Costing and Taxation · Ch 7 — Goods and Service Tax (GST)
Pre-GST and Post-GST Indirect Tax Structure; Objectives of GST
Pre-GST and Post-GST Indirect Tax Structure; Objectives of GST
The indirect tax structure before GST
Before 1 July 2017, India's indirect taxes were fragmented across the Centre and the States, each levying its own separate taxes with its own separate rules, returns, and rates:
| Levied by | Pre-GST tax |
|---|---|
| Centre | Central Excise Duty (on manufacture of goods) |
| Centre | Service Tax (on provision of services) |
| Centre | Central Sales Tax (CST) (on inter-State sale of goods) |
| Centre | Additional Customs Duty (Countervailing Duty) and Special Additional Duty (on imports) |
| States | State VAT / Sales Tax (on intra-State sale of goods) |
| States | Entry Tax / Octroi (on entry of goods into a local area) |
| States | Luxury Tax, Entertainment Tax (other than that levied by local bodies), Purchase Tax |
A good moving from a manufacturer in one State to a final consumer in another State could attract Excise Duty, then CST, then Entry Tax, then State VAT — each levied on a value that already included the earlier tax, a problem discussed below.
The indirect tax structure after GST
GST subsumed almost all of the taxes listed above into a single tax, structured (see Section 7.iii) as CGST + SGST/UTGST for a supply within one State/Union Territory, and IGST for a supply between two States or on import. A small number of items remain outside GST for now — most notably alcohol for human consumption (kept entirely outside GST, still taxed by the States under their own excise laws) and, as of this writing, five specified petroleum products (petroleum crude, high-speed diesel, motor spirit/petrol, natural gas, and aviation turbine fuel), which continue under the pre-GST excise/VAT structure pending a GST Council decision to bring them in.
| Basis | Pre-GST | Post-GST |
|---|---|---|
| Number of major indirect taxes | Multiple, separately levied by Centre and States (Excise, Service Tax, CST, VAT, Entry Tax, etc.) | One unified tax (CGST + SGST/UTGST, or IGST), replacing nearly all of the above |
| Cascading effect | Present — tax charged on a value that already includes an earlier tax ("tax on tax") | Substantially removed, through the input tax credit chain |
| Basis of levy | A mix of origin-based (e.g., CST on inter-State sale) and destination-based taxes | Uniformly destination-based |
| Compliance | Separate registrations, returns, and rates for each tax, in each State | A single registration and return system, under one GST law, uniform in structure across India |
Objectives of GST
GST was designed to achieve several linked objectives:
- Eliminate the cascading effect of taxation ("tax on tax") through a seamless input tax credit chain running across the whole supply chain.
- Create one unified national market for goods and services, replacing a patchwork of State-level tax barriers (like Entry Tax/Octroi at State borders) that fragmented trade.
- Simplify compliance by replacing multiple taxes, returns, and authorities with one tax, one set of returns, and one common portal. …
Where a tax is charged on a value that already includes an earlier stage's tax, inflating the final price — the central problem GST's input tax credit c …
A pre-GST, Centre-levied tax on the inter-State sale of goods, subsumed by GST/IGST f …