Prime Minister of India in Kannada for UPSC | ಭಾರತದ ಪ್ರಧಾನ ಮಂತ್ರಿ

 

The Central Goods and Services Tax (CGST) Act, 2017

The CGST Act, 2017, is the central law under the Goods and Services Tax (GST) framework, which is a comprehensive indirect tax system introduced in India. The GST regime replaced multiple indirect taxes, such as VAT, Service Tax, and Excise Duty, creating a unified taxation system. Below are detailed and simplified notes tailored for UPSC Prelims preparation:

---

Introduction

1. Enacted: 12th April 2017.
2. Implemented: 1st July 2017.
3. Objective: To regulate and govern the taxation of goods and services at the Central Government level under the GST system.
4. Constitutional Amendment: Facilitated by the 101st Constitutional Amendment Act, 2016.

---

 GST works in the scenario you're describing, step by step:

1. Manufacturing within Karnataka (Intra-State Transaction):

• The company produces a product (e.g., a doll) in Karnataka worth ₹1,000.
• For an intra-state sale (sale within Karnataka), CGST and SGST are applied, and the tax is split equally:
  • CGST (Central GST): ₹90 (9% of ₹1,000) goes to the Central Government.
  • SGST (State GST): ₹90 (9% of ₹1,000) goes to the Karnataka State Government.

---

2. Inter-State Transaction (Moving the Product to Another State):

• If the product is sold to a customer in another state (e.g., Tamil Nadu), SGST is not applicable in Karnataka anymore.
• Instead, the company will pay IGST (Integrated GST) for inter-state transactions:
  • IGST (Integrated GST): A single 18% tax (₹180) will be charged. The IGST revenue is shared between the Central Government and the state where the goods are consumed (Tamil Nadu in this case).

Key Rule:

• SGST is only paid to the state where the sale takes place (intra-state transaction).
• For inter-state transactions, SGST of the manufacturing state (Karnataka) is not applicable, and IGST replaces both SGST and CGST.

Example Summary:

• Intra-State Sale (within Karnataka): ₹1,000 + 9% CGST + 9% SGST = ₹1,180.
• Inter-State Sale (to Tamil Nadu): ₹1,000 + 18% IGST = ₹1,180.
  The IGST revenue is shared between the Central Government and Tamil Nadu.

This system ensures the state where the goods are consumed gets its share of tax revenue, not the state where they are produced.

Yes, the Central Government compensates states for any potential revenue loss under GST. Let me explain this in a simple way:

Understanding the Compensation Mechanism:

1. Before GST:
   States had their own taxes like VAT, Octroi, etc., which generated significant revenue. After GST implementation, these taxes were subsumed into SGST, CGST, and IGST. Some states feared losing revenue, especially those that relied heavily on indirect taxes.

2. Compensation Act:
   To address this, the GST (Compensation to States) Act, 2017 ensures that states are compensated for any revenue shortfall for the first 5 years (July 2017 to June 2022).

   • The Central Government provides this compensation to states from a special GST Compensation Cess collected on luxury and demerit goods (e.g., tobacco, cars, aerated drinks).

3. Inter-State Sales and IGST:

   • For inter-state transactions, IGST is collected by the Central Government.
   • The Central Government distributes the IGST between the consuming state (where the goods/services are used) and itself.
   • If a state experiences revenue loss (including SGST collection) despite this system, the Central Government compensates it using the GST Compensation Cess fund.

---

Example of Compensation:

Suppose Karnataka expected to earn ₹10,000 crore from its old VAT system but, after GST, only collected ₹8,000 crore in SGST and its share of IGST. The Central Government will compensate Karnataka for the ₹2,000 crore shortfall from the GST Compensation Cess fund.

---

Key Points:

• The Central Government does not directly compensate one state for another state's SGST. Instead:
  • IGST ensures fair tax sharing between the Central and State Governments.
  • The GST Compensation Cess covers any revenue loss for states.
• This system helps maintain a balance so that no state feels disadvantaged under GST.

Key Features of CGST Act, 2017

1. Uniform Tax Structure:

   • Introduced a uniform tax system by subsuming Central-level taxes like Central Excise Duty, Service Tax, and Customs Duty.
   • Applicable across India, except for a few exempted regions.

2. Dual GST Model:

   • GST is levied at two levels: Central GST (CGST) and State GST (SGST) for intra-state transactions.
   • Integrated GST (IGST) is levied for inter-state transactions.

3. Destination-Based Taxation:

   • Tax is collected at the point of consumption, not production.
   • Example: If a product is manufactured in Gujarat but sold in Maharashtra, the tax revenue goes to Maharashtra.

4. Input Tax Credit (ITC):

   • Allows businesses to claim a credit for taxes paid on inputs, reducing the cascading effect of taxes.
   • ITC can only be utilized for payment of output tax under CGST.

5. Taxable Events:

   • Supply of Goods or Services: The concept of supply replaced the earlier taxable events like sale, manufacturing, or provision of services.

6. GST Council:

   • Apex body for decision-making under GST, chaired by the Union Finance Minister.
   • Ensures coordination between the Centre and states.

7. Threshold Limit for GST Registration:

   • Businesses with an annual turnover above ₹20 lakh (₹10 lakh for northeastern states) must register under GST.

8. Rates under GST:

   • Four major slabs: 5%, 12%, 18%, and 28%.
   • Essential items are taxed at 0%, while luxury and demerit goods are taxed at 28% with cess.

9. GST Compliance:

   • Filing of monthly, quarterly, and annual GST returns through an online portal.

10. Anti-Profiteering Clause:

    • Ensures businesses pass on the benefits of input tax credit and reduced tax rates to consumers.

---

Taxes Subsumed Under CGST

1. Central Excise Duty.
2. Service Tax.
3. Additional Excise Duties.
4. Additional Customs Duty (CVD).
5. Special Additional Duty (SAD).

---

Significance of CGST Act, 2017

1. Simplified Taxation:

   • Replaced multiple central taxes, reducing compliance burden for businesses.

2. Eliminated Cascading Effect:

   • Input Tax Credit ensures no tax is levied on tax.

3. Boosted Ease of Doing Business:

   • A unified taxation system encourages investment and trade.

4. Formalization of Economy:

   • Increased transparency in business transactions.

5. Revenue Sharing:

   • Ensures fair revenue distribution between the Centre and states.

6. Consumer Benefits:

   • Reduced overall tax burden on goods and services.

---

Key Provisions

1. Time of Supply:

   • Defines when goods/services are deemed to be supplied and tax becomes payable.
   • Goods: Earlier of invoice issue or payment date.
   • Services: Earlier of invoice issue or completion of service.

2. Composition Scheme:

   • Small taxpayers with turnover up to ₹1.5 crore can opt for a lower tax rate but cannot claim ITC.

3. Reverse Charge Mechanism (RCM):

   • Tax liability shifts to the recipient in specific cases.
   • Example: Services availed from unregistered dealers.

4. E-Way Bill:

   • Mandatory for inter-state movement of goods exceeding ₹50,000 in value.

5. Penalties for Non-Compliance:

   • Penalty for delayed returns, tax evasion, or fraudulent claims.

---

GST Council

1. Constitutional Body:
   • Established under Article 279A.
2. Composition:
   • Union Finance Minister (Chairperson).
   • State Finance Ministers.
3. Responsibilities:
   • Decide GST rates, exemptions, and thresholds.
   • Address disputes and recommend changes to GST laws.

---

Challenges of CGST Act

1. Compliance Burden:

   • Small businesses face difficulty in filing frequent GST returns.

2. Rate Complexity:

   • Multiple GST slabs create confusion.

3. IT Infrastructure:

   • Initial technical glitches on GSTN portal impacted smooth implementation.

4. Revenue Shortfall:

   • States often face delays in compensation for revenue loss under GST.

5. Litigation Issues:

   • Ambiguities in the interpretation of provisions lead to disputes.

---

Recent Amendments and Updates

1. GST Amendment Act, 2018:

   • Simplified filing system with fewer returns.
   • Enhanced input tax credit provisions.

2. Changes in Threshold Limits:

   • Increased exemption limit for small businesses (₹40 lakh for goods, ₹20 lakh for services).

3. Rationalization of GST Rates:

   • Reduced tax rates on several goods and services to boost consumption.

---

Key Facts for Prelims

1. Enacted: 2017, effective from 1st July 2017.
2. Constitutional Basis: 101st Constitutional Amendment Act, 2016.
3. GST Council: Decision-making body under Article 279A.
4. Composition Scheme Limit: Turnover up to ₹1.5 crore.
5. Destination-Based Tax: Levied at the point of consumption.

---

Relevance in the Present Context

1. Ease of Doing Business: Simplified taxation supports startups and MSMEs.
2. Make in India: Boosts domestic manufacturing by eliminating cascading taxes.
3. Digital India: Online filing and compliance align with digital governance goals.
4. Formal Economy: Encourages tax compliance and reduces black money.

---

These notes provide a detailed overview of the Central Goods and Services Tax Act, 2017, crucial for UPSC Prelims preparation.

Go to Link