GOOD AND SERVICE TAX (GST)- Central and State

Consider the following statement about GST:

  • Both Central and State taxes will be collected at the point of sale
  • The Central and State GST will be charged on the manufacturing cost

Which of the above statements are correct?

  1. Only (1)
  2. Only (2)
  3. Both (1) and (2)
  4. None
  5. Answer not known

EXPLANATION

Background: What is GST?

The Goods and Services Tax (GST) is a comprehensive, destination-based indirect tax that was introduced in India on July 1, 2017.
It replaced a large number of Central and State taxes such as excise duty, service tax, VAT, octroi, etc.

Key idea:
GST is levied on the supply of goods and services, not on their manufacturing or sale alone.

🔹 Structure of GST in India

There are three main types of GST:

  1. CGST (Central GST) – collected by the Central Government on intra-state supplies.

  2. SGST (State GST) – collected by the State Government on intra-state supplies.

  3. IGST (Integrated GST) – collected by the Central Government on inter-state supplies and imports.

🔸 Statement (1):

Both Central and State taxes will be collected at the point of sale.

✅ This statement is correct.

Explanation:

  • When a sale of goods or services takes place within the same state, both Central GST (CGST) and State GST (SGST) are levied together on that transaction.

  • These are collected at the point of sale (supply) — meaning when the goods/services are supplied to the consumer.

  • For example:
    If a product worth ₹100 is sold in Tamil Nadu:

    • CGST = ₹9 (if 9% rate)

    • SGST = ₹9 (if 9% rate)

    • Total GST = ₹18

So, both Central and State governments collect their share at the point of sale, not separately at earlier stages.

🔸 Statement (2):

The Central and State GST will be charged on the manufacturing cost.

❌ This statement is incorrect.

Explanation:

  • Under GST, tax is not charged on manufacturing cost; instead, it is charged on the “value added” at each stage of the supply chain — from manufacturer → wholesaler → retailer → consumer.

  • Earlier (before GST), excise duty was charged at the manufacturing stage, and VAT was charged at the sale stage — which caused tax-on-tax (cascading).

  • GST eliminated this cascading by taxing only the value added, not the manufacturing cost.

Therefore, GST is a destination-based tax, meaning revenue goes to the state where goods/services are consumed, not where they are manufactured.

✅ Final Conclusion

Statement Correct / Incorrect Explanation
(1) Both Central and State taxes collected at the point of sale ✅ Correct CGST and SGST are levied together at the sale/supply point within a state.
(2) Charged on manufacturing cost ❌ Incorrect GST is charged on value added during supply, not on manufacturing cost.

✅ Final Answer:

Only (1)

GOOD AND SERVICE TAX (GST)- Central and State