GOODS AND SERVICE TAX (GST)

• Goods and Services Tax (GST) is a comprehensive, destination-based indirect tax levied on the supply of goods and services in India. 
• GST is considered one of the most significant tax reforms in India’s history, replacing a myriad of indirect taxes levied by both the Central and State governments.
• GST came into force on 1st July 2017 following the 101st Constitutional Amendment Act, 2016.
• The primary objective of GST is to streamline India's taxation structure by creating a single tax market across the country and eliminate the cascading effect of taxes, where tax is levied on tax (i.e., tax on tax).

Need for GST:

• India had a complex tax structure before GST, with multiple taxes such as Central Excise Duty, VAT (Value Added Tax), Service Tax, Central Sales Tax, etc. 
• These taxes were levied at different stages of the production process, leading to tax cascading and inefficiency. GST aims to simplify this system, promoting transparency, compliance, and reducing economic distortions.

Features of GST

• GST is characterized by several distinct features that aim to simplify the tax system and promote economic efficiency:

Dual Structure of GST:

• India follows a dual GST system, where both the Centre and the States have the authority to levy taxes:

Input Tax Credit (ITC):

• GST allows businesses to claim a credit for taxes paid on purchases (input tax) against taxes collected on sales (output tax).
• This avoids the cascading effect of taxes (tax on tax) by ensuring that only value-added stages of production and distribution are taxed.

Destination-Based Taxation:

• Unlike the earlier origin-based taxation (where taxes were levied at the production site), GST is destination-based. 
• This means that the tax is levied where the product is consumed (i.e., at the point of sale).

Uniform Tax Rates:

• GST operates on a multi-slab rate structure. The most common tax slabs are 5%, 12%, 18%, and 28%.
• Essential goods like food and medicine are taxed at 0% or 5%, while luxury goods are taxed at the highest rate of 28%.

Technology-Driven System:

• The implementation of GST is supported by a robust IT infrastructure, known as the GSTN (Goods and Services Tax Network), which helps in tax registration, filing returns, and payment.
• It ensures real-time compliance, data management, and tracking of inter-state transactions.

GST Council

• The GST Council is a constitutional body formed under Article 279A of the Indian Constitution to make key decisions on GST-related matters.

Functions of the GST Council:

• Tax Rates: Decides the GST tax slabs, exemptions, and the threshold for registration.
• Dispute Resolution: Works to resolve disputes between the Centre and States regarding the implementation of GST.
• Recommendations: The Council recommends measures for effective implementation, amendments in law, and simplification of procedures.

Composition:

• The GST Council is chaired by the Union Finance Minister, with the Finance/Tax Ministers of each State and Union Territory as its members. 
• It is the ultimate decision-making body regarding tax rates, exemptions, and other important matters related to GST.

Voting Mechanism:

• Decisions in the GST Council are taken by a 3/4th weighted majority.
• States collectively have 2/3rd of the votes, while the Centre has 1/3rd of the votes.
• This ensures that states have a greater say in decisions, thereby promoting cooperative federalism.

Compensation Cess

Purpose of Compensation Cess:

• The GST (Compensation to States) Act, 2017 was enacted to compensate states for any revenue loss they incurred due to the implementation of GST.
• States that were heavily dependent on taxes like VAT (which was subsumed under GST) experienced a drop in revenue collection after GST was implemented.

Mechanism of Compensation Cess:

• The Compensation Cess is levied on certain goods and services, primarily those that are considered luxury, sin, or demerit goods.
• This cess is charged over and above the highest GST slab of 28%.
• The revenue generated from this cess is collected by the Central Government and transferred to the states to compensate for their revenue losses.

Examples of Goods with Compensation Cess:

Duration:

• Initially, the Compensation Cess was supposed to be levied for 5 years (until 2022). 
• However, due to persistent revenue shortfalls, it has been extended until March 2026.
• After March 2026, the GST Council will decide whether to continue this cess or find other ways to compensate the states.

GST Appellate Tribunal (GSTAT)

• The GST Appellate Tribunal (GSTAT) is a quasi-judicial body set up to handle appeals against orders passed by the First Appellate Authority (such as Commissioner of GST or Appellate Authorities).

Structure:

• Principal Bench: Located in New Delhi and headed by a President.
• State Benches: Set up in various states to resolve regional GST disputes.
• Members: The President is appointed by the Central Government in consultation with the Chief Justice of India or his nominee. 
• Each bench consists of two technical members (one from the Centre and one from the State).

Importance of GSTAT:

• It serves as the final appellate forum for GST-related disputes.
• By providing accessible and affordable justice for businesses and taxpayers, it ensures that the GST framework remains fair, transparent, and efficient.

Excise Duty – Pre and Post-GST

Pre-GST Era:

• Excise Duty was an indirect tax imposed on goods manufactured within India and used for domestic consumption.
• Central Excise Duty was applicable to most goods manufactured in the country, administered by the Central Board of Indirect Taxes and Customs (CBIC).

Post-GST Era:

• Excise Duty was largely subsidiary to GST with most goods falling under GST.
• However, Excise Duty continues to apply on a few specific items like petroleum products and alcohol. These sectors are currently outside the GST regime.