Indirect Taxes CBCAT6T11A

Syllabus topics (RTMNU)

• Concept and Meaning of Taxation in India
• Types of Taxes: Direct Tax and Indirect Tax
• Indirect Taxes before GST (VAT, Service Tax, Excise Duty etc.)
• Introduction to Goods and Services Tax (GST)
• Objectives and Need for GST in India
• Features and Advantages of GST
• Structure of GST in India
• Concept of One Nation One Tax
• CGST (Central GST), SGST (State GST), IGST (Integrated GST), UTGST (Union Territory GST)
• GST Rates
• GST Council: Composition and its Functions
• Benefits of GST for Business and Economy

Concept and Meaning of Taxation in India

A tax is a compulsory payment made by persons to the government, without any direct benefit in return, to meet public expenditure. In India the power to tax comes from the Constitution (Article 265: no tax shall be levied except by authority of law). Taxes are levied by the Union, the States and local bodies as per the Seventh Schedule and Article 246A (for GST).

Types of Taxes: Direct and Indirect

Indirect Taxes before GST

• Central: Central Excise Duty (on manufacture), Service Tax (on services, 1994), Central Sales Tax (inter-state sales, collected by States), Additional customs duties (CVD, SAD), various cesses and surcharges.
• State: Value Added Tax (VAT, introduced from 2005) on intra-state sales, entry tax, octroi, entertainment tax, luxury tax, purchase tax, taxes on lotteries and betting.

Problems: cascading effect (tax on tax), multiple laws and returns, no credit of Central taxes against State taxes, check-posts at state borders, different rates in different States.

Introduction to GST

Goods and Services Tax (GST) is a comprehensive, multi-stage, destination-based tax levied on every value addition on the supply of goods and services. It was introduced on 1 July 2017 through the Constitution (101st Amendment) Act 2016. Main laws: CGST Act 2017, IGST Act 2017, UTGST Act 2017, the State GST Acts, and the GST (Compensation to States) Act 2017.

Objectives and Need for GST

1. Remove the cascading effect through seamless input tax credit.
2. Create a common national market — "One Nation, One Tax".
3. Simplify the tax system — one law, common procedures, online compliance.
4. Widen the tax base and improve compliance.
5. Make Indian goods competitive in export markets.
6. Reduce tax evasion through invoice matching and e-way bills.

Features and Advantages of GST

• Destination-based consumption tax — tax goes to the State where goods/services are consumed.
• Dual GST — Centre and States levy simultaneously on the same transaction.
• Supply is the taxable event (not manufacture or sale).
• Input tax credit across goods and services.
• Uniform procedures; GSTN online portal for registration, returns and payment.
• HSN codes for goods and SAC codes for services.
• Composition scheme for small taxpayers.
• Petroleum crude, petrol, diesel, natural gas and ATF are within GST law but the levy is not yet notified; alcohol for human consumption is outside GST — check latest.

Structure of GST in India: CGST, SGST, IGST, UTGST

Example: a Nagpur trader selling to a Nagpur customer charges CGST + SGST; selling to a buyer in Raipur (Chhattisgarh) charges IGST.

Concept of One Nation One Tax

GST replaced about 17 Central and State indirect taxes with one tax, applying the same law, rates and procedures across India, removing state-border check-posts and making India one unified market. (Strictly, there are still separate CGST/SGST components and a few items outside GST.)

GST Rates

GST Council: Composition and Functions

Set up under Article 279A. Composition: Union Finance Minister (Chairperson), Union Minister of State for Finance/Revenue, and the Finance (or other nominated) Minister of each State and UT with legislature. Voting: decisions need a 3/4 majority of weighted votes — Centre has 1/3 weight, all States together 2/3. Quorum: half of members.

Functions: recommends taxes to be subsumed; goods and services to be taxed or exempted; GST rates; threshold limits; model GST laws and principles of place of supply; special provisions for special category States; dispute resolution; date for bringing petroleum products under GST.

Benefits of GST for Business and Economy

Business: no cascading, lower logistics cost (no check-posts), easy online compliance, ITC on services, uniform market, composition scheme for small firms. Economy: higher tax collection and wider base, formalisation of economy, boost to "Make in India" and exports, transparent system, cooperative federalism.

Likely exam questions

1. (Long, 8/16 marks) What is GST? Explain its objectives, need and features.
2. (Long, 8/16 marks) Explain the structure of GST in India (CGST, SGST, IGST, UTGST) and the composition and functions of the GST Council.
3. (Short, 4 marks) Distinguish between direct tax and indirect tax.
4. (Short, 4 marks) Name any four indirect taxes subsumed in GST.
5. (Short, 4 marks) Explain the concept of One Nation One Tax.

Syllabus topics (RTMNU)

• Taxable and Non-Taxable Supply under GST
• Composite Supply and Mixed Supply
• Meaning of Turnover for GST
• Registration Under GST
• State-wise turnover limit/slabs
• Compulsory, voluntary Registration
• Types of Turnover
• Meaning of input tax credit and output tax credit
• Reverse Charge Mechanism (RCM)
• Types of GST Returns
• Filing of GST Returns (GSTR-1, GSTR-3B, etc.)
• Interest, Penalties and Late Fees
• E-Way Bill System

Taxable and Non-Taxable Supply

• Supply (Section 7) includes sale, transfer, barter, exchange, licence, rental, lease or disposal made for a consideration in the course of business, plus import of services and certain supplies without consideration (Schedule I — e.g. between related persons or branches in different States).
• Taxable supply: a supply of goods or services that is chargeable to GST (including 0% rated).
• Exempt supply: supply attracting nil rate, or wholly exempt by notification (e.g. fresh vegetables, education by schools, healthcare by clinical establishments), or non-taxable supply.
• Non-taxable supply: a supply not leviable to tax under the GST law — alcoholic liquor for human consumption, and petrol, diesel, crude, natural gas and ATF (levy not yet notified).
• Zero-rated supply: exports and supplies to SEZ — tax not charged but ITC allowed/refunded.

Composite Supply and Mixed Supply

Meaning and Types of Turnover

Aggregate turnover (Section 2(6)) = value of all taxable supplies + exempt supplies + exports + inter-state supplies of persons having the same PAN, all-India basis, excluding the value of inward supplies on which tax is paid under reverse charge and excluding CGST, SGST, UTGST, IGST and cess.

• Aggregate turnover — used for registration and composition eligibility.
• Turnover in a State/UT — supplies made within one State (for a registered person in that State).
• Taxable turnover — only taxable supplies.
• Exempt turnover — exempt and non-taxable supplies.

Registration under GST: Limits, Compulsory and Voluntary

Threshold limits (aggregate turnover in a financial year):

Check latest State-wise limits; some States kept ₹20 lakh for goods.

Compulsory registration (Section 24) — irrespective of turnover: persons making inter-state taxable supply of goods; casual taxable persons; persons liable to pay under reverse charge; non-resident taxable persons; persons deducting TDS or collecting TCS; e-commerce operators; persons supplying through e-commerce operators (subject to exemptions); input service distributors; agents supplying on behalf of others; suppliers of online information services from outside India to unregistered persons.

Voluntary registration: a person below the threshold may register to claim ITC and deal with registered buyers; all provisions then apply.

Procedure: apply in Form GST REG-01 on the GST portal with PAN, Aadhaar authentication, business details and bank account; verification; registration certificate (REG-06) with a 15-digit GSTIN (State code + PAN + entity number + Z + check digit). Registration must be taken within 30 days of becoming liable.

Input Tax and Output Tax

• Output tax: GST charged by a registered person on his taxable supplies (sales).
• Input tax: GST paid on goods and services received (purchases) for business.
• Input Tax Credit (ITC): the input tax that can be set off against output tax. Conditions (Section 16): tax invoice in hand, goods/services received, tax actually paid by supplier, supplier's invoice reflected (GSTR-2B), return filed. Blocked credits (Section 17(5)): motor vehicles (with exceptions), food and beverages, club membership, personal consumption, goods lost/stolen/given as free samples, construction of immovable property on own account.
• Net GST payable = Output tax − Eligible ITC.

Reverse Charge Mechanism (RCM)

Normally the supplier pays GST. Under RCM, the recipient pays GST to the government. Cases: (1) Section 9(3) — notified goods and services, e.g. goods transport agency services, legal services by an advocate to a business entity, sponsorship services, services by a director to the company; (2) Section 9(4) — notified supplies from unregistered persons (e.g. certain real-estate cases); (3) import of services. RCM tax must be paid in cash; it can then be taken as ITC if eligible.

Types of GST Returns and Filing

Interest, Penalties and Late Fees

• Interest (Section 50): 18% p.a. on tax paid late (on the net cash liability); interest is also charged on ITC wrongly availed and utilised, at the notified rate — check latest.
• Late fee (Section 47): for late GSTR-1/3B, ₹50 per day (₹25 CGST + ₹25 SGST), ₹20 per day for nil returns, subject to caps linked to turnover — check latest.
• Penalties (Section 122): for offences like supplying without invoice, fake invoices, wrongful ITC, tax evasion — ₹10,000 or the tax evaded, whichever is higher. General penalty (Section 125): up to ₹25,000 where no specific penalty is given. Serious frauds can lead to prosecution (Section 132).

E-Way Bill System

An e-way bill is an electronic document generated on the e-way bill portal for movement of goods worth more than ₹50,000 (per consignment) — check State limits. It has Part A (GSTIN of supplier and recipient, place of delivery, invoice number, value, HSN, reason) and Part B (transport details — vehicle number). Generated by the supplier, recipient or transporter. Validity: 1 day for every 200 km (normal cargo). It replaced state check-posts and helps track goods and prevent evasion.

Likely exam questions

1. (Long, 8/16 marks) Explain the provisions relating to registration under GST, including threshold limits, compulsory and voluntary registration.
2. (Long, 8/16 marks) What are GST returns? Explain the various types of GST returns with due dates, and the provisions for interest, late fees and penalties.
3. (Short, 4 marks) Distinguish between composite supply and mixed supply with examples.
4. (Short, 4 marks) What is the reverse charge mechanism?
5. (Short, 4 marks) Write a note on the e-way bill system.

Syllabus topics (RTMNU)

• Computation of Turnover under GST
• Simple problem on GST registration/case study of a single trader/single supplier only
• Computation of total input and total output tax of a single trader/single supplier only

Computation of Aggregate Turnover — Steps

1. Take all taxable supplies (intra-state and inter-state) at value before GST.
2. Add exempt supplies, nil-rated and non-taxable supplies.
3. Add exports and supplies to SEZ (zero-rated).
4. Add inter-state supplies between branches with the same PAN.
5. Exclude inward supplies taxed under reverse charge, and exclude CGST, SGST, UTGST, IGST and cess.
6. Compare with the threshold limit to decide registration.

Illustration 1: Turnover and Registration (Single Trader)

Mr. Amit, a trader in goods at Nagpur (Maharashtra), gives these details for FY 2025-26 (all values exclusive of GST): intra-state taxable supplies ₹28,00,000; supply of fresh vegetables (exempt) ₹6,00,000; inter-state taxable supply to Raipur ₹4,00,000; export of goods ₹3,00,000; inward supplies on which he paid tax under reverse charge ₹1,50,000; GST collected on sales ₹5,76,000. Compute aggregate turnover and state whether he is liable to register.

Conclusion: (1) Aggregate turnover ₹41 lakh exceeds the ₹40 lakh limit for a supplier of goods in Maharashtra, so registration is required. (2) In any case he makes inter-state taxable supplies of goods, which require compulsory registration under Section 24 irrespective of turnover.

Computation of Input Tax and Output Tax (Single Supplier)

• Intra-state purchase/sale → CGST + SGST (half each).
• Inter-state purchase/sale → IGST (full rate).
• Total output tax − Total eligible input tax = Net GST payable (head-wise, after utilisation rules).

Illustration 2: Input and Output Tax of a Single Trader

M/s Shree Traders, Nagpur, for October: purchases within Maharashtra ₹5,00,000; purchases from Gujarat ₹2,00,000; sales within Maharashtra ₹6,00,000; sales to Madhya Pradesh ₹3,00,000. GST rate 18% on all. Compute input tax, output tax and net GST payable.

Input tax:

Output tax:

Net GST payable:

Check: total output ₹1,62,000 − total input ₹1,26,000 = ₹36,000 ✓.

Illustration 3: Value Including GST (Back Calculation)

A trader's intra-state sales including GST @18% are ₹2,36,000. Taxable value = 2,36,000 × 100 ÷ 118 = ₹2,00,000; GST = ₹36,000 (CGST ₹18,000 + SGST ₹18,000).

Likely exam questions

1. (Long, 8/16 marks) Explain the steps for computing aggregate turnover under GST and its use in deciding registration.
2. (Long, 8/16 marks) Ms. Riya, a supplier of services in Nagpur, has: intra-state taxable services ₹14,00,000; exempt services ₹3,00,000; inter-state taxable services ₹2,00,000; export of services ₹2,50,000; inward supply under RCM ₹50,000. Compute aggregate turnover and state whether registration is required.
3. (Short, 4 marks) What is excluded from aggregate turnover?
4. (Short, 4 marks) A trader buys goods within the State for ₹1,00,000 and sells them within the State for ₹1,50,000; GST 18%. Find net CGST and SGST payable.
5. (Short, 4 marks) Find taxable value and GST if the invoice value including 5% GST is ₹1,05,000.

Syllabus topics (RTMNU)

• Computation of total input and total output tax of multiple suppliers
• Utilization of input Tax credit
• Carry forward of credit
• Computation of GST liability of all suppliers in the problem

GST in a Chain of Multiple Suppliers

Goods usually pass from manufacturer → wholesaler → retailer → consumer. At each stage the supplier charges GST on his sale value (output tax) and takes credit of GST paid on his purchase (input tax). So each supplier pays tax only on his value addition, and the total tax collected equals GST on the final sale price paid by the consumer. Because GST is destination-based, the SGST/IGST finally goes to the consuming State.

Utilisation of Input Tax Credit (Sections 49, 49A, 49B and Rule 88A)

Carry Forward of Credit

If eligible ITC in a month is more than output tax, the unused balance remains in the electronic credit ledger and is carried forward to the next tax period. It is not lost and is not refunded, except in cases like zero-rated supplies (exports) or inverted duty structure, where a refund can be claimed.

Illustration 1: Liability of All Suppliers in a Chain

A manufacturer M in Nagpur sells goods to wholesaler W in Pune for ₹1,00,000. W sells them to retailer R in Indore (Madhya Pradesh) for ₹1,30,000. R sells them to consumers in Indore for ₹1,60,000. GST rate 18%. M has no input tax. Compute GST liability of each supplier.

Working for R: IGST credit ₹23,400 is used first against CGST ₹14,400 (balance ₹9,000), then against SGST ₹9,000. SGST payable in cash = 14,400 − 9,000 = ₹5,400.

Check: Total GST paid = 18,000 + 5,400 + 5,400 = ₹28,800 = 18% of final price ₹1,60,000 ✓. Each supplier paid 18% only on his value addition: M on ₹1,00,000, W on ₹30,000 (= ₹5,400), R on ₹30,000 (= ₹5,400).

Illustration 2: Utilisation and Carry Forward of ITC

For November, a registered dealer has: ITC — IGST ₹50,000, CGST ₹20,000, SGST ₹20,000; output tax — IGST ₹10,000, CGST ₹30,000, SGST ₹30,000. Show utilisation of ITC and the credit carried forward.

Check: Total ITC ₹90,000 − total output ₹70,000 = ₹20,000 carried forward (as CGST credit) ✓.

Illustration 3: Multiple Suppliers within One State

Supplier A sells raw material to B for ₹50,000; B processes and sells to C for ₹80,000; C sells to consumer D for ₹1,00,000. All are in Maharashtra; GST 5%.

Total ₹5,000 = 5% of ₹1,00,000 ✓ — no cascading.

Likely exam questions

1. (Long, 8/16 marks) Explain the rules for utilisation of input tax credit of IGST, CGST and SGST, and the carry forward of unused credit.
2. (Long, 8/16 marks) A sells goods in Nagpur to B (Nagpur) for ₹2,00,000; B sells to C in Bhopal for ₹2,50,000; C sells to a consumer in Bhopal for ₹3,00,000. GST 18%. Compute GST payable by A, B and C.
3. (Short, 4 marks) ITC: IGST ₹30,000, CGST ₹10,000, SGST ₹10,000. Output: IGST ₹20,000, CGST ₹15,000, SGST ₹15,000. Compute cash payable.
4. (Short, 4 marks) Why can CGST credit not be used to pay SGST?
5. (Short, 4 marks) Show that GST avoids the cascading effect with a small example.