GST Fundamentals: Understanding CGST, SGST & IGST

Key Takeaways

• GST is a destination-based, multi-stage consumption tax introduced via the 101st Constitutional Amendment Act, 2016.
• CGST (Central) and SGST (State) apply on intra-state supplies; IGST applies on inter-state supplies and imports.
• The GST Council (Article 279A) is the apex decision-making body comprising Union and State Finance Ministers.
• Input Tax Credit (ITC) flows seamlessly across the CGST-SGST-IGST chain, eliminating the cascading effect.
• GST subsumed 17 indirect taxes including Excise Duty, Service Tax, VAT, CST and Entry Tax.

The Constitutional Framework

The 101st Constitutional Amendment inserted Article 246A into the Constitution, granting concurrent taxing power to both Parliament and State Legislatures on the supply of goods and services. Article 269A governs the levy and collection of IGST on inter-state trade.

The GST Council, constituted under Article 279A, makes recommendations on tax rates, exemptions, thresholds and model laws. Decisions require a three-fourths majority, with the Centre holding one-third weightage and all States collectively holding two-thirds.

Understanding the Three Levies

CGST -- Central Goods and Services Tax

Levied under the CGST Act, 2017 by the Central Government on intra-state supplies. Revenue is collected by the Centre.

SGST -- State Goods and Services Tax

Levied under respective State GST Acts by the State Government on the same intra-state supply. Revenue goes to the state where consumption occurs.

IGST -- Integrated Goods and Services Tax

Levied under the IGST Act, 2017 on inter-state supplies, imports and supplies to/from SEZs. IGST equals CGST + SGST rate, and is apportioned between the Centre and consuming State.

Rate structure: GST operates on a four-tier slab -- 5%, 12%, 18% and 28%, with a compensation cess on demerit/luxury goods.

How the Dual Levy Works -- A Worked Example

Scenario: A manufacturer in Maharashtra sells goods worth Rs. 1,00,000 to a dealer in Maharashtra (intra-state) at 18% GST.

| Component | Calculation | Amount | |-----------|-------------|--------| | Taxable Value | -- | Rs. 1,00,000 | | CGST @ 9% | 1,00,000 x 9% | Rs. 9,000 | | SGST @ 9% | 1,00,000 x 9% | Rs. 9,000 | | Invoice Total | -- | Rs. 1,18,000 |

If the same sale were inter-state (Maharashtra to Gujarat), IGST @ 18% = Rs. 18,000 would apply instead, with the revenue shared between Centre and Gujarat (the consuming state).

Landmark Judgement

Case: Mohit Minerals Pvt. Ltd. v. Union of India Court: Supreme Court of India Year: 2022 Ruling: The Supreme Court held that the recommendations of the GST Council are not binding on the Union or State Governments but are persuasive in nature. Both Parliament and State Legislatures retain independent legislative power under Article 246A. Impact: This landmark ruling clarified the federal balance under GST, affirming that States are not subordinate to the Centre in GST matters. It reinforced cooperative federalism as the bedrock of the GST framework.

Expert Tip

When advising clients on inter-state vs. intra-state classification, always verify the place of supply under Sections 10-14 of the IGST Act -- not just the delivery address. Errors in place of supply determination are among the most common reasons for incorrect CGST/SGST vs. IGST categorisation and subsequent ITC mismatches. Our qualified CAs can help businesses audit their supply chain for correct levy identification.

Section Interconnect

• Next: Chapter 2 -- GST Registration & Threshold Limits covers who must register and when voluntary registration makes sense.
• Related: Chapter 3 -- Input Tax Credit explains how ITC flows across the CGST-SGST-IGST chain.
• Related: Chapter 7 -- Composition Scheme is an alternative for small taxpayers who want simplified compliance.

Frequently Asked Questions

Q1: What is the difference between CGST and SGST? CGST is the Central Government's share of GST on intra-state supplies, levied under the CGST Act, 2017. SGST is the State Government's share on the same transaction, levied under the respective State GST Act. Both are charged simultaneously at equal rates that together make up the applicable GST rate.

Q2: When does IGST apply instead of CGST + SGST? IGST applies when the supply is inter-state (supplier and place of supply are in different states), on imports into India (treated as inter-state under Section 7(2) of the IGST Act), and on supplies made to or from Special Economic Zones.

Q3: Can IGST credit be used to pay CGST or SGST liability? Yes. Under Section 49 of the CGST Act, IGST credit must first be utilised against IGST liability, and the remaining balance can be applied towards CGST and then SGST liability, providing seamless credit flow across levies.

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Disclaimer: This article is for educational purposes only and does not constitute legal or professional advice. GST laws are subject to frequent amendments. Readers should consult qualified CAs or tax professionals before acting on any information provided here.