What are the different components of GST (CGST, SGST, IGST, UGST)?

The Goods and Services Tax (GST) is a unified tax system that replaced multiple indirect taxes in India. Under GST, there are four main components: CGST, SGST, IGST, and UTGST, each designed to handle different types of transactions and ensure tax distribution between the central and state governments.

1. Central Goods and Services Tax (CGST)

What is CGST?

CGST is levied by the central government on intra-state transactions of goods and services, meaning transactions that occur within a single state.
CGST is collected alongside SGST on the same intra-state transaction, with the total tax burden divided equally between the central and state governments.

Relevant Act:

The Central Goods and Services Tax (CGST) Act, 2017 governs the provisions related to CGST. It defines tax rates, input tax credit mechanisms, and compliance requirements for businesses.

Key Provisions of CGST:

Input Tax Credit (ITC): Businesses can claim credit for CGST paid on inputs, which can be set off against the CGST liability on outward supplies.
Registration and Compliance: Businesses involved in intra-state supplies of goods and services must register for CGST if their turnover exceeds the specified threshold.
Filing Returns: Registered businesses are required to file CGST returns periodically, detailing the taxes collected and paid.

Notable Cases Related to CGST:

Dhabriya Polywood Ltd. v. Union of India: This case challenged the imposition of both CGST and SGST on intra-state transactions, but the court upheld the dual structure, emphasizing that CGST and SGST are constitutionally valid and designed to balance revenue sharing between states and the center.

2. State Goods and Services Tax (SGST)

What is SGST?

SGST is levied by the state government on intra-state transactions. It is collected alongside CGST on the same transaction, with the revenue going to the state in which the goods or services are consumed.

Relevant Act:

Each state has its own State Goods and Services Tax (SGST) Act, 2017, which operates under a common framework but is implemented by individual states.

Key Provisions of SGST:

Dual Taxation with CGST: For any intra-state transaction, both CGST and SGST apply, with the collected amount split between the central and state governments.
Input Tax Credit: Similar to CGST, the input tax credit for SGST can only be utilized to pay SGST and IGST, ensuring no overlap between central and state credits.
Return Filing: Registered businesses are required to file SGST returns as per the specified timelines.

Notable Cases Related to SGST:

AAR Karnataka – M/s Toshniwal Brothers (SR) Pvt. Ltd.: This case involved the eligibility of input tax credit for SGST in cases where goods and services were provided within the same state. The ruling clarified that ITC on SGST can be claimed only for transactions within the state, further validating the structure of dual taxation.

3. Integrated Goods and Services Tax (IGST)

What is IGST?

IGST is levied by the central government on inter-state transactions, meaning transactions between different states or between a state and a union territory. IGST also applies to imports and exports.

Relevant Act:

The Integrated Goods and Services Tax (IGST) Act, 2017 governs IGST. The act specifies the distribution of revenue collected through IGST between the central and state governments.

Key Provisions of IGST:

Inter-State Transactions: IGST applies to inter-state supplies, and the collected revenue is shared between the originating state and the consuming state.
Input Tax Credit: Businesses can claim ITC for IGST paid on inputs and can set it off against IGST, CGST, and SGST liabilities.
Supply on Imports and Exports: IGST applies to imports (where the destination state is treated as the location of consumption), and exports are zero-rated, meaning businesses can claim a refund on input taxes paid.

Notable Cases Related to IGST:

Mohit Minerals Pvt Ltd v. Union of India: The Supreme Court ruled that IGST could not be imposed on ocean freight charges for imported goods, as the importer was already liable for IGST on the imported goods. This case highlighted issues related to double taxation and reinforced the need for clarity in the IGST Act.

4. Union Territory Goods and Services Tax (UTGST)

What is UTGST?

UTGST is similar to SGST but is applicable in Union Territories without a legislature, such as Lakshadweep, Andaman and Nicobar Islands, and Daman and Diu. In Union Territories with a legislature (like Delhi and Puducherry), SGST is applicable instead of UTGST.

Relevant Act:

The Union Territory Goods and Services Tax (UTGST) Act, 2017 regulates UTGST, ensuring uniform tax practices in Union Territories.

Key Provisions of UTGST:

Intra-UT Transactions: UTGST is levied on intra-UT supplies alongside CGST.
Input Tax Credit: ITC for UTGST functions similarly to SGST, with restrictions on how credits can be used against tax liabilities.
Dual Tax Structure: Like SGST, UTGST is applied with CGST on intra-UT transactions, ensuring revenue sharing between the Union Territory and central government.

Notable Cases Related to UTGST:

M/S. Bharti Airtel Ltd. v. Union of India: The telecom company challenged the denial of refunds for unutilized ITC on UTGST in certain Union Territories. The case underscored issues related to input credit and compliance challenges in Union Territories.

GST Structure and Distribution of Revenue

The GST structure in India ensures a balanced sharing of revenue between the center and states. Here’s how it works:

Intra-State Transactions: Both CGST and SGST (or UTGST) are collected, with each tax component receiving a 50% share of the total GST rate.
Inter-State Transactions: IGST is levied and then shared between the center and the destination state, ensuring revenue follows the flow of goods and services to the consuming state.

Key Legal Framework and Provisions

The Indian GST system operates under a combination of acts and constitutional amendments:

Constitution (One Hundred and First Amendment) Act, 2016:
- This amendment provided the legal foundation for GST by granting both the center and states the authority to levy and collect GST.
GST Council:
- The GST Council, created under Article 279A of the Constitution, plays a pivotal role in setting tax rates, exemption lists, and resolving disputes between states and the center. It ensures uniformity in the tax system across India.
Anti-Profiteering:
- GST law includes provisions to prevent businesses from profiteering by not passing on the benefits of reduced tax rates or ITC to consumers. The National Anti-Profiteering Authority (NAA) was set up to address such cases.

Conclusion

GST has revolutionized India’s tax system by consolidating numerous taxes under a single, unified structure. The various components of GST—CGST, SGST, IGST, and UTGST—ensure fair revenue distribution and make the system suitable for both intra- and inter-state transactions. By doing so, GST has simplified tax compliance, minimized tax cascading, and boosted interstate trade.

Each component of GST is governed by its respective act, and the system is bolstered by constitutional amendments, making it adaptable to India’s federal structure. While legal cases continue to refine GST interpretations, the tax remains a transformative reform, driving India toward a more integrated and efficient economy.