What is CGST?
Central Goods and Services Tax (CGST) is one of the four components of GST in India. It is an indirect tax levied and collected by the central government on intra-state supplies. Such supplies do not include alcoholic liquor for human consumption. Like other taxes under GST, this tax is also levied on the transaction value of goods and services supplied as per section 15 of the CGST Act, 2017.
Transaction value is nothing but the price actually paid or payable for the given supply of goods or services. CGST is levied and collected as per Central Goods and Services Tax Act, 2017 read along with CGST Rules, 2017. Also, as per the GST law, the liability to pay CGST would arise at the time of supply of goods or services as specified in section 12 and 13 of the CGST act, 2017. In addition to this, SGST would also be levied on the same intra-state supply of goods or services along with CGST, but SGST will be governed by the SGST act, 2017.
CGST Full Form
The full form of CGST is Central Goods and Services Tax. It is one of the four indirect taxes levied under GST. These include:
(i) Central Goods and Services Tax (CGST)
(ii) State Goods and Services Tax (SGST)
(iii) Integrated Goods and Services Tax (IGST)
(iv) Union Territory Goods and Services Tax (UTGST)
CGST Act, 2017
CGST is governed by CGST Act, 2017. This Act was introduced to outline the provisions for levying and collection tax on intra-state supply of goods and services by the Central government and all the issues related to the same.
Accordingly, CGST Act, 2017 contains provisions pertaining to:
- Scope of Supply under GST
- Tax liability for Composition dealers
- Time of Supply of Goods and Services
- Value of Taxable Supply
- Input Tax Credit
- Registration Under GST
- Tax Invoice
- Tax Returns
- Reverse Charge Mechanism
- Payment of Tax
CGST Amendment Act
Central government from time to time lays out rules in order to amend Central Goods and Service Tax Rules, 2017. This is undertaken to further improvize the existing Central Goods and Services Tax Act, 2017 along with CGST Rules, 2017.
Accordingly, Central Government since the introduction of GST since July, 2017 has been making amendments which are as follows:
CGST Amendment Act 2019
The government is yet to bring into force the CGST Amendment Act, 2019. However, the government has already notified the following amendments to the CGST Rules, 2017 via notifications in the year 2019.
- First Amendment to CGST Rules, 2017
- Second Amendment to CGST Rules, 2017
- Third Amendment to CGST Rules, 2017
CGST Amendment Act 2018
The CGST Amendment Act 2018 was brought into force by the government on January 29, 2019 via Notification No. 02/2019 – Central Tax. This is an Act rolled out by the government to make further amendments to CGST Act, 2017.
Difference Between CGST, SGST and IGST
|Criteria of Distinction||CCGST||SGST||IGST|
|Full Form||CGST stands for Central Goods and Services Tax||SGST stands for State Goods and Services Tax||IGST stands for Integrated Goods and Services Tax.|
|Meaning||CGST is another component of GST levied and collected by central government on intra-state supplies. Such a tax levy is governed by the Central Goods and Services Tax Act, 2017.||SGST is one of the components of GST levied and collected by the respective state government on intra-state supplies. Such a tax is governed by State Goods and Services Tax Act, 2017.||IGST is the third component of GST levied and collected by only central government on inter-state supply of goods or services. The tax so collected is then apportioned between Central government and respective State Government where goods are consumed. Such a tax levy is governed by Integrated Goods and Services tax Act, 2017.|
|Applicability||CGST is also applicable in case of intra-state supply where the location of the supplier and place of supply are in the same state or UT.||SGST is applicable in case of intra-state supplies where the location of the supplier and place of supply are in the same state or UT.||IGST is applicable in case of inter-state supply where the location of the supplier and place of supply are in: (i) two different states (ii) two different UTs and (iii) a state and UT.|
|Taxes Replaced||CGST replaces:||SGST replaces:|
|Who Collects the Tax||CGST is collected by the Central government.||SGST is collected by the respective state government.||IGST is collected by the Central government.|
|Claim of ITC||The claim of CGST is available only against CGST and IGST in the same order.||The claim of SGST credit is available only against SGST and IGST in the same order.||The claim of IGST is available against IGST, CGST and SGST in the same order.|
|Applicability of Composition Scheme||A registered taxpayer can apply for the Composition Scheme if his aggregate annual turnover is upto Rs.1.5 crores||A registered taxpayer can apply for the Composition Scheme if his aggregate annual turnover is upto Rs.1.5 crores||Composition scheme is not applicable in case of inter-state supplies|
|Registration Limit||Taxpayer is not required to register under GST if his aggregate annual turnover is up to Rs. 40 lakhs in case of supply of goods, 20 lakhs in case of supply of services and 20 lakhs in case of supply of both goods and services in special category states||Taxpayer is not required to register under GST if his aggregate annual turnover is up to Rs. 40 lakhs in case of supply of goods, 20 lakhs in case of supply of services and 20 lakhs in case of supply of both goods and services in special category states||Registration under GST is mandatory in case on inter-state supplies|
Features of CGST
- State-wise, single registration under GST is required to meet GST compliance like filing returns, paying taxes etc. And most of the compliance is done online.
- A single return needs to be filed by the taxpayer state-wise. Such a return must report all the supplies whether made within the state, outside the state or exported outside India and pay taxes on such supplies. These taxes include CGST, SGST/UTGST and IGST.
- A business entity having an aggregate annual turnover of upto Rs 40 Lakhs in case of goods and Rs 20 Lakhs in case of services is not required to register under GST. However, such an entity can register under GST voluntarily. For Special Category States, the threshold limit for GST registration is Rs. 20 lakhs.
- A business entity having an aggregate annual turnover of up to Rs. 1.5 crores can opt for Composition Scheme under GST. A composition dealer needs to pay tax at a fixed rate which is much lower than GST rates charged to normal taxpayers under GST. Furthermore, the compliance under Composition Scheme is minimal.
- ITC under GST can be cross – utilized to pay central and state taxes
Applicability of CGST
Nature of supply in a given transaction determines the applicability of CGST and other tax components like IGST and SGST under the GST law. Therefore, supplies under GST can be of two types:
Intra-state supply refers to a supply where location of the supplier and place of supply are in the same state or Union Territory. Where, location of supplier means the registered place of business of the supplier from where the supply is made. While Place of Supply is nothing but the place of delivery of goods or consumption of service. In other words, it is the registered location of recipient of a good or service.
Furthermore, in case of such a supply of goods and services, a seller has to collect both CGST and SGST. After collecting both the taxes, the CGST part gets deposited with the Central Government. And the SGST portion gets deposited with the respective State Government.
Say, for example, Omkar Enterprises, a manufacturer in Punjab, supplies goods to Vipul Traders, a dealer in Punjab. Goods worth Rs 1,00,000 are supplied by Omkar Enterprises after adding GST @ 18%. Since it is an intra-state supply, GST gets deposited to both Central and State Governments. But the total GST amounting to Rs 18,000 gets deposited equally into separate heads. This means Rs 9,000 gets deposited into the CGST account. And another Rs 9,000 gets deposited into SGST head.
Inter-State Supply refers to any supply where the location of the supplier and the place of supply are in:
- Two different States
- 2 Different Union Territories
- A-State and a Union Territory
Additionally, any supply in a taxable territory, that is not an Intra-State supply is deemed to be an Inter-State supply. The following supplies are also treated as Inter-State supplies:
- Supplies to or by Special Economic Zones (SEZs)
- Goods or services imported to India
- Services or goods exported outside India
- Supply of goods or services to international tourists
Thus, on the Inter-State supply of goods or services, only IGST is levied and collected by the Central Government.
For instance, Prakash Ltd, a manufacturer in Punjab, supplies goods to Verma Traders, a dealer in Maharashtra. Goods worth Rs 1,00,000 are supplied by Prakash Ltd after adding GST @ 18%. Since it is an inter-state supply, GST gets deposited only to the Central Government. Therefore, total GST amounting Rs 18,000 gets deposited into CGST head only.
ITC Utilization Under GST
Initially, the ITC could be utilized in the following manner:
|CGST Liability||SGST Liability||IGST Liability|
|First, ITC on account of CGST is utilized||First, ITC on account of SGST is utilized||First, ITC on account of IGST is utilized|
|Then, ITC on account of IGST is utilized||Then, ITC on account of IGST is utilized||Then, ITC on account of CGST is utilized|
|Finally, ITC on account of SGST is utilized|
There was no rule that the ITC on account of IGST had to be completely exhausted first even before utilizing ITC on account of CGST and SGST.
As per Circular No. 98/17/2019-GST issued on April 23rd, 2019, the government clarified the utilization of input tax credit of integrated tax in a particular order. Section 49(A) and 49(B) were inserted via an amendment. As per section 49(A), ITC of Integrated Tax has to be utilized completely before ITC of Central Tax and State Tax can be used to discharge any tax liability.
Furthermore, as per section 49 of the CGST Act, 2017, the ITC of Integrated Tax has to be utilized first for the payment of IGST, then Central Tax and then State Tax in this order necessarily. This lead to a scenario where a taxpayer had to discharge his tax liability with regards to one kind of tax, say for instance state tax through electronic cash ledger. However, ITC with regards to other type of tax, say central tax, remained unutilized in electronic credit ledger.
To overcome such a challenge, rule 88 (A) was inserted in CGST rules, 2017. As per this rule, ITC of Integrated Tax can be utilized to pay output tax liability towards central and state tax in any order. However, this rule was subject to a condition that the entire ITC with regards to IGST must be first completely exhausted befoe utilizing the ITC with regards to Central tax or state tax.
The following table shows the order of utilization of ITC as per this circular:
|Input tax Credit on account of||Output liability on account of Integrated tax||Output liability on account of Central tax||Output liability on account of State tax / Union Territory tax|
|Integrated tax||(I)||(II) – In any order and in any proportion|
|(III) Input tax Credit on account of Integrated tax to be completely exhausted mandatorily|
|Central tax||(V)||(IV)||Not permitted|
|State tax / Union Territory tax||(VII)||Not permitted||(VI)|
How To Calculate CGST and SGST?
Say for instance, Raman a manufacturer in Punjab Supplies goods to Venkatesh, a wholesaler in Punjab for Rs 1 Lakh @18% GST. Venkatesh further supplies these goods to Dhiraj, a retailer in Maharashtra, for Rs 1.75 Lakhs @18% GST. Finally, Dhiraj sells the goods to Karthik, a consumer in Maharashtra for Rs 3 Lakhs, again @ 18% GST.
Since Raman is selling the goods to Venkatesh in Punjab itself, it is an intra-state supply. And for intra-state supplies, both CGST and SGST are levied. Therefore, GST @ 18% is split between CGST and SGST equally. Where CGST levied is 9% and SGST is also 9%.
Then, Venkatesh after adding some value sells the goods to Dhiraj in Maharashtra for Rs 1.75 Lakhs @ 18% GST. Since this is an inter-state supply, only IGST is levied and collected by the Central Government. Therefore, the entire 18% GST is levied as IGST and gets deposited with the Central Government.
But how are CGST, SGST and IGST collected?
|Point At Supply Chain||Value of Sales||Calculation of Tax||Punjab Govt.||Calculation of Tax||Maharashtra Govt.||Calculation of Tax||Central Govt.|
|Raman to Venkatesh||Rs 1,00,000||(18% * 1,00,000)/2||Rs 9,000||–||–||(18% * 1,00,000)/2||Rs 9,000|
|Venkatesh To Dhiraj||Rs 1,75,000||–||–||–||–||(IGST 18% * 1,75,000)|
(-) CGST Credit
(-) SGST Credit
|Dhiraj To Karthik||Rs 3,00,000||–||–||(18% * 3,00,000)/2|
(-) IGST Credit Balance
|(18% * 3,00,000)/2|
(-) IGST Credit
|Total GST Collected||–||–||Rs 9,000||–||Rs 22,500||–||Rs 22,500|
|Adjustment||(Rs 9,000)||Rs 4,500||Rs 4,500|
|Final Amount of GST||0||Rs 27,000||Rs 27,000|
At the point of the supply chain where Dhiraj supplies goods to Karthik, ITC Utilization rules for IGST apply. As per the rule, IGST liability is extinguished by first using ITC standing under IGST. Then ITC standing under CGST and SGST are used in the same sequence to set off balance output IGST liability.
Additionally, since GST is a consumption-based tax, the state where the goods were consumed will receive GST. Therefore, going by this rule, Punjab will not receive any taxes since goods were sold and not consumed there. Ideally, Maharashtra should receive the entire amount of GST.
Therefore, in the last section of the above table, an adjustment is made to adhere to the above rule. Accordingly, the Punjab government will have to transfer to the Centre Rs 9,000 GST amount received on account of sales made. In turn, the Central Government will transfer Rs 4,500 to Maharashtra Government’s account. Such an adjustment is done to adhere to the ‘consumption-based tax’ rule. Since the final consumption is done in Maharashtra, hence the Maharashtra government will receive the entire amount of GST.[/vc_column_text][/vc_column][/vc_row]