Unit 4: Indirect taxes & GST

• Central excise duty: tax on the manufacture of goods in India, levied by the Centre under the Central Excise Act, 1944. After GST it remains only on a few items — petroleum crude, high-speed diesel, petrol, natural gas, aviation turbine fuel and tobacco products.
• Customs duty: tax on import (and some exports) of goods under the Customs Act, 1962 and Customs Tariff Act, 1975. Components: Basic Customs Duty (BCD), IGST on imports, Social Welfare Surcharge, anti-dumping and safeguard duties. Administered by CBIC.
• VAT (Value Added Tax): state tax on the sale of goods, levied at each stage on value added with credit for tax paid on inputs; introduced in most states from 2005. Now applies only to items outside GST — petroleum products and alcoholic liquor for human consumption.

Goods and Services Tax is a comprehensive, multi-stage, destination-based tax levied on every value addition on the supply of goods and services. Launched on 1 July 2017 under the 101st Constitutional Amendment.

Features

• One nation, one tax — a common national market.
• Dual GST: Centre and states levy simultaneously on the same transaction.
• Destination-based: tax goes to the state where goods/services are consumed.
• Levied on supply, not manufacture or sale.
• Seamless input tax credit across goods and services.
• Online compliance — registration, returns, payment through the GST portal.
• Threshold: registration required if aggregate turnover exceeds ₹40 lakh (goods) / ₹20 lakh (services) in most states (₹20 lakh / ₹10 lakh in special category states).

History

Advantages

• Removes cascading (tax on tax) through input tax credit.
• Simpler tax structure; fewer taxes and returns.
• Common national market; removal of check-posts reduced transit time.
• Better compliance through matching of invoices and e-way bills.
• Boosts exports (zero-rated) and the Make in India drive.
• Increases the tax base and transparency.

• GST Council (Article 279A): chaired by the Union Finance Minister; members include the Union MoS (Finance) and finance ministers of all states. Recommends rates, exemptions, thresholds, model laws and dispute resolution.
• Voting: decisions require three-fourths majority; the Centre has one-third weight and the states together two-thirds.
• GSTN (GST Network): a not-for-profit company providing the IT backbone — registration, returns, payments, invoice matching. Now a government company (since 2022).

• Composite supply: two or more supplies naturally bundled; taxed at the rate of the principal supply (hotel stay with breakfast).
• Mixed supply: independent items sold together for one price; taxed at the highest rate among them (a gift hamper).

A simplified scheme for small taxpayers with turnover up to ₹1.5 crore (₹75 lakh in special category states).

• Cannot claim input tax credit; cannot collect tax from customers; must issue a bill of supply.
• Not available for inter-state outward supplies, e-commerce sellers (of goods), ice cream, pan masala and tobacco manufacturers.
• Files quarterly statement CMP-08 and annual return GSTR-4.

Input tax credit (ITC) is the credit of GST paid on purchases that can be used to pay output GST.

Conditions for ITC (Section 16)

• Possession of a tax invoice or debit note.
• Goods or services received.
• Tax actually paid to the government by the supplier.
• Return filed by the recipient; invoice appears in GSTR-2B.

• Blocked credits (Section 17(5)): motor vehicles (with exceptions), food and beverages, club memberships, personal consumption, works contract for immovable property, goods lost or stolen.

Refunds (Section 54)

• Situations: exports (zero-rated supplies), inverted duty structure (input rate higher than output rate), excess balance in electronic cash ledger, tax paid on a supply later cancelled, UN bodies and embassies.
• Apply in Form RFD-01 within 2 years from the relevant date; 90% provisional refund for zero-rated supplies within 7 days; interest at 6% on delayed refunds beyond 60 days.