Dual GST Model Introduced in India – CGST, SGST, IGST, UTGST

India will adopt a dual GST which will be imposed concurrently by the Centre and States, i.e. Centre and States will simultaneously tax goods and services. GST is an integrated tax which works on the concept of “One Nation One Tax”. The biggest benefit of GST implementation would be removal of cascading effect of multiple taxes and seamless flow of Input Tax credit. For example, presently a dealer is eligible to take input tax credit of VAT paid on inputs but not of the service tax paid on input services utilised.

However, under GST regime, a dealer will be eligible for availing credit of taxes paid both on inputs or input services, as the case may be. This will ultimately reduce the final cost of goods/services to the end consumers. Centre will have the power to tax intra-State sales & States will be empowered to tax services. GST will extend to whole of India except the State of Jammu and Kashmir.

Dual GST Model Introduced in India

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 will comprise 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 will be subject to Integrated Goods and Service Tax (IGST). IGST will approximately be a sum total of CGST and SGST/UTGST and will be levied by Centre on all inter-State supplies.

India has adopted “Concurrent dual GST” model. The need for Dual GST model is based on the following premise:

  • In the pre GST framework, both levels of Government, that is, Centre and State, as per Constitution held concurrent powers to levy tax on domestic goods and services.
  • The Concurrent Dual GST model would be a dual levy imposed concurrently by the Centre and the States, but independently;
  • Both Centre and State will operate over a common base, that is, the base for levy and imposition of duty/tax liability would be identical.

Under the Concurrent Dual GST Model taxes shall be levied as per place of supply of goods and services. In case of supplies within the State or Union Territory –

  • (a) Central GST (CGST) is payable to the Central Government (
  • (b) State GST (SGST) or Union Territory GST(UTGST) is payable to the State Government or Administrator of Union Territory (as applicable)

CGST and SGST will also apply in Union Territories having legislature, i.e. Delhi and Puducherry.

Area upto 12 nautical miles inside the sea is part of State or Union Territory which is nearest, so SGST or UTGST will be payable.

Legislative Framework

There is single legislation – CGST Act, 2017 – for levying CGST. Similarly, Union Territories without State legislatures [Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli, Daman and Diu and Chandigarh] will be governed by UTGST Act, 2017 for levying UTGST. States and Union territories with their own legislatures [Delhi and Puducherry] have to enact their own GST legislation for levying SGST. Though there would be 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 would be uniform in all the SGST legislations, as far as feasible. This would be necessary to preserve the essence of dual GST

In GST regime, tax (i.e. CGST and SGST/UTGST for intraState supplies and IGST for inter-State supplies) shall be paid by every taxable person and in this regard provisions have been prescribed in the law. However, for providing relief to small businesses, a simpler method of paying taxes and accounting thereof is also prescribed, known as Composition Scheme. Along with providing relief to small-scale business, the law also contains provisions for granting exemption from payment of tax on specified goods and/or services.

Manner of Utilization of ITC

Input Tax Credit (ITC) of CGST and SGST/UTGST will be available throughout the supply chain, but cross utilization of credit of CGST and SGST/UTGST will not be 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 will be 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.

Since GST is a destination based consumption tax, revenue of SGST will ordinarily accrue to the consuming States. The inter-State supplier in the exporting State will be 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 will be allowed to avail the credit of IGST paid on inter-State purchase made by him. Thus, unlike the existing scenario where the credit chain breaks 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.

The revenue of inter-State sale will not accrue to the exporting State and the exporting State will be required to transfer to the Centre the credit of SGST/UTGST used in payment of IGST. The Centre will transfer to the importing State the credit of IGST used in payment of SGST/UTGST. Thus, the inter- State trade of goods and services (IGST) would need a robust settlement mechanism amongst the States and the Centre. A Central Agency is needed which can act as a clearing house and verify the claims and inform the respective Governments to transfer the funds. This is possible only with the help of a strong IT Infrastructure.

Goods & Service Tax Network (GSTN)

Resultantly, Goods and Services Network (GSTN) – a Special Purpose Vehicle – has been set to provide a shared IT infrastructure and services to Central and State Governments, taxpayers and other stakeholders for implementation of GST. The functions of the GSTN, inter alia, 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;
  • and running the matching engine for matching, reversal and reclaim of input tax credit

Taxes to be subsumed in GST Regime

Central levies to be subsumed

  • Central Excise Duty & Additional Excise Duties
  • Service Tax Excise Duty under Medicinal & Toilet Preparation Act
  • CVD & Special CVD
  • Central Sales Tax Surcharges and Cesses in so far as they relate to supply of goods & services

State levies to subsumed

  • 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

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