GST: concept, the 2016 constitutional amendment, dual GST and the GST Council

1. Concept of GST

Goods and services tax is a destination-based tax on the supply of goods or services or both, levied at each stage of the supply chain on the value added, with credit for the tax paid on inputs. Article 366(12A) defines it as any tax on supply of goods, or services or both except taxes on the supply of alcoholic liquor for human consumption.

• Tax on supply, replacing the older taxable events of manufacture (excise), sale (VAT, CST) and rendering of service (service tax).
• Input tax credit along the chain, so that tax is effectively paid only on the value added at each stage and the cascading (tax on tax) of the earlier system is removed.
• Destination principle: the tax goes to the State where the goods or services are consumed, not where they are produced. Exports are zero-rated; imports bear IGST.
• Common base: one definition of supply and value for the Centre and all States, a common portal, and common rates recommended by one Council.

2. Taxes subsumed and taxes outside

Central taxes subsumed: central excise duty (except on tobacco and the five petroleum products), additional excise duties, service tax, the additional duty of customs (countervailing duty) and special additional duty, and central surcharges and cesses on goods and services.

State taxes subsumed: State VAT and sales tax, central sales tax (except on non-GST goods), entertainment tax (except when levied by local bodies), entry tax and octroi, purchase tax, luxury tax, taxes on lottery, betting and gambling, and State cesses and surcharges on goods and services.

Outside GST: alcoholic liquor for human consumption (excluded by the Constitution itself); petroleum crude, high speed diesel, petrol, natural gas and aviation turbine fuel (within GST in principle, but not taxed until the Council recommends a date under Article 279A(5)); electricity; stamp duty; and customs duty proper (basic customs duty remains, with IGST levied on imports in addition).

3. What the 2016 Amendment did

• Article 246A: simultaneous power of Parliament and State legislatures to make laws on GST; Parliament alone for inter-State supplies.
• Article 269A: GST on inter-State supplies (IGST) is levied and collected by the Union and apportioned between the Union and the States as Parliament provides on the Council’s recommendation. Imports are treated as inter-State supplies.
• Article 270 amended so that CGST and the Union’s share of IGST enter the divisible pool shared with States.
• Article 279A: the GST Council.
• Article 286 amended to speak of supply of goods or services instead of sale or purchase of goods.
• Article 366: new clauses (12A) GST, (26A) services (anything other than goods), and (26B) State including a Union territory with legislature.
• Article 268A (service tax) omitted.
• Seventh Schedule: List I Entry 84 limited to tobacco and petroleum products; Entries 92 and 92C omitted. List II Entries 52 and 55 omitted, Entry 54 limited to petroleum products and alcohol, Entry 62 confined to local bodies.
• Section 18 of the Amendment Act: Parliament to provide by law for compensation to the States for loss of revenue for five years; this was done by the GST (Compensation to States) Act, 2017.
• Section 19: existing indirect tax laws to continue for at most one year until amended or repealed.

4. The dual GST model

India chose a dual GST in which the Centre and the States tax the same supply concurrently.

• Intra-State supply (supplier and place of supply in the same State): the Centre levies CGST under the Central Goods and Services Tax Act, 2017, and the State levies SGST under its own State GST Act (in Karnataka, the Karnataka Goods and Services Tax Act, 2017). In a Union territory without legislature, UTGST replaces SGST under the Union Territory Goods and Services Tax Act, 2017. The two are levied at equal rates; an 18% rate is 9% CGST plus 9% SGST.
• Inter-State supply and imports: the Centre levies IGST under the Integrated Goods and Services Tax Act, 2017, at the combined rate, and the State share is settled to the consuming State.
• Credit rules: IGST credit can be used for IGST, CGST and SGST; CGST credit cannot pay SGST and vice versa. Cross-utilisation is settled between the Centre and States through the IGST account.

The model respects the fiscal autonomy of States (each has its own Act and administration) while keeping a single base and common rates.

5. The GST Council: Article 279A

Constitution (Article 279A(1) to (3)). The President was to constitute the Council within sixty days of the commencement of the Article; it was constituted in September 2016. Members: the Union Finance Minister (Chairperson), the Union Minister of State for Revenue or Finance, and the Minister for Finance or Taxation (or another nominated Minister) of each State. The State members choose a Vice-Chairperson.

Functions (Article 279A(4) and (5)): recommendations to the Union and States on the taxes to be subsumed; goods and services to be taxed or exempted; model GST laws, principles of levy, apportionment of IGST and place of supply; the turnover threshold for exemption; rates including floor rates with bands; special rates during natural calamities; special provisions for the north-eastern and hill States; any other GST matter; and the date for taxing petroleum products.

Guiding principle (Article 279A(6)): the need for a harmonised structure of GST and a harmonised national market.

Quorum and voting (Article 279A(7) and (9)): one-half of the members form the quorum. Every decision is taken at a meeting by a majority of not less than three-fourths of the weighted votes of members present and voting; the Central Government’s vote carries one-third of the votes cast and the States together two-thirds. Neither side can carry a decision alone: the Centre needs the support of a large majority of States, and the States cannot outvote the Centre.

Disputes (Article 279A(11)): the Council must establish a mechanism to adjudicate disputes between the Centre and States, or among States, arising from its recommendations or their implementation.

Legal effect of recommendations. In Union of India v. Mohit Minerals Pvt. Ltd., 2022 INSC 596, (2022) 10 SCC 700, the Court held that the recommendations of the Council are the product of a collaborative dialogue between the Union and the States and have persuasive value; they do not bind Parliament or the State legislatures, which retain their power under Article 246A. On the facts the Court struck down IGST on ocean freight paid by importers under the reverse charge, because it was a levy on a part of a composite supply already taxed.

How this is examined

January 2026 (80-mark paper) Q. 3(b): note on the GST Council. February 2025 Q. 3(b): note on dual GST taxation. The concept of GST and the constitutional amendment come as 10-mark questions. For the Council, give composition, functions, quorum and the weighted voting rule precisely, and end with Mohit Minerals.