The Goods and Services Tax (GST) is a comprehensive, multi-stage, destination-based indirect tax concept and a legal framework that replaced a complex web of central and state indirect taxes in India. It was introduced on July 1, 2017, through the implementation of The Constitution (One Hundred and First Amendment) Act, 2016, which received the President's assent on September 8, 2016. The primary problem it solved was the "cascading effect" of taxes, where tax was levied on tax, leading to an inflated cost for the final consumer. It also unified India into a single common market, replacing taxes like Central Excise Duty, Service Tax, and State-level Value Added Tax (VAT).
The mechanism is a dual GST model, where both the Centre and States simultaneously levy tax on a common base. For transactions within a state (intra-state), the tax is split into Central GST (CGST) and State GST (SGST). For transactions between states (inter-state), the Central Government levies and collects Integrated GST (IGST), which is then apportioned between the Centre and the destination state. The system operates on the principle of Input Tax Credit (ITC), allowing businesses to claim credit for taxes paid on inputs, ensuring that tax is ultimately levied only on the value addition at each stage.
The entire framework is governed by the GST Council, a constitutional body established under Article 279A of the Constitution. The Council, chaired by the Union Finance Minister, makes recommendations on tax rates, exemptions, and model GST laws, with decisions requiring a three-fourths majority of weighted votes. A recent significant development is the Supreme Court's 2022 ruling in Union of India v. Mohit Minerals Pvt. Ltd., which held that the GST Council's recommendations are not binding on the central or state governments, reinforcing the principle of cooperative federalism. Certain items, such as alcoholic liquor for human consumption and petroleum products, remain outside the current GST purview.