The Constitution of India provides comprehensive Lists bifurcating the powers and duties between the Centre and States Government. Therefore, both the Central and States Government need funds for discharging their duties and responsibilities. Central government has the authority to make laws and levy taxes in respect of matters enumerated in List I of the Schedule VII. Further, the legislature of any state has exclusive powers to make laws and levy taxes for such state in relation to matters enumerated in List II. The Indian Constitution gives the authority to the government to collect any tax. Article 265 of the Indian Constitution states that no tax can be imposed or collected unless it is authorized by law.

Thus, under the Constitution (101st Amendment) Act, a new Article 246A was inserted which made enabling provisions for the Union and States with respect to the GST legislation. Further, it also specified that Parliament has exclusive power to make laws with respect to GST on inter-state supplies.

In the said Constitution (101st Amendment) Act, Article 269A was also inserted which provides for goods and services tax on supplies in the course of inter-state trade or commerce, shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by the Parliament by law on the recommendations of the GST Council. It also provides that the Parliament may, by law, formulate the principles for determining the place of supply, and when a supply of goods, or of services, or both takes place in the course of inter-state trade or commerce.

GST has been structured in such a way that both the Centre and the States, should have powers to levy tax on the complete supply chain from production to distribution, and both on goods and services.

Thus, there are two components of GST where Centre and States will simultaneously levy GST on common base value, i.e., CGST and SGST / UTGST, in case of intra-state supply of goods and services, whereas, IGST (which is a sum of CGST and SGST / UTGST) is applicable in case of inter-state supply of goods and services.

Levy & Collection in case of Intra-State Supplies of Goods and Services (CGST & SGST / UTGST Acts)

Section 9 of the CGST Act, 2017 (identical provisions under the SGST & UTGST Act) deals with the provisions regarding levy and collection of taxes. It provides that, CGST along with SGST / UTGST is leviable on all intra-state supplies of goods or services or both, except on supply of alcoholic liquor for human consumption, on the value determined under section 15 of the CGST Act and at such rates not exceeding 20% as may be notified by the Central Government, subject to section 9(2) of the CGST Act which states that GST on petroleum products shall be levied at a later stage.

Government may on the recommendation of GST Council specify goods or services or both on which tax is payable under the reverse charge mechanism (i.e., by the recipient of goods or services). Provisions related to payment of tax under reverse charge mechanism are also applicable in case of inter-state supplies.  

Levy & Collection in case of Inter-State Supplies of Goods and Services (IGST Act)

Section 5(2) of the IGST Act stipulates that IGST shall be levied on all inter-state supplies of goods or services or both (except on the supply of alcoholic liquor for human consumption). Such IGST shall be charged upon the value determined under Section 15 of the CGST Act and at such rates, not exceeding 40%, as may be notified by the Government on the recommendations of the GST Council and it shall be collected in such a manner as may be prescribed, and shall be paid by the taxable person.

If goods are imported into India, IGST shall be levied and collected as per the provisions of Section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under Section 12 of the Customs Act, 1962.