Categories: GST

What is GST With Examples – Levy of GSTs & Credit Under the GST System

We have tried to guide you through the general understanding on GST, how the existing indirect tax payers shall enrol for GST on common portal and what accounts, statements & Invoices shall be maintained.

Now, in this article, we shall be guiding you on the levy and charge of GST.

The basic philosophy of GST is “One GST rate on goods & services collected by one agency across India..” But as India gives a different flavour to everything like Indian curry & Indian spices in Chinese dishes & Italian dishes, India has given its own federal flavour to GST.. As we have Federal structure in taxation system i.e. Few taxes by Union & Few taxes by States, GST too have federal system.. Dual Structure – Dual Levy – Dual Control..

Goods & Service Tax:

GST is divided in 4 type of taxes.

  1. State Goods & Service Tax (SGST),
  2. Union Territory Goods & Service Tax (UTGST),
  3. Central Goods & Service Tax (CGST) &
  4. Integrated Goods & Service Tax (IGST).

SGST/CGST/UTGST shall be charged on all intra-state supply of goods & services within State or Union Territory. Here the word ‘Supply’ has been used, as under GST regime even branch transfers within the entity and free supplies are also taxable. CGST/SGST/UTGST shall be taxed at the rates specified in tax schedule. Tax schedule is the list of commodities along with respective CGST/SGST/UTGST rate charged on such commodity. CGST/SGST/UTGST shall be charged, collected & paid to the Government Treasury by every taxable person. SGST & CGST shall be charged simultaneously for intra-state supplies within the State and UTGST & CGST shall be charged simultaneously for intra-state supplies within the Union Territory.

In current rule of Service Tax, as per the provisions of Section 68(2) along with notification 30/2012-ST dated 20th June 2012, for few type of services like Work Contract Service, Manpower Supply Service or Import of any service, service recipient is liable to pay Service Tax under ‘Reverse Charge Mechanism’. Under Reverse Charge Mechanism, service receiver has to pay service tax instead of service provider. Service provider on his invoice will not charge Service Tax. In the similar pattern, under regime of GST, government may specify the category of supply of goods or services where recipient is liable to pay CGST/SGST/UTGST, and not the supplier of goods & services.

When recipient of service or goods pays tax under reverse charge basis, provisions of GST shall apply to recipient as if he is the supplier of such goods & services and he is liable to charge, collect & pay such GST to Government Treasury. And therefore recipient steps into the shoes of normal tax payer while paying the GST under reverse charge basis.

On the same line, if a unregistered person supplies goods or service to a registered person, then such recipient registered person shall be liable to pay tax on such supplies under reverse charge mechanism.

Also if the service as specified by the Government, is supplied through Electronic Commerce Operator, then such Electronic Commerce Operator shall be liable to pay GST on Reverse Charge Mechanism.

Now let’s understand the dual structure of GST:

And therefore GST on intra-state supplies of goods or services shall be levied by Union and States both simultaneously. Let’s see the below example to understand the levy of GST on intra-state supplies:

Example on levy of DUAL GST on intra-state supplies:

Tax Invoice of A Tax Invoice of B Tax Invoice of C Tax Invoice of D
Cost of Goods 1000 1200 1400 1600
SGST @ 10% 100 120 140 160
CGST @ 10% 100 120 140 160
Total 1200 1440 1680 1920


B
will get the credit of CGST and SGST paid by him to A. C will get the credit of CGST and SGST by him to B. D will get the credit of CGST and SGST paid by him to C.

Please note that:

  • Cross credit of respective GST shall be allowed between goods & services
  • Credit of CGST paid shall be allowed against only against CGST liability
  • Credit of SGST paid shall be allowed against only against SGST liability
  • Cross credit of CGST and SGST shall not be allowed

Now let’s understand GST on inter-state supplies of goods & services:

Integrated GST (“IGST”) shall be levied on inter-state supplies of goods & services. IGST shall be levied by Union. This tax shall accrue to taxing authority which has jurisdiction over the place of consumption.

Further credit of IGST shall be available against not only IGST but also against CGST & SGST/UTGST. Also credit of CGST & SGST/UTGST shall be available against IGST.

Let’s now understand the utilisation priority of CGST, SGST/UTGST as well as IGST..

Credit in

IGST

CGST

SGST/UTGST

IGST

1st

2nd

2nd

CGST

2nd

1st

Not allowed

SGST/UTGST

2nd

Not allowed

1st

The amount of IGST used to set off the liability of SGST/UTGST shall be transferred to State or Union Territory as applicable by Union.

Though the IGST is a novel concept, credit of tax paid shall flow without break in chain and therefore distortion in taxation has been avoided. After implementation of IGST and credit utilization mechanism as mentioned above, there shall be no requirement of statutory forms for any kind of transactions and therefore statutory forms system shall be scrapped.

Above system of tax to be implemented through multiple statutes like SGST Act & UTGST Act, CGST Act as well as IGST Act. We expect that basic features like chargeability, taxation event, valuation, classification etc. to be uniform in all respect and as far as practical.

As it’s a Dual Monitoring System.. which means – “If one fails other may not fail..” but question is.. “Is it not cumbersome..??” or “Is it necesssary..??

What you should need to know next!

Summary
Article Name
What is GST With Examples - Levy of GSTs & Credit Under the GST System
Description
We have tried to guide you through the understanding on GST, how the existing VAT payers shall enrol for GST on common portal and what accounts, statements & Invoices shall be maintained.
Author
Publisher Name
UnboxGST.com
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