GST: Explained for Common Man

2018

Introduction to the Subject

Goods and Services Tax (GST) has been introduced in India from the 1 July 2017. It is a new indirect tax that has subsumed or combined seventeen pre-GST indirect taxes-eight administered by centre and nine by the states. Although the intention to introduce GST was first announced in the Budget Speech of 2006 by P. Chidambaram, then Union Finance Minister, it took 11 long years for the centre and 31 states to negotiate and arrive at a consensus about the form and structure of GST. GST is being jointly and concurrently administered by centre and the states. It has two components for intra-state supplies i.e. between two places in the same state – Central GST (CGST) to be levied and collected by centre and state GST (SGST) to be levied and collected by the concerned state. In case of inter-state supplies, i.e. between two places in two different states, the tax is known as Integrated GST (IGST), which is basically a sum total of CGST and SGST; the state’s share i.e. SGST accrues to the destination state where consumption takes place, since GST is a destination based consumption tax.

It may be clarified in the beginning that GST and Value Added Tax (VAT) are the different names of the same tax. Both charge the tax on the value added at each stage of the supply chain of goods and services. More on it later. European Union calls it VAT while broadly, rest of the world calls it GST.

Why Change?

Whenever a reform or change is contemplated, the first question that comes to one’s mind is – why change? One will go for change only if he is concerned that the existing system has not been working well. Let us now have a look at the pre-GST indirect taxation system for both centre and the states with respect to the seventeen indirect taxes which have been included in GST.

Constitutional Provisions on Taxing Power

The taxation of centre and the states are well demarcated in the Constitution of India through two of its three lists. In terms of the taxation provisions in pre-GST era Constitution, the Union List (List I) authorized centre to levy and collect Central Excise duty on manufacture of all goods except potable alcohol, Service Tax on provision of services, Customs duty on import and export of goods and a few more taxes. Customs duty on importation has two major components – Basic Customs Duty and Countervailing Duty (CV Duty). While Basic Customs Duty has not been subsumed in GST, CV Duty has been subsumed. The reason is that CV Duty is basically equivalent to the Central Excise Duty that would have been levied if such goods were to be manufactured in India. Since Central Excise duty has been subsumed in GST, so has been the C.V. duty on imported goods.

The states List (List II) authorized the states to levy and collect Sales Tax (later renamed as state VAT) on sale of goods, state Excise duty on manufacture of alcohol and certain narcotic substances, Entry Tax (Octroi) on inter-state movement of goods, and certain other taxes like Luxury Tax, Tax on Betting and Lottery, Entertainment Tax, etc.

The Concurrent List (List III) does not have any relevance to taxation power.

Deficiencies in Pre-GST Indirect Taxes

While looking at the pre-GST indirect taxation system, one would notice the following major deficiencies:

Cascading of Taxes

First, the cascading of tax or taxing the tax. In the ideal taxation system, there should not be any cascading of tax. It has been the endeavour of the tax administrations across the world to ensure that the tax paid on each input received for manufacturing the finished product that would constitute the output supplies, at each stage of the supply chain is available to the recipient of inputs as credit; further that credit would be available to be utilized for payment of the tax for his output supply. In such a situation, it would be a case of payment of tax on the amount of value added at each stage, where the tax paid on the inputs at the previous stage is not loaded into his output supply; hence the nameValue Added Tax (VAT). It may be noted that in the VAT / GST system just explained, the tax paid on inputs is taken as credit at the next stage and thus, the tax on input is not taxed again. In other words, there is no cascading of taxes. VAT was introduced for the first time in France in 1954, and then in other European Union (EU) countries. Later, other countries implemented the similar taxation system and started calling it Goods and Services Tax (GST).

Let us now understand this with a simple illustration of the supply chain of mineral water bottle, as it was being taxed in the pre-GST era. Broadly, it suffered three main taxes – Central Excise Duty on manufacture, Service Tax on various services including advertisement of the brand of the product like Bisleri, Bailley, etc., and then Sales Tax (Known as state VAT) on sale of the product inside the state (intra–state); in case of inter-state sale, it was Central Sales Tax (CST). Let us say, the supply chain started with manufacture of PET sheets. PET sheets were cleared on payment of Central Excise duty and supplied to the PET bottle manufacturer, who took credit of the tax paid on PET sheets and utilized the credit amount for payment of part of the tax on the manufactured output i.e. PET bottles; he paid the remaining part of the tax in cash. The PET bottles were then sold to the manufacturer of mineral water bottle, the ultimate consumer item. He again took credit of the tax paid on PET bottle. Thereafter, he manufactured mineral water, filled it in those bottles, put his brand name and paid Central excise and Services Tax on them-partly from the credit of input taxes and the balance in cash. Upto this point in the supply chain, there was no cascading of tax in as much as all the central taxes paid at previous stage of supply chain were taken credit of and utilized in payment of tax at subsequent stages till the ultimate consumer item was ready for sale.

The next step was to sell those products. Here, the Sales Tax (state VAT) for intra-state sales or CST for inter-state sales, as may be the case came into play. Suppose, at the factory gate, the cost of the Mineral Water Bottle was Rs.100 and the Central Excise and Services Tax paid were Rs.10 each. So, leaving aside other factors, the price of the bottle became Rs.120 which included the tax amounting to Rs.20. Suppose the rate of Sales Tax on this product was 10%. Here, the state government charged sales tax @ 10% on Rs.120 and the sales tax amount was Rs.12. The important point to note is that the state government did not allow credit of the tax amount of Rs.20 since that amount was collected by centre and not by the state.

Consequently, in the pre-GST regime, the amount of Rs.2 which was a tax @10% on the tax amount of Rs.20 was nothing but ‘tax on tax’ i.e. cascading of tax. Thus, the credit chain broke when the goods were sold, and this cascading tax of Rs.2 was finally passed on to the consumer, thus increasing its cost.

This is not happening in GST regime. GST is a tax levied and collected by centre and 31 states or 5 union Territories jointly and concurrently on supply of goods and / or services, together with availability of Credit at every stage of the supply chain, till it reaches the consumer. Therefore, in GST system, there is free flow of input tax credit. More of it later in Chapter 5. The hidden tax of Rs.2 in the above illustration was in fact not due to the Government but collected by default. Since it is not there in the GST regime, logically speaking, the cost of the unit product should come down by Rs.2, other factors remaining constant. This is a simple example. Cascading of taxes of more complicated nature were there in taxation of almost all products in the pre-GST era.

Compliance Costs

Next, the issue of compliance costs. In the pre-GST era, as mentioned before, there was multiplicity of taxes resulting in multiple authorities for tax collection, leading to multiple contact points between taxmen and taxpayers. Consequently, there were multiple compliance costs – both visible and invisible ones. In GST regime, only two authorities will administer GST. Moreover, through the use of technology and suitable legislation, there is to be one single interface, either centre or the concerned state or Union Territory for a particular taxpayer. It means that a particular taxpayer will not have to interact with two tax authorities. For each taxpayer, it will be a single taxman – from either centre or the concerned state, administering both CGST and SGST. This matter of Single Interface will be further discussed elaborately later in Chapter 32. Thus, the compliance cost will come down substantially, and that should also bring down the price of goods.

Non-Uniform State VAT Rates

Thirdly, in the pre-GST era, different states used to have different rates of state VAT. Some states had much lower rate so as to attract industries. Normally, for setting up an industry, an investor would choose a place near the source of raw materials or near the market for the finished product. But, due to the consideration of lower state VAT rate in a particular state, the investor used to choose that state, although it was away from both the source of raw materials / components and the market. This added to the unnecessary logistic costs which ultimately added to the value of goods. In GST regime, all states will have the same rate of state GST (SGST). Therefore, there will not be any scope for such distortions in the economy.

Effects of Central Sales Tax (CST)

Next, in the pre-GST era there was an origin based tax on interstate sales called Central Sales Tax (CST). It was collected by the origin state and kept by it; further, the taxpayers did not get any credit for CST. Thus, it was adding to the cost of the goods. On the other hand, there was no CST on stock transfer. When the manufacturing unit at say Pune in Maharashtra was transferring its goods to his own warehouse at say Chennai, it was a case of stock-transfer; there being no sale, there was no CST on such transfers. Therefore, the manufacturers from Pune selling goods to dealers at different places in Tamil Nadu like Coimbatore, Salem, Madurai, etc. used to set up a warehouse at Chennai, get the stock-transfer of his goods done from Pune to Chennai without payment of CST, and then sell the goods to the dealers in Tamil Nadu after paying state VAT for which they were getting credit. This was avoidance of CST, not evasion. But he had to incur the extra unnecessary expenditure of setting up and maintenance of warehouse at Chennai, and this expenditure added to his cost. This is distortion. In GST regime, CST has been replaced by Integrated GST (IGST) for payment of which the taxpayers get credit. Because of availability of full credit of IGST, there is no need to have small warehouses solely for the purposes of getting credit. Thus, saving on setting up of warehouse even as getting the credit for the tax paid should bring down the price.

Abolition of Entry Tax / Octroi-Creation of Common Economic Market

Fifthly, in pre-GST era there used to be Entry Tax or Octroi that was collected for inter-state sale of goods at the inter-state check posts. The entry-tax added to the cost of the transported goods, there being no credit for it. The very collection process was also cumbersome resulting in inordinate delay, corruption and tremendous loss of man-hour. This in turn led to increased transportation time and transportation cost. In post-GST scenario, Entry Tax / Octroi is included in GST, and hence, no need for separate tax collection at the check posts.

This has led to substantial reduction of transportation and logistic costs. Besides, this step coupled with enforcing the same SGST rate in all the states has made India a common economic market for the first time.

Inequitable Distribution of Industries

Sixthly, GST has an element of equity embedded in it. Being a destination based consumption tax, in cases of inter-state supply of goods and services, the state’s share of GST accrues to the destination state where consumption actually takes place. It may be recalled that in pre-GST regime, the GST of inter-state sales i.e. CST accrued to the origin states where manufacture took place. Broadly speaking, the manufacturing states which are highly industrialized are very few in number; e.g. Gujarat, Maharashtra, Karnataka, Tamil Nadu, Delhi, Haryana, etc. As against this, the consumption states which are generally populous and much less industrialized are vast in number; e.g. Bihar, Assam and other North-Eastern states, Odisha, West Bengal, Kerala, Himanchal Pradesh, Uttarakhand, Uttar Pradesh, etc. One of the main reasons for less industrialization is the absence of good road and rail network, lack of continuous power supply and other attendant infrastructures-all of which require revenue or fund. In the GST regime, these less industrialized but high consumption states will receive more revenue through the destination state’s share for inter-state supplies. It is expected that this extra revenue would be used in developing the aforesaid infrastructure necessary for attracting the Trade and Industry. Thus, in course of a few years, these very states would attract industries, and in the process all these states would also become industrialized, thus increasing the overall share of manufacture in the country’s GDP. At present, manufacture contributes only a small percentage, around 12% to the GDP. Thus, because of the principle of equity embedded in GST, the country will have faster industrialization across the states; the boost in manufacture will lead to export surplus coupled with reduced price in domestic market, and thus, competitive edge in price in international market. Besides, the boost in manufacture will lead to more employment generation which in turn will increase the purchasing power of the people and this in turn will give rise to more demand and more production, and all these will lead to higher GDP. Such is the utility or impact of GST, if properly implemented with appropriate planning and clear foresight.

Birth of GST – Dual GST Model

In light of the foregoing discussion, it’s evident that the pre-GST indirect taxes, which got subsumed in GST, had many deficiencies, and it was necessary to remove or mitigate those deficiencies through a particular design of GST with the hope that GST would be a game – changer in the evolution of indirect taxation system in India. Thus, India opted for Dual GST model, to be discussed in next chapter.

Dual GST Model and Need for Constitution Amendment

THREE COMPONENTS OF GST IN DUAL GST MODEL

India has gone in for Dual GST Model whereby the centre and the states simultaneously levy and collect GST on a common tax base of suppliers of goods and / or services. GST has basically three components. In case of intra-state supply, say from Mumbai to Pune, it will have two components – Central GST (CGST) which will accrue to the centre and state GST (SGST) which will accrue to the concerned state (State of Maharashtra in given example). But for inter-state supply, say from Mumbai in the State of Maharashtra to Patna in the State of Bihar, the tax to be paid would be Integrated GST (IGST) which is basically a sum total of CGST and SGST. The system has been so designed that CGST (Half of the total IGST) will go straight to the Central coffers while SGST, the other half of IGST would accrue to the destination state, the State of Bihar in the given example. This is so because GST is a destination based consumption tax.

Rationale for Dual GST Model – Why Dual GST?

There are basically three models of GST – National or Central GST Model, States GST Model and Dual GST Model. Most of the countries including the countries in Europe, Australia, New Zealand, Singapore, etc. follow the national or central GST Model. In this model, the centre and the states first sit together and decide on the Consumption Index of each state based on various factors including population, purchasing power of the people, etc. The centre collects GST for centre as well as the states, and then distributes the state’s share of GST according to the pre-decided Consumption Index of each state, because GST is a destination based consumption tax. It’s a simple process. In this model, there is no need to take into consideration the complicated aspects of IGST for interstate trade, determination of place of supply, etc. It may be mentioned that in the pre-GST era, the Central Excise duty and Service Taxthat were collected by the centre from the entire country were also being shared between centre and states on the basis of recommendations from the Finance Commission, Planning Commission, etc.

Therefore, if this model was adopted for GST in India, we could have perhaps introduced GST within a year of its announcement in 2006. But, India is a federal country where a certain measure of fiscal autonomy for the states has been enshrined in the Constitution by distribution of taxation power through Lists I and II of its Seventh Schedule. If India was to go for the National (Central) Model, the financial autonomy of the states would have been jeopardized in as much as the states would then have been left with the power only in respect of determination of Consumption Index, and not on different aspects of taxation. That could have been construed as interference with the fundamentals of the Constitution.Indeed, a country can’t be made strong by making the states weak.

In the provincial or states GST model, the converse situation applies. Here, the state collects the GST for both the concerned state and the centre, and subsequently gives the centre’s share to the centre. This model is not popular at all, and applied only in one province in Canada-Quebec. It may be recalled, generally speaking, centre must have supremacy over states in respect of three basic areas – Defence, Foreign Affairs and Finance. Therefore, to the best of the author’s information, no other country has adopted the provincial or states GST model. So, in the beginning itself this model was rejected in India.

The third option was the Dual GST model which has already been explained. In view of the compelling reasons explained above, India opted for Dual GST Model where centre and the states share the responsibility of collecting the GST jointly in the spirit of co-operative federalism and that is in keeping with the constitutional requirement of fiscal federalism and fiscal autonomy of the states.

Having said that, one must also accept the negative aspects of Dual GST Model. Most of the complications of GST arise out of the Dual GST Model which envisages the GST treatment of interstate trade with the aim of dispatching the state GST share from the origin state to the destination consumption state. That’s the reason why a taxpayer is asked to have registration in each state that he supplies his goods from, instead of one centralized registration that was prevalent in pre-GST era. That is also the reason why he has to determine the ‘place of supply’ of his goods and / or services by resorting to a set of complicated provisions. But these steps are essential for keeping the fundamentals of the Constitution intact.

Need for Constitution Amendment – STEPS LEADING TO IT

As can be seen from the above discussion, the Dual GST structure clashed with the Constitution provisions laid down in List I and List II of the Sixth Schedule of the Constitution which specifically distributed the taxation powers of centre and states. Therefore, the first requirement was amendment of the Constitution.

This took a long time because of lengthy negotiations between centre and the states on various aspects like structure and form of GST, the items and taxes to be included in GST, etc. An important step in this regard was taken by the then Finance Minister Pranab Mukherjee in March 2011 when he placed the 115th Constitution Amendment Bill before the Parliament, based on centre’s understanding of the issues. It proposed empowerment of both centre and the states to levy and collect GST jointly and concurrently. Conceding the demand from states, it also proposed to exclude alcohol and petroleum from the ambit of GST. The reasons of the exclusion will be explained shortly. The Bill was sent to the Standing Committee of Parliament on Finance, led by Yashwant Sinha, the former Union Finance Minister. The Bill could not be passed by the Parliament because of stiff resistance from certain states including Gujarat, Madhya Pradesh, etc. Meanwhile, the country was heading for the General Elections of 2014 and naturally the Bill relating to GST was put in the back-burner. With the expiry of the tenure of Parliament, that Bill died its natural death in May 2014.

After the new government was in place, Arun Jaitley, the new Finance Minister quickly announced the government’s intention to introduce GST after further negotiations with the states. Accordingly, a few more compromises were made to accommodate a few more demands from the states. Most important one was that he agreed for centre to compensate the States 100% for loss of revenue for first five years. It was also agreed that a provision in this regard will be there in the Constitution Amendment Act. Finally, the 122nd Constitution Amendment Bill, a revised one based on the format and structure of the 115th Amendment Bill, was placed before the Parliament in December 2014. The Lok Sabha, where the ruling alliance had substantial majority, passed the Bill. But it met with the hurdle at Rajya Sabha on certain issues. The Bill was then referred to the Select Committee of Rajya Sabha. The Select Committee interacted with different stakeholders and GST experts. On invitation, this author also had the privilege of placing his views before the Committee.

Finally, a revised Bill was debated intensively in the Rajya Sabha, and passed almost unanimously in August 2016.

Thus, was born the 101st Constitution Amendment Act, on the strength of which GST could be implemented in 2017.

GST Legislations and Basics of GST

GST LEGISLATIONS

The 101st Constitution Amendment Act empowered both the centre and the states to levy and collect GST, the first requirement of implementing the Dual GST. Next was the need for detailed laws and rules for implementation of GST. Legislations were necessary for collection and administering of CGST, SGST / UTGST and IGST. For this purpose, to start with, the business processes involved in administering these taxes were identified and discussion papers on these business processes like Registration, Payment, Filing of Returns and Claiming of Refunds were released in the public domain during October–December 2015. Based on the feedback from the stakeholders including Trade and Industry and professionals, a draft Model GST law was released in June 2016. These were widely debated, deficiencies pointed out and revised draft Model GST law was released in later half of 2016. Even this was further debated and the revised Bills relating to the following laws were passed by Parliament in early 2017: Central GST Act, 2017, IGST Act, 2017 and Union Territory (UT) GST Act, 2017.

The State GST (SGST) Acts were subsequently passed by the respective State Assemblies of 31 states. For the five Union Territories, there was the Union Territories GST (UTGST) Act, 2017 which was also passed by the Parliament. All these laws are similar in structure, form and nature, having been derived from the agreed template of Model GST Law.

It may also be noted that the laws and procedures relating to SGST Act and UTGST Act being similar, reference to the UTGST Act has not been repeated throughout the book. So, any reference to the SGST Act may also be taken as applicable to the UTGST Act for the Union Territories.

Besides these taxation laws, the Parliament also passed the GST (Compensation to states) Cess Act, 2017 which deals with various aspects of payment of compensation to the states by the centre for the revenue loss by the states due to introduction of GST. The Section 8 of this Act authorizes levy and collection of Cess and subsequent use of that Cess amount by centre in paying compensations to the states.

This has been discussed in details at Chapter 31.

GST RULES

Next, there was the need to have a set of rules to facilitate the laying down of procedures, forms and formats, etc. Thus, the centre released three sets of Rules relating to CGST and IGST as follows: CGST Rules, 2017, IGST Rules, 2017 and GST Compensation Cess Rules, 2017. These were later further amended.

The SGST Rules were notified by different states separately which were basically similar to the CGST rules. Even the IGST Rules adopted those CGST Rules at appropriate places. The GST Compensation Cess Rules, 2017 provides for the mode of levy of the Compensation Cess and its subsequent disbursal to the concerned states.

BASICS OF GST

Definition of GST

In terms of Article 366 (12A) of the Constitution, the Goods and Services Tax (GST) ‘means any tax on supply of goods or services or both except taxes on the supply of the alcoholic liquor for human consumption’. Further, in terms of Article 366 (26A), Services mean anything other than ‘goods’. The Goods have been defined in Section 2(52) of the CGST Act, 2017 as every kind of movable property other than money and securities and it specifically includes certain items. Thus, the Constitution has clearly spelt out that GST is a tax on ‘supply’ of goods and / or services. Therefore, in GST regime, Supply is the taxable event, unlike the pre-GST era where the taxable events for taxes like Central Excise, Service Tax and state VAT were ‘manufacture’, ‘provision of service’ and ‘sale’ respectively. What constitutes ‘supply’ to be the taxable event for GST would be discussed soon later in Chapter 4.

Exclusion of Alcohol and Petroleum

The Constitution has clearly stated that GST means any tax on supply of goods and / or services except taxes on the supply of alcoholic liquor. In respect of five petroleum products, at the insistence of the states, a clause was introduced that the date from which the GST, rates of duty would be effective for these five products would be decided by the GST council. Thus, effectively both alcohol and the five petroleum products were outside the ambit of GST, when GST was introduced. There is a background to this, and it would need little bit of explanation.

After it was decided that GST will be collected jointly and concurrently by centre and the states, negotiations started between centre and 31 states on structure and form of GST through different Working Groups under the auspices of the Empowered Committee of State Finance Ministers (EC) led by Dr. Ashim Dasgupta, the Finance Minister of the State of West Bengal. The main apprehension of the states was about loss of revenue in the GST regime. The centre had broadly agreed to compensate for the loss of revenue, but declined at the initial stages of negotiations to put the clause about compensation in the Constitution. The states demanded that alcohol and five petroleum products viz Crude, Petrol, High Speed Diesel, Aviation Turbine Fuel (ATF) and Natural Gas should be kept outside the ambit of GST. These petroleum products together contributed 50 to 55% of the revenue collection of the states in the pre-GST era. The states wanted to be sure of at least this amount of revenue. It was finally agreed that in the constitution, these petroleum products will not be kept outside the ambit of GST. However, as mentioned before, the date of implementation of GST for these items will be deferred till the GST Council decides so.

Alcohol is demerit goods just as tobacco and cigarette are. The centre had proposed to bring tobacco and cigarette within GST, and then collect tax additionally on these items. The reason was that the GST rate would be much lower than that of pre-GST rate for cigarettes and tobacco, and being demerit goods, tobacco and cigarette could not be put in such a lower rate of tax. On the other hand, by bringing it within GST, the credit chain will be maintained. It was therefore, proposed to the states that they could also agree to bring alcohol, the other demerit goods within GST, and then charge additional state excise duty and state VAT so as to maintain the pre-GST rate of tax on alcohol. Thus, credit chain of inputs at various previous stages for manufacture of alcohol, could have been maintained. While tobacco / cigarettes and alcohol are sin goods or demerit goods, the inputs for these items are not sin goods, and they should not be denied the benefit of input tax credit. But the states did not relent. Therefore, alcohol for human consumption is the only item that could not be brought under GST. Industrial alcohol which had been in Union List was of course kept within GST from the beginning. Consequently, whenever the Council decides to bring in these petroleum items within GST, it does not have to go through the arduous route of Constitution amendment. This would not be the case for alcohol.

Taxes Subsumed

Now, the taxes that have been subsumed or included within the ambit of GST. The eight pre-GST Central Indirect Taxes and nine pre-GST state Indirect Taxes that have been subsumed in GST are as follows:

[A] Central Indirect Taxes (pre-GST regime)

(1) Central Excise Duty

(2) Duties of Excise (Medicinal and Toilet Preparations)

(3) Additional Duties of Excise (Goods of Special Importance)

(4) Additional Duties of Excise (Textiles and Textile Articles)

(5) Additional Duties of Customs (commonly known as CV Duty)

(6) Special Additional Duty of Customs (SAD)

(7) Service Tax

(8) Central Surcharges and Cessesso far, as they relate to supply of goods and services

[B] State Indirect Taxes (pre-GST regime)

(i) State VAT

(ii) Central Sales Tax

(iii) Luxury Tax

(iv) Entry Tax (all forms)

(v) Entertainment and Amusement Tax (except when levied by the local bodies)

(vi) Taxes on Advertisements

(vii) Purchase Tax

(viii) Taxes on Lotteries, Betting and Gambling

(ix) State Surcharges and Cesses, so far as they relate to supply of goods and services.

Other Things Outside GST

Exclusion of alcohol and petroleum has been explained before. Besides these two, supply of electricity (power), Stamp Duty and Land Registration charges relating to transactions in Real Estate have also been kept outside GST. Thus, the states continue to collect State Excise and State VAT on alcohol, State VAT on five petroleum products, state tax on supply of electricity and stamp duty and other charges in Real Estate transactions. On the other hand, the centre continues to collect Central Excise duty on those five petroleum products. Needless to say that the GST input tax credit chain breaks in respect of these items. This is a deficiency in the current format of GST.

Goods and Services Defined

The Constitution read with the GST laws like Central GST Act, 2017, etc. defines the ‘goods’ and the ‘services’. The definition of ‘goods’ as mentioned before is simple one, the goods being tangible. But, the definition of ‘services’ may look simple, but it has many implications. By virtue of being ‘anything other than goods’, any business activity which is other than ‘supply of goods’ will be treated as ‘ supply of services’ in GST regime, provided of course that activity comes within the scope of ‘supply’. This will be elaborated in Chapter 4 that deals with ‘Supply’. Further, being intangible, dealing with services, particularly determination of its place of supply has its inherent complications, as would be explained in Chapter 6 that deals with IGST.

GST – A Destination-Based Consumption Tax for Inter-State Supplies

As per the international practice, GST is a destination-based consumption tax. Therefore, for inter-state trade or commerce, the state’s share of tax would accrue to the destination state where consumption takes place. So, in GST regime, the tax would accrue to the state which has jurisdiction over the place of consumption, and that is known as the ‘place of supply’. Determination of place