GST in Trading Chain

A trading chain shows how goods move from production to the final consumer:

Input Tax Credit (ITC) is the credit a registered dealer can claim for GST paid on purchases used in the course of business.

\[ \boxed{\text{GST Payable} = \text{Output GST} - \text{Input GST (ITC)}} \]

Question: Suppose a manufacturer sold a cycle for a taxable value of ₹ 4000 to the wholesaler. Wholesaler sold it to the retailer for ₹ 4800 (taxable value). Retailer sold it to a customer for ₹ 5200 (taxable value). Rate of GST is 12%. Complete the following activity to find the payable CGST and SGST at each stage of trading.

Solution:

Trading chain

\[ \text{Manufacturer} \xrightarrow{(\text{₹}4000, \; 12\%)} \text{Wholesaler} \xrightarrow{(\text{₹}4800, \; 12\%)} \text{Retailer} \xrightarrow{(\text{₹}5200, \; 12\%)} \text{Customer} \]

Stage 1: Manufacturer

\[ \text{Output tax of manufacturer} = 12\% \text{ of } 4000 = \frac{12}{100} \times 4000 = \text{₹}480 \]

The manufacturer has no input tax, so:

\[ \text{GST payable by manufacturer} = \text{₹}480 \]

Stage 2: Wholesaler

\[ \text{Output tax of wholesaler} = 12\% \text{ of } 4800 = \text{₹}576 \]

\[ \therefore\; \text{GST payable by wholesaler} = \text{Output tax} - \text{Input tax} \]

\[ = 576 - 480 \]

\[ = \text{₹}96 \]

Stage 3: Retailer

\[ \text{Output tax of retailer} = 12\% \text{ of } 5200 = \frac{12}{100} \times 5200 = \text{₹}624 \]

\[ \therefore\; \text{GST payable by retailer} = \text{Output tax of retailer} - \text{ITC of retailer} \]

\[ = 624 - 576 \]

\[ = \text{₹}48 \]

Statement of GST payable at each stage of trading

CGST and SGST are each half of the GST payable ( \[ 6\% + 6\% \] ).

\[ \begin{array}{|l|c|c|c|} \hline \textbf{Individual} & \textbf{GST payable} & \textbf{CGST payable} & \textbf{SGST payable} \\ \hline \text{Manufacturer} & \text{₹}480 & \text{₹}240 & \text{₹}240 \\ \hline \text{Wholesaler} & \text{₹}96 & \text{₹}48 & \text{₹}48 \\ \hline \text{Retailer} & \text{₹}48 & \text{₹}24 & \text{₹}24 \\ \hline \text{Total} & \text{₹}624 & \text{₹}312 & \text{₹}312 \\ \hline \end{array} \]

Check: total GST = \[ \text{₹}624 = 12\% \text{ of } \text{₹}5200, \] which is the tax the customer pays on the final price.

• GST is an indirect tax on the supply of goods and services.
• Intra-state sales attract \[ \text{CGST} + \text{SGST}. \]
• Inter-state sales attract IGST.
• GST is charged at each stage: \[ \text{manufacturer} \rightarrow \text{wholesaler} \rightarrow \text{retailer} \rightarrow \text{consumer}. \]
• Registered dealers claim Input Tax Credit for GST paid on eligible purchases.
• Net GST payable is calculated as: \[ \boxed{\text{GST Payable} = \text{Output GST} - \text{Input GST (ITC)}} \]
• The final consumer pays the total GST included in the final invoice.
• Total GST deposited by all dealers equals the GST paid by the final consumer.