUCTION SATC 1.11
st
CONSTITUTION [101 AMENDMENT] ACT, 2016

Constitution (101st Amendment) Act, 2016 was enacted on 8th September, 2016, with following
significant amendments:

(a) Concurrent powers on Parliament and State Legislatures to make laws governing goods and
services. It means there will be dual control of State and Central authorities for all assessees

(b) As per Article 246A, the power to levy GST has been given to the Parliament as well as to
Legislature of every State.

 CGST – enacted by Central Government of India.

 IGST – enacted by Central Government of India.
 SGST – enacted by respective State Governments
 UTGST – enacted by Central Government of India

(c) IGST will be apportioned between Centre and the States in the manner provided by Parliament by
Law as per the recommendation of the GST Council.

(d) GST will be levied on all supply of goods and services except alcoholic liquor for human
consumption.

(e) The explanation to Article 269A of Constitution of India provides that the import of goods or
services will be deemed as supply of goods or services or both in the course of inter-State
trade or commerce.

In case of import of goods, IGST will be levied along with the Basic Customs duty. It means IGST
is levied in replacement of CVD + Spl. CVD. In case of import of servies only IGST will be
levied.

(f) Principles for determining the place of supply and when a supply takes place in the course of
inter-state trade or commerce shall be decided by the Parliament.

(g) The power to levy Central Excise duty on goods manufactured or produced in India is
available in respect of the following products:

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.

However, once GST is imposed there will be no duty on manufacture of these goods.

(h) The power to impose tax on sale of the following products is still provided to the State
Governments:
a. Petroleum crude;
b. High speed diesel;
c. Motor spirit (commonly known as petrol);
d. Natural gas;
e. Aviation turbine fuel; and
f. Alcoholic liquor for human consumption.

However, once GST Council is recommend the date from which GST is imposed on these
products (except alcoholic liquor for human consumpiton), and no sales tax will be
imposed on these products.

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INTRODUCTION SATC 1.12
Article 246A: Power to make laws with respect to Goods and Services Tax: 5 Marks

1. Notwithstanding anything contained in Articles 246 and 254, Parliament, and, subject to clause
(2), the Legislature of every State, have power to make laws with respect to goods and services
tax imposed by the Union or by such State.

2. Parliament has exclusive power to make laws with respect to goods and services tax where the
supply of goods, or of services, or both takes place in the course of inter-State trade or
commerce.

Explanation-
The provisions of this article, shall, in respect of goods and services tax referred to in clause (5) of
article 279A, take effect from the date recommended by the Goods and Services Tax Council.

[GST on Petroleum Crude, High Speed Diesel, Motor Spirit (commonly known as Petrol), Natural Gas
and Aviation Turbine Fuel.]

Note:
1. This article grants power to Centre and State Governments to make laws with respect to GST
imposed by Centre or such State.

2. Centre has the exclusive power to make laws with respect to GST in case of inter-State
supply of goods and/or services.

Article 269A: Levy and collection of GST on Inter-State Supply

 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 GST Council.

 In addition to above, import of goods or services or both into India will also be deemed to be
supply of goods and/ or services in the course of Inter-State trade or Commerce.

 This will give power to Central Government to levy IGST on the import transactions which were
earlier subject to Countervailing duty (CVD) under the Customs Tariff Act, 1975.

 Where an amount collected as IGST has been used for payment of SGST or vice versa, such
amount shall not form part of the Consolidated Fund of India. This is to facilitate transfer of
funds between the Centre and the States.

 Parliament is empowered to formulate the principles regarding place of supply and when supply
of goods, or of services, or both occurs in inter-State trade or commerce.

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INTRODUCTION SATC 1.13
Short Notes on GST Council – Article 279A 5 Marks
As per Article 279A of the Constitution of India, the President of India is empowered to constitute
Goods and Services Tax Council. The President of India constituted the GST Council on 15th
September, 2016.

The GST Council shall consist of Union Finance Minster as a Chairperson, Union Minister of State in
charge of Finance as a member, the State Finance Minister or State Revenue Minister or any other
Minister nominated by each State as a member of the Council. The GST Council shall select one of
them as Vice Chairperson of Council.

Guiding principle of the GST Council:

The mechanism of GST Council would ensure harmonization on different aspects of GST between the
Centre and the States as well as among States.

Functions of the GST Council: 3 Marks

GST Council is to make recommendations to the Central Government and the State Governments on
 Tax rates
 Exemptions
 Threshold limits
 Dispute resolution
 GST legislations including rules and notifications etc.

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.

Even after the Introduction of GST

GST is levied on all goods and services, except alcoholic liquor for human consumption and petroleum
crude, diesel, petrol, ATF and natural gas.

Alcoholic liquor for human consumption: is outside the realm of GST. The manufacture/production
of alcoholic liquor continues to be subjected to State excise duty and inter-State/intra-State sale of the
same is subject to VAT/CST respectively.

Petroleum crude, diesel, petrol, ATF and natural gas: As regards petroleum crude, diesel, petrol,
ATF and natural gas are concerned, they are not presently leviable to GST. GST will be levied on
these products from a date to be notified on the recommendations of the GST Council.

Till such date, central excise duty continues to be levied on manufacture/production of petroleum
crude, diesel, petrol, ATF and natural gas and inter-State/intra-State sale of the same is subject to
CST/ VAT respectively.

Tobacco: Tobacco is within the purview of GST, i.e. GST is leviable on tobacco. However, Union
Government has also retained the power to levy excise duties on tobacco and tobacco products
manufactured in India. Resultantly, tobacco is subject to GST as well as central excise duty.

GST is not levied on sale/purchase of immovable property.

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INTRODUCTION SATC 1.14
Class Notes

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INTRODUCTION SATC 1.15
GST Amendment - 1 (June 2021 Exam onwards)
‘UNION TERRITORIES’ IN GST SYLLABUS
UNION TERRITORIES WITHOUT LEGISLATURE
1. Andaman and Nicobar Islands,
2. Lakshadweep,
3. Dadra and Nagar Haveli and Daman and Diu,
4. Ladakh
5. Chandigarh

UNION TERRITORIES WITH LEGISLATURE

1. Delhi
2. Puducherry
3. Jammu & kashmir

SATC NOTE:
Erstwhile State of Jammu and Kashmir has been reorganised into the Union territory of Jammu
and Kashmir (with Legislature) and Union territory of Ladakh vide the Jammu and Kashmir
Reorganisation Act, 2019.

Further, the erstwhile Union territories of Dadra and Nagar Haveli and Daman and Diu have
been merged into a new Union territory of Dadra and Nagar Haveli and Daman and Diu vide the
Dadra and Nagar Haveli and Daman and Diu (Merger of Union Territories) Act, 2019.

UNDER GST
Section 2(103) of CGST Act 2017 - “State” includes a Union territory with Legislature.

Section 2(114) of CGST Act 2017 - ‘Union Territory’ is defined in Clause 114 of Section 2 of
CGST Act 2017. Section 2(114) of CGST Act, 2017 is amended by Finance Act 2020 effective
from 30th June 2020
[Notification No. 49/2020 CT dated 24.06.2020]

Old Position New Position

(from June 2021 Exam)

“Union territory” means the territory of - “Union territory” means the territory of -
a. the Andaman and Nicobar Islands; a) the Andaman and Nicobar Islands;
b. Lakshadweep; b) Lakshadweep;
c. Dadra and Nagar Haveli; c) Dadra and Nagar Haveli and Daman and Diu,
d. Daman and Diu; d) Ladakh,
e. Chandigarh; and e) Chandigarh; and
f. other territory. f) other territory.
Explanation - For the purposes of this Act (CGST Act), each of the territories specified in
sub-clauses (a) to (f) shall be considered to be a separate Union territory;

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INTRODUCTION SATC 1.16
Section 1 of the UTGST Act 2017 - Applicability
Section 1 of UTGST Act 2017 is amended by Finance Act 2020 effective from 27th March 2020
Old Position New Position
(from June 2021 Exam)
Union Territory Goods and Services Tax Act, Union Territory Goods and Services Tax Act,
2017 extends to the Union territories of the 2017 extends to the Union territories of the
1. Andaman and Nicobar Islands, 1. Andaman and Nicobar Islands,
2. Lakshadweep, 2. Lakshadweep,
3. Dadra and Nagar Haveli 3. Dadra and Nagar Haveli and Daman and Diu,
4. Daman and Diu, 4. Ladakh,
5. Chandigarh and 5. Chandigarh and
6. other territory. 6. other territory.

‘Union Territory’ is also defined in Clause 8 of Section 2 of UTGST Act 2017. Section 2(8) of
UTGST Act, 2017 is also amended by Finance Act 2020 but this is not in our syllabus.

EXAM POSITION
POSITION TILL JAN 2021 EXAM POSITION FROM JUNE 2021 EXAM
1. Jammu and Kashmir (including Ladakh) is 1. Ladakh UT is a UT without legislature.
a State as if there is no re-organisation UTGST Act & UTGST Tax is applicable
in this State. now.
2. Jammu & Kashmir is not a UT with 2. Jammu and Kashmir UT is a UT with
legislature legislature and hence it is a State for GST
3. Ladhak is not a UT without legislature purpose.
4. No Change for 2 UTs – “Dadra and Nagar 3. Dadra and Nagar Haveli and Daman and
Haveli” & “Daman and Diu” Diu is now merged UT and considered as
5. Delhi & Puducherry is a UT with ONE UT only.
legislature, hence they are State for GST 4. Delhi & Puducherry is a UT with
Purpose. legislature, hence they are State for GST
purpose.

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 INTRODUCTION SATC 1A.1
INTRODUCTION – SET A
1. Define 'intra State supply' and 'inter-State supply' under GST law. Is it correct to say that inter-State
supply attracts both CGST and SGST?

Solution:
Where the location of the supplier and the place of supply of goods or services are in the same State/Union
territory, it is treated as intra-State supply of goods or services respectively.

Where the location of the supplier and the place of supply of goods or services are in
(i) two different States or
(ii) two different Union Territories or
(iii) a State and a Union territory, it is treated as inter-State supply of goods or services respectively.

No, it is not correct to say that inter-State supply attracts both CGST and SGST as inter-State supply attracts
IGST. However, IGST is the sum total of CGST and SGST/UTGST.

2. Explain the concept of ‘Dual GST’

Solution:
Under dual GST model, GST is imposed concurrently by the Centre and States, i.e. Centre and States
simultaneously tax goods and services. Centre has the power to levy GST on inter-state supplies of goods
and/or services.

3. Bring out the salient features of cross utilization of Input Tax Credit (ITC) under the GST Law?

Solution:
(i) CGST credit cannot be utilized for payment of SGST/UTGST.
(ii) SGST/UTGST credit cannot be utilized for payment of CGST.
(iii) Credit of IGST can be utilized for the payment of CGST/SGST/UTGST and vice versa.

4. Govind, a registered supplier, is engaged in providing services in the neighbouring States from his
registered office located in Mumbai. He has furnished the following details in respect of the inward
and outward supplies made during a tax period:-

Particulars (`)
Inter-State supply of services 1,80,000
Receipt of goods and services within the State 1,00,000

Assume the rates of taxes to be as under:-

Particulars Rate
CGST 9%
SGST 9%
IGST 18%

Note:
(i) Both inward and outward supplies are exclusive of taxes, wherever applicable.
(ii) All the conditions necessary for availing the input tax credit have been fulfilled.

Compute the net GST payable by Govind during the given tax period. Make suitable assumptions if
required.

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 INTRODUCTION SATC 1A.2
Solution: Computation of net GST payable by Govind

Particulars `
IGST @ 18% payable on inter-State supply of services 32,400
[Being an inter-State supply, IGST is payable on the same [1,80,000 × 18%]
in terms of section 5 of the IGST Act, 2017]

Less:
ITC of CGST @ 9% paid on intra-State receipt of goods and services 9,000
[Cross utilisation of CGST towards IGST] [1,00,000 × 9%]

ITC of SGST @ 9% paid on intra-State receipt of goods and services 9,000

[Cross utilisation of SGST towards IGST] [1,00,000 × 9%]

Net GST payable in cash 14,400

Note:

1. CGST shall first be utilised towards payment of CGST and the amount remaining, if any, be utilised
towards the payment of IGST.

2. SGST shall first be utilised towards payment of SGST and the amount remaining, if any, may be utilised
towards the payment of IGST.

3. However, ITC of SGST/UTGST should be utilized for payment of IGST, only after ITC of CGST has
been utilized fully
[Section 49 of the CGST Act, 2017]

5. Shipra Traders is a registered supplier of goods in Assam. It purchased goods valued at ` 10,000 from
Kartik Suppliers located within the same State. Kartik Suppliers charged CGST & SGST separately in
its invoice. Subsequently, Shipra Traders sold goods valuing ` 9,500 to Rabina Manufacturers located
in Assam. 20% of the inputs purchased are still lying in stock and there was no opening stock of
goods. Rate of CGST and SGST on supply and purchase of goods is 9% each. Calculate the net GST
payable by Shipra Traders and input tax credit (ITC) to be carried forward, if any.

Solution:
Computation of net GST payable by Shipra Traders

Particulars CGST @ 9% SGST @ 9%

(`) (`)
GST payable on intra-State supply of goods 855 855
[Being an intra-State supply, CGST and CGST
is payable on the same] [9,500 × 9%] [9,500 × 9%]

Less: ITC on intra-State purchase of goods 900 900

[ITC of CGST and SGST paid on intra-State [10,000 × 9%] [10,000 × 9%]
purchase is available in full, even if some inputs
are lying in stock]

Net GST payable Nil Nil

Input tax credit carried forward in Electronic

Credit Ledger 45 45

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 INTRODUCTION SATC 1A.3
6. Mr. A registered person under GST located in Tamil Nadu, sold goods worth ` 10,000 after
manufacture to Mr. C of Chennai (Intra State). Subsequently, Mr. C sold these goods to Mr. H of
Hyderabad for ` 17,500 (Inter state). Mr. H being a trader finally sold these goods to customer Mr. S of
Secunderabad for ` 30,000 (Intra state). Applicable rates of CGST= 9%, SGST=9% and IGST=18%. Find
the net tax liability of each supplier of goods and revenue to the government.

Solution:
Since, Mr. A supplied goods to Mr. C in Tamil Nadu itself, it is an intra-state sale and both CGST @ 9%
and SGST @ 9% will apply.

Mr. C of Chennai supplied goods to Mr. H of Hyderabad. Since, it is an interstate sale, IGST@18% will
apply.

Mr. H of Hyderabad (Telangana) supplied goods to Mr. S of Secunderabad (Telangana). Once again it is
an intrastate sale and both CGST @ 9% and SGST @ 9% will apply.

Statement showing Net tax liability of Mr. A and revenue to Government:

Value in IGST
Particulars (`) CGST in (`) SGST in (`) in (`)
Mr. A to Mr. C 10,000 900 900 Nil
Less: ITC Nil Nil Nil Nil
Net liability of Mr. A 900 900 Nil
Revenue to Revenue to
Centre ` 900 Tamil Nadu ` 900
Statement showing net tax liability of Mr. C and revenue to the Government
Value
Particulars in (`) CGST in (`) SGST in (`) IGST in (`) Remarks
Mr. C to Mr. H 17,500 Nil Nil 3,150
Less: ITC -900 -900 -1,800 1st CGST, 2nd SGST
Net liability of Mr.
C Nil Nil 1,350
Since, Mr. C a dealer has used SGST of Tamil Nadu to the extent of ` 900/- in payment of IGST, Tamil
Nadu State (i.e. exporting State) has to transfer ` 900/- to the credit of the Centre.

Tamil Nadu (exporting state) revenue = Nil (i.e. ` 900 - ` 900)

<

Total revenue to the Centre = ` 3,150

(i.e. ` 1,350 + ` 900 received from Tamil Nadu + ` 900 CGST already collected from Mr. A in 1st Intra-State
supply)
Statement showing net tax liability of Mr. H and revenue to the Government
Value in CGST in SGST in IGST in
Particulars (`) (`) (`) (`) Remarks
Mr. H to Mr. S 30,000 2,700 2,700 Nil
Less: ITC (2,700) (450) (3,150) IGST credit 1st adjust
against IGST, next CGST
and SGST in any order.

As per Rule 88A, IGST

credit can be utilised now
against CGST & SGST in
any order.
Net liability of Mr. H Nil 2,250 Nil
Since, Mr. H a dealer has used IGST of ` 450/- to pay the SGST of Telangana State, the Centre has to
transfer ` 450/- to the Telangana State (i.e. importing State).

Net revenue to the Telangana State = ` 2,700 (i.e. ` 2,250 + ` 450)

Net Revenue to the Centre = ` 2,700 (i.e. ` 3,150 – ` 450)

Total revenue to the Government = ` 5,400 (i.e. ` 30,000 x 18%)

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 INTRODUCTION SATC 1A.4
Note:
The order of utilisation of ITC is as under:-
(i) IGST credit should first be utilized towards payment of IGST.
(ii) Remaining IGST credit, if any, can be utilized towards payment of CGST and SGST/UTGST in any order
and in any proportion.
(iii) Entire ITC of IGST should be fully utilized before utilizing the ITC of CGST or SGST/UTGST.
(iv) ITC of CGST should be utilized for payment of CGST and IGST in that order.
(v) ITC of SGST /UTGST should be utilized for payment of SGST/UTGST and IGST in that order. However,
ITC of SGST/UTGST should be utilized for payment of IGST, only after ITC of CGST has been utilized
fully.

CGST credit cannot be utilized for payment of SGST/UTGST and SGST/UTGST credit cannot be
utilized for payment of CGST.

7. Mr. M of Madurai supplied goods/services for ` 24,000 to Mr. S of Salem. Mr. M purchased
goods/services for ` 23,600 (inclusive of CGST 9% and SGST 9%) from Mr. C of Chennai. Find the
following:
(1) Total price charged by Mr. M for supply of goods/services and
(2) Who is liable to pay GST?
(3) Net liability of GST.

Solution:

Particulars Value in (`)

Value charged for supply of goods/services 24,000
Add: CGST 9% 2,160
Add: SGST 9% 2,160
(1) Total price charged by Mr. M from Mr. S for local supply of goods/services. 28,320

(2) Mr. M is liable to pay GST.

Particulars CGST(`) SGST (`)

Output tax 2,160 2,160
Less: Input Tax Credit (ITC) (1,800) (1,800)
(3) Net tax liability of Mr. M 360 360

8. Discuss any two significant benefits of GST (Refer Page 1.10)

9. Mr. X, a supplier of goods, pays GST under regular scheme. The amount of input tax credit (ITC)
available and output tax liability under different tax heads is as under:-
Head Output tax liability ITC
IGST 2,000 4,000
CGST 800 2,000
SGST/ UTGST 2,500 500
Compute the minimum GST payable in cash by Mr. X. Make suitable assumptions as required.

Solution:
Mr. X can use the ITC to pay his output tax liability. The order of utilisation of ITC is as under:-
(i) IGST credit should first be utilized towards payment of IGST.
(ii) Remaining IGST credit, if any, can be utilized towards payment of CGST and SGST/UTGST in any order
and in any proportion.
(iii) Entire ITC of IGST should be fully utilized before utilizing the ITC of CGST or SGST/UTGST.
(iv) ITC of CGST should be utilized for payment of CGST and IGST in that order.

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 INTRODUCTION SATC 1A.5
(v) ITC of SGST /UTGST should be utilized for payment of SGST/UTGST and IGST in that order. However,
ITC of SGST/UTGST should be utilized forpayment of IGST, only after ITC of CGST has been utilized
fully.
(vi) CGST credit cannot be utilized for payment of SGST/UTGST and SGST/UTGST credit cannot be utilized
for payment of CGST.

Computation of minimum GST payable in cash

Particulars CGST (`) SGST (`) IGST (`)

GST payable 800 2,500 2,000
Less: ITC - (2,000)-IGST (2,000)-IGST
(800)-CGST (500) – SGST
Net GST payable in cash Nil Nil Nil

Since sufficient balance of ITC of CGST is available for paying CGST liability and cross utilization of
ITC of CGST and SGST is not allowed, it is beneficial to use ITC of IGST to pay SGST (after paying
IGST liability) to minimize cash outflow.

10. Explain the salient features of indirect taxes.

Solution:
(i) 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.

(ii) Tax on commodities and services: It is levied on commodities at the time of supply or manufacture
or purchase or sale or import/export thereof. Hence, it is also known as commodity taxation. It is also
levied on supply of services.

(iii) Shifting of burden: There is a clear shifting of 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.

(iv) No perception of direct pinch: Since, value of indirect taxes is generally inbuilt in the price of the
commodity, most of the time the tax payer/consumer pays the same without actually knowing that he
is paying tax to the Government. Thus, tax payer does not perceive a direct pinch while paying
indirect taxes.

(v) 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
inflationary trend.

(vi) Wider tax base: Unlike direct taxes, the indirect taxes have a wide tax base. Majority of the products
or services are subject to indirect taxes with low thresholds.

(vii) Promotes social welfare: Higher 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.

(viii) 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.

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 INTRODUCTION SATC 1A.6
11. Write a short note on various Lists provided under Seventh Schedule to the Constitution of India.

Solution:
Seventh Schedule to Article 246 of the Constitution contains three lists which enumerate the matters under
which the Union and the State Governments have the authority to make laws.

(i) List-I (UNION LIST): It contains the matters in respect of which the Parliament (Central Government)
has the exclusive right to make laws.

(ii) List-II (STATE LIST): It contains the matters in respect of which the State Government has the
exclusive right to make laws.

(iii) List-III (CONCURRENT LIST): It contains the matters in respect of which both the Central & State
Governments have power to make laws.

12. Discuss the deficiencies in the existing indirect taxes which led to the need for ushering in-to GST
regime.

Solution:
Deficiencies in the erstwhile indirect tax regime:

(a) Certain transactions were subject to double taxation and were taxed as both goods and services, since
under the earlier regime, distinction between goods and services was often blurred.

(b) CENVAT did not include chain of value addition in the distributive trade after the stage of production.
Similarly, in the State-level VAT, CENVAT load on the goods was not removed leading to the cascading
of taxes.

(c) Though CENVAT and State-Level VAT were essentially value added taxes, set off of one against the
credit of another was not possible as CENVAT was a central levy and State-Level VAT was a State
levy.

(d) There were several taxes in the States, such as, Luxury Tax, Entertainment Tax, etc. which were not
subsumed in the VAT. Hence for a single transaction, multiple taxes in multiple forms were required to
be paid.

(e) VAT on goods was not integrated with tax on services, at the State level, to remove the cascading
effect of service tax. With service sector being the fastest growing sector in the economy, the exclusion
of services from the tax base of the States potentially eroded their tax- buoyancy.

(f) CST was another source of distortion in terms of its cascading nature since it was non-VATABLE.
Being an origin based tax, CST was also against one of the basic principles of consumption taxes that
tax should accrue to the jurisdiction where consumption takes place.

13. Discuss the dual GST model as introduced in India.

Solution:
India has adopted a Dual GST model in view of the federal structure of the country. Consequently, Centre
and States simultaneously levy GST on 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. Now, the Centre also has the power to tax intra-State sales & States are also
empowered to tax services. GST extends to whole of India including the State of Jammu and Kashmir.

14. List the Central and State levies which have been subsumed in GST in India.

Solution:
Central levies that are subsumed in GST are as follows:
 Central Excise Duty & Additional Excise Duties
 Service Tax

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 INTRODUCTION SATC 1A.7
 Excise Duty under Medicinal & Toilet Preparation Act
 CVD & Special CVD
 Central Sales Tax
 Central surcharges & Cesses in so far as they relate to supply of goods & services State levies that are
subsumed in GST are as follows:

State surcharges and cesses in so far as they relate to supply of goods & services
 Entertainment Tax (except those levied by local bodies)
 Tax on lottery, betting and gambling
 Entry Tax (All Forms) & Purchase Tax
 VAT/ Sales tax
 Luxury Tax
 Taxes on advertisements
15. Discuss the need and functions of the common GST portal.

Solution:
GST being a destination-based tax, the inter-State trade of goods and services (IGST) needed a robust
settlement mechanism amongst the States and the Centre. A Common Portal was needed which could act
as a clearing house and verify the claims and inform the respective Governments to transfer the funds. This
was possible only with the help of a strong IT Infrastructure.
Resultantly, Common GST Electronic Portal – www.gst.gov.in – a website managed by Goods and Services
Network (GSTN) [a company incorporated under the provisions of section 8 of the Companies Act, 2013] is
set by the Government to establish a uniform interface for the tax payer and a common and shared IT
infrastructure between the Centre and States.
The functions of the GSTN include facilitating registration; forwarding the returns to Central and State
authorities; computation and settlement of IGST; matching of tax payment details with banking network;
providing various MIS reports to the Central and the State Governments based on the taxpayer return
information; providing analysis of taxpayers' profile.

16. Briefly explain the leviability of GST or otherwise on petroleum crude, diesel, petrol, Aviation
Turbine Fuel (ATF) and natural gas.

Solution:
Petroleum crude, diesel, petrol, ATF and natural gas are presently not leviable to GST. GST will be levied
on these products from a date to be notified on the recommendations of the GST Council. Till such date,
central excise duty continues to be levied on manufacture/production of petroleum crude, diesel, petrol,
ATF and natural gas and inter-State/intra-State sale of the same is subject to CST/ VAT respectively.

17. Elaborate the principles that were borne in mind while subsuming various central, state and local
levies, under GST.

Solution:
The various central, state and local levies were examined to identify their possibility of being
subsumed under GST. While identifying, the following principles were kept in mind:
(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 subsuming of taxes should result in free flow of tax credit in intra and inter-State levels. The taxes,
levies and fees that were not specifically related to supply of goods & services should not be subsumed
under GST.
(iv) Revenue fairness for both the Union and the States individually would need to be attempted.

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 INTRODUCTION SATC 1A.8
18. GST is a simplified tax structure. Justify the statement.

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

19. List the advantages that GST accrues to the trade and industry.

Solution:
GST accrues following advantages to the trade and industry

(i) Benefits to industry: GST has given more relief to trade and industry 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 widening of tax base and better tax compliance also leads to lowering of tax
burden on an average dealer in trade and industry.

(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, single registration is needed in one State. Small
businesses have also been provided the additional benefit of 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.

20. List the special category States as prescribed in Article 279A of the Constitution of India.

Solution:
There are 11 Special Category States, namely, States of Arunachal Pradesh, Assam, Jammu and Kashmir,
Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.

21. Discuss the leviabilty of GST or otherwise on tobacco.

Solution:
Tobacco is within the purview of GST, i.e. GST is leviable on tobacco. However, Union Government has
also retained the power to levy excise duties on tobacco and tobacco products manufactured in India.
Resultantly, tobacco is subject to GST as well as central excise duty.

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