Introduction & Historical Background

1.1 Pre-GST Indirect Tax Maze

Before 1 July 2017, India had a fragmented, multi-layered indirect tax system:

Central taxes replaced by GST:

• Central Excise Duty (on manufacture)
• Service Tax (on services)
• Central Sales Tax (inter-state trade)
• Additional Customs Duties (CVD, SAD)
• Special Additional Duty of Customs

State taxes replaced by GST:

• Value Added Tax (VAT) - state-level sales tax
• Octroi and Entry Tax
• Entertainment Tax (except local body taxes)
• Luxury Tax
• Purchase Tax

Problems with the old system:

1. Cascading effect (tax on tax): Excise duty on manufacturing + VAT on sale = double taxation on same value
2. High compliance cost: Businesses maintained multiple registrations for different taxes
3. Interstate trade barriers: CST (Central Sales Tax) at 2% on inter-state sales created barriers
4. Octroi checkposts: Delayed truck movement - estimated 30% of trucking time wasted at state borders
5. Varied rates across states: Different VAT rates for the same goods in different states

1.2 Journey to GST

Key milestones in the journey to GST:

• 2000: First discussion of GST - the Atal Bihari Vajpayee government set up the Empowered Committee of State Finance Ministers.
• 2006: Finance Minister P. Chidambaram announced a target of GST from 1 April 2010 in the Union Budget.
• 2009: The Empowered Committee released the First Discussion Paper on GST.
• 2014: The Constitution (122nd Amendment) Bill, 2014 was introduced in the Lok Sabha by the NDA government.
• 2016: The 101st Constitutional Amendment Act was passed, inserting Articles 246A, 269A, and 279A.
• 2017: GST was launched at midnight on 1 July 2017 from the Central Hall of Parliament under the slogan "One Nation, One Tax".

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