Unit 5:- 

5.1 Basic Concepts of GST: – Dual Model of GST [CGST, SGST & IGST] – Concept of Destination based value added consumption tax – GST Council and its role

5.2 Applicability of GST (Section 1): – Charging Provisions of CGST/SGST/IGST and Schedule I, II, III and IV to GST Act. – Important definitions and concepts (Goods, Service, Taxable Person, Supply, Inter and Intra State Supply, e- Commerce, Aggregators) – Levy, meaning & scope of supply.
5.3 Value of Taxable Supply (Sec.15 of GST Act) & GST Valuation Rules

 

5.1 Basic Concepts of GST

Introduction & Definition

GST is a destination-based, multi-stage, value-added tax on the supply of goods and services. It replaced various indirect taxes (Excise, VAT, Service Tax) to create a “One Nation, One Tax” system.

The Dual Model [CGST, SGST & IGST]

India adopted the Concurrent Dual GST model (from Canada/Brazil) because of its federal structure.

  • CGST (Central GST): Levied by the Centre on intra-state supplies.
  • SGST/UTGST (State/Union Territory GST): Levied by the States/UTs on intra-state supplies.
  • IGST (Integrated GST): Levied by the Centre on inter-state supplies and imports. The revenue is later shared between the Centre and the Destination State.

Destination-Based Consumption Tax

Unlike the previous “origin-based” system (where the tax went to the state that produced the goods), GST follows the Destination Principle. The tax revenue belongs to the State where the goods or services are finally consumed.

GST Council (Article 279A)

The GST Council is a constitutional body that makes recommendations on rates, exemptions, and thresholds.

  • Composition: Union Finance Minister (Chairperson), Union Minister of State for Finance, and Finance Ministers of all States.
  • Voting: The Centre has 1/3rd weightage, while all States combined have 2/3rd weightage. Decisions require a 75% majority.

5.2 Applicability of GST

Charging Provisions (Section 9)

  • Section 9(1): Levy and collection of CGST on all intra-state supplies.
  • Section 9(3) & (4): Reverse Charge Mechanism (RCM), where the recipient (buyer) is liable to pay tax instead of the supplier.

Important Definitions

  • Goods [Sec 2(52)]: Every kind of movable property (includes actionable claims, growing crops; excludes money and securities).
  • Services [Sec 2(102)]: Anything other than goods, money, and securities.
  • Supply [Sec 7]: The “taxable event.” Includes sale, transfer, barter, exchange, license, rental, or lease made for a consideration in the course or furtherance of business.

The 4 Schedules to GST Act

  • Schedule I: Activities treated as Supply even without consideration (e.g., permanent transfer of business assets).
  • Schedule II: Activities to be treated as either Supply of Goods or Supply of Services (resolves ambiguity).
  • Schedule III: Negative List – Activities which are neither supply of goods nor services (e.g., Services by employee to employer, Funeral services).
  • Schedule IV: (Often integrated into the Act/Schedules) deals with specific governmental functions.

5.3 Value of Taxable Supply

Section 15 of the CGST Act

Introduction

The value on which GST is calculated is called the Transaction Value.

Statutory Rules

  • Section 15(1): Transaction Value is the price actually paid or payable, provided:
    1. The supplier and recipient are not related.
    2. Price is the sole consideration.
  • Section 15(2) – Inclusions: Taxes (other than GST), expenses incurred by recipient on behalf of supplier, incidental expenses (packing, commission), interest/late fees for delayed payment, and subsidies (linked to price, excluding Govt subsidies).
  • Section 15(3) – Exclusions: Discounts given before or at the time of supply (if recorded in the invoice).

GST Valuation Rules (Rules 27–35)

When the transaction value cannot be determined (e.g., Barter, Related Party transactions), we use:

  1. Open Market Value: Price if sold to an unrelated person.
  2. Like Kind & Quality: Value of similar goods.
  3. Cost-Based Value: 110% of the cost of production/acquisition.
  4. Best Judgment Method: Residual method using reasonable means.

Comparison Table: Inter-State vs. Intra-State Supply

Feature

Intra-State Supply

Inter-State Supply

Location

Supplier and Place of Supply are in the same State.

Supplier and Place of Supply are in different States/UTs.

Tax Levied

CGST + SGST (shared equally)

IGST (collected by Centre)

Relevant Act

CGST Act, 2017 & SGST Act, 2017

IGST Act, 2017

Exam-Style Conclusion

GST represents a shift from “Tax on Manufacture/Sale” to “Tax on Supply.” For your exams, remember that the GST Council ensures the cooperative federalism required to manage this complex “Dual Model” across a diverse nation.

PreviousNext