Indirect Tax

Volume 1

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TABLE OF CONTENTS

TABLE OF CONTENTS
Chapter
NAME OF CHAPTER Page No.
No.
1 OVERVIEW OF GST 1.1 – 1.22

2 CONSTITUTIONAL AMENDMENTS 2.1 – 2.5

3 RELEVANT DEFINITIONS 3.1 – 3.8

4 CHARGE OF GST 4.1 – 4.21

5 COMPOSITION SCHEME 5.1 – 5.15

6 SUPPLY 6.1 – 6.35

7 REGISTRATION 7.1 – 7.32

8 TIME OF SUPPLY 8.1 – 8.15

9 VALUE OF SUPPLY 9.1 – 9.25

10 EXEMPTIONS 10.1 – 10.57

11 TAX INVOICES, DEBIT & CREDIT NOTES 11.1 – 11.32

12 PAYMENT 12.1 – 12.18

13 INPUT TAX CREDIT 13.1 – 13.40

14 RETURNS 14.1 – 14.34

15 E-WAY BILL 15.1 – 15.11

16 ACCOUNTS & RECORDS 16.1 – 16.6

17 PLACE OF SUPPLY 17.1 – 17.23

18 TDS & TCS 18.1 – 18.16

OVERVIEW OF GST

CHAPTER 1
OVERVIEW OF GST

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 OVERVIEW OF GST

CHAPTER OVERVIEW

S.L. NO TOPIC

1 STRUCTURE OF TAXATION IN INDIA

2 FEATURES OF INDIRECT TAX

3 PRE-GST SCENARIO OF INDIRECT TAX IN INDIA

4 GENESIS AND HISTORY OF GST

5 NEED & PRINCIPLES OF GST

6 CHALLENGES FACED IN EXISTING TAX STRUCTURE

7 TAXES SUBSUMED & NOT SUBSUMED IN GST

8 GST IN INDIA & TYPES OF TAXES IN GST

9 ILLUSTRATIONS ON SUPPLY

10 BENEFITS OF GST

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OVERVIEW OF GST

STRUCTURE OF TAXATION IN INDIA

Burden of tax shifted to

another person

Goods and
Services Tax
Major direct and
indirect taxes

Indirect taxes
Customs Duty

Income tax Tax on Income

Direct taxes
Interest tax/
Other Expenditure tax

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 OVERVIEW OF GST

FEATURES OF INDIRECT TAXES

(1) An important source of revenue: Indirect taxes are a major source of tax revenues for Governments
worldwide and continue to grow as more countries move to consumption-oriented tax regimes. In
India, indirect taxes contribute more than 50% of the total tax revenues of Central and State
Governments.

(2) Tax on commodities and services: It is levied on commodities at the time of manufacture or purchase
or sale or import/export thereof. Hence, it is also known as commodity taxation. It is also levied on
provision of services.

(3) Shifting of burden: There is a clear shifting of tax burden in respect of indirect taxes. For example, GST
paid by the supplier of the goods is recovered from the buyer by including the tax in the cost of the
commodity.

(4) No perception of direct pinch: Since, value of indirect taxes is generally inbuilt in price of commodity,
most of the time the tax payer pays the same without actually knowing that he is paying tax to the
Government. Thus, tax payer does not perceive a direct pinch while paying indirect taxes.

(5) Inflationary: Tax imposed on commodities and services causes an all-round price spiral. In other words,
indirect taxation directly affects the prices of commodities and services and leads to inflationary trend.

(6) Wider tax base: Unlike direct taxes, the indirect taxes have a wide tax base. Majority of the products
or services are subject to indirect taxes with low thresholds.

(7) Promotes social welfare: High taxes are imposed on the consumption of harmful products (also known
as ‘sin goods’) such as alcoholic products, tobacco products etc. This not only checks their consumption
but also enables the State to collect substantial revenue.

(8) Regressive in nature: Generally, the indirect taxes are regressive in nature. The rich and the poor have
to pay the same rate of indirect taxes on certain commodities of mass consumption. This may further
increase the income disparities between the rich and the poor.

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OVERVIEW OF GST

PRE-GST SCENARIO OF INDIRECT TAX IN INDIA

GOODS SERVICES

EXCISE DUTY SERVICE TAX

(on manufacture) (on services)

CUSTOMS DUTY
(on imports/export)

CENTRAL SALES TAX

(on Inter-State Sale)

VALUE ADDED TAX

(on Intra-State Sale)

The authority to levy a tax is derived from the Constitution of India which allocates the power to levy
various taxes between the Central and the State. Article 246 of the Indian Constitution, distributes
legislative powers including taxation, between the Parliament of India and the State Legislatures.

In the previous tax regime, the Centre had the powers to levy tax on the manufacture of goods (except
alcoholic liquor for human consumption, opium, narcotics etc.) while the States had the powers to levy
tax on the sale of goods. In the case of inter-State sales, the Centre had the power to levy a tax (the Central
Sales Tax) but, the tax was collected and retained entirely by the States. As for services, it was the Centre
alone that was empowered to levy service tax.

TAXES LEVIED BY CENTRAL GOVERNMENT TAXES LEVIED BY STATE GOVERNMENT

Value Added Tax (VAT) and CST were the major

Central Excise, Customs and Service tax
taxes along with Octroi, Entertainment Tax etc.

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 OVERVIEW OF GST

GENESIS OF GST IN INDIA

The idea of national Goods and Services Tax (GST) was mooted by Kelkar Task Force in 2004. The Task Force
strongly recommended fully integrated ‘GST’ on national basis

France was the first country to implement GST in 1954. Within 62 years of its advent, about 160 countries
across the world have adopted GST because this tax has the capacity to raise revenue in the most
transparent and neutral manner. GST has subsumed multiple indirect taxes like excise duty, service tax,
VAT, CST, luxury tax, entertainment tax, entry tax, etc.

HISTORY OF GST IN INDIA

YEAR ACTIVITY

2003 Suggestion by Kelkar Task Force for GST based on VAT principle

Announcement made by the then Hon’ble Union Finance Minister in the Budget (2007-
Feb, 2007
08) that GST would be introduced with effect from April 01, 2010.
The Empowered Committee (EC) decided to constitute a Working Group to give their
Sept, 2009
recommendations on GST
Empowered Committee released its FIRST DISCUSSION PAPER on GST, based on inputs
Nov, 2009
from Government(s) of Centre and States
The Constitution (115th Amendment) Bill, 2011 to give concurrent taxing powers to the
March, 2011 Union and States was introduced in Lok Sabha which was lapsed in 2014 and was
replaced with the Constitution (122nd Amendment) Bill, 2014.
A “Committee on GST Design”, consisting of the officials of the Government of India,
Nov, 2012
State Governments and Empowered Committee (EC) was constituted.
The Empowered Committee deliberated on the proposed design including the
Jan, 2013
Constitution (115th) Amendment Bill and submitted the report
Goods and Services Tax Network (GSTN) as special purpose vehicle setup by the
Government, being a private limited company, was incorporated to provide IT
March, 2013
infrastructure and services to the Central and State Government(s), tax payers and other
stakeholders for implementation of the Goods and Services Tax
The recommendations of the Empowered Committee and the recommendations of the
Aug, 2013 Parliamentary Standing Committee were examined by the Ministry in consultation with
the Legislative Department and the Draft Amendment Bill was suitably revised.
The final draft Constitutional Amendment Bill incorporating the above stated changes
Sept, 2013
was sent to the Empowered Committee(EC) for consideration

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OVERVIEW OF GST
Additional recommendations were incorporated in the draft Constitution (115th
Nov, 2013
Amendment) Bill and the revised draft was again sent to EC for its consideration.
The draft Constitution Amendment Bill in March, 2014 was sent to the Empowered
June, 2014
Committee after approval of the new Government.
The Constitution (122nd Amendment) Bill, 2014 was introduced in the Lok Sabha on 19
Dec, 2014
December 2014 by the Hon’ble Minister of Finance, Mr. Arun Jaitley.
Constitution Amendment (122nd) Bill was passed by Lok Sabha on 6 May 2015 and
May, 2015
referred to 21-member Select Committee of Rajya Sabha

July, 2015 Select Committee submitted its report to Rajya Sabha on July 22, 2015

The Ministry of Finance released draft model law on GST in public domain for views and
June, 2016
suggestion.
On 3 August, 2016, the Constitution (122nd Amendment) Bill, 2014 was passed by Rajya
Sabha with certain amendments.
Aug, 2016
The changes made by Rajya Sabha were unanimously passed by Lok Sabha, on 8 August,
2016
The Bill was adopted by majority of State Legislatures wherein approval of at least 50%
Sept, 2016 of the State Assemblies was required
Final assent of Hon’ble President of India was given on 8th September, 2016

April, 2017 The Parliament passed the following four bills and President has given its Assent

July 2017 GST law made applicable from 1 July 2017 in India (8 July in Jammu & Kashmir)

LAWS OF GST IN INDIA

(i) Central Goods and Services Tax (CGST) Act, 2017
(ii) Integrated Goods and Services Tax (IGST) Act, 2017
(iii) Union Territory Goods and Services Tax (UTGST) Act, 2017
(iv) Goods and Services Tax (Compensation to States) Act, 2017
(v) State Goods and Services Tax (SGST) Acts, 2017

Telangana, Rajasthan, Chhattisgarh, Punjab, Goa and Bihar were among the first ones to pass their
respective State GST laws.

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 OVERVIEW OF GST

BROAD PRINCIPLES OF GST

(i) GST is a value added tax levied on manufacture, sale and consumption of goods and services
(ii) Broad-based tax & destination based tax
(iii) Technically paid by suppliers but it is actually funded by consumers
(iv) Collected through a staged process i.e. a tax on the value added to goods or services at every point in
the supply chain
(v) A tax on consumption of products from business sources, and not on personal or hobby activities
(vi) Input tax credit is provided throughout the value chain
(vii) Manufacturers, wholesalers, retailers and service providers charge GST at the specified rate on price
of the goods and services from consumers and claim input credits for GST paid by them on
procurement of goods and services (raw material).
(viii) Since, only the value added at each stage is taxed under GST, there is no tax on tax or cascading of
taxes under GST system. GST does not differentiate between goods and services and thus, the two are
taxed at a single rate

NEED OF GST IN INDIA

Deficiencies in existing has led to GST A cure for ills of existing

Value Added Tax Indirect Tax regime

(i) Removing the cascading effects of both Central and State taxes by allowing setting-off of taxes
throughout the value chain, right from the original producer and service provider’s point up to the
retailer’s level.

(ii) GST, as a well-designed value added tax on all goods and services, is the most elegant method to
eliminate distortions and to tax consumption.

DISADVANTAGES OF GST
1. In the previous system, many products were exempted from taxation. The GST has a minimal exemption
list. Earlier, higher taxes were levied on fewer items, but with GST, lower taxes are levied on almost all
items
2. GST is not applicable on liquor for human consumption. So alcohol rates will not get any advantage of
GST.
3. Stamp duty will not fall under the GST regime and will continue to be imposed by states.
4. Few petroleum products still out of GST ambit, there might be a break in supply chain credit.

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OVERVIEW OF GST

CHALLENGES FACED IN CURRENT INDIRECT TAX STRUCTURE

1) Manufacturer of excisable goods charged excise duty and value added tax (VAT) on intra-State sale of
goods. However, the VAT dealer on his subsequent intra-State sale of goods charged VAT (as per
prevalent VAT rate as applicable in the respective State) on value comprising of (basic value + excise duty
charged by manufacturer + profit by dealer). Further, in respect of tax on services, service tax was
payable on all ‘services’ other than the Negative list of services or otherwise exempted

2) Different states were charging VAT at different rates, which were resulting in imbalance of trade
between the states.
3) Lack of uniformity in terms of registration, due date of payment, return filing assessment procedures,
refund mechanism, appellate process etc.

Example: A business establishment having offices in different states are required to follow the laws of
the respective states.

4) CENVAT was confined to the ― manufacturing stage and did not extend to the distribution chain
beyond the factory gate. As such, CENVAT paid on goods could not be adjusted against State VAT
payable on subsequent sale of goods.
5) State VAT was payable on the value of goods inclusive of CENVAT paid at the manufacturing stage and
thus the VAT liability of a dealer used to get inflated by this component without compensatory set-off.
6) Inter-State sale of goods was liable to the Central Sales Tax (CST) levied by the Centre and collected by
the States. This was an origin-based tax and could not be set-off against VAT in many situations.
7) State VAT and CST were not directly applicable to the import of goods on which Special Additional
Duties (SAD) of customs were levied at a uniform rate of 4% by the Centre. Input tax credit of these
duties was available only to those manufacturing excisable goods. Other importers had to claim refund
of this duty as and when they pay VAT on subsequent sales.
8) VAT dealers were unable to set-off any Service Tax that they may have paid on their procurement of
taxable input services.
9) State Governments also levied and collected a variety of other indirect taxes such as luxury tax,
entertainment tax, entry tax etc. for which no set-off was available.

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 OVERVIEW OF GST

TAXES SUBSUMED IN GST

CENTRAL TAXES STATE TAXES

Central Excise Duty State VAT
Duties of Excise (Medicinal and Toilet Preparations) Purchase Tax
Additional Duties of Excise (Goods of Special Luxury Tax
Importance) Entry Tax (All forms)
Additional Duties of Excise (Textiles and Textile Entertainment Tax (except those levied by the
Products) local bodies)
Additional Duties of Customs (commonly known as Taxes on advertisements
CVD) Taxes on lotteries, betting and gambling
Special Additional Duty of Customs (SAD) State cesses and surcharges in so far as they
Service Tax relate to supply of goods or services
Central Sales Tax
Cesses and surcharges in so far as they relate to
supply of goods or services

TAXES THAT ARE NOT SUBSUMED IN GST

Following products are outside the ambit of GST
1. Petroleum Products viz, petroleum crude, high spirit diesel, motor spirit (commonly known as
petrol), natural gas and aviation turbine fuel
2. Alcoholic Liquor for human consumption
3. Electricity

Following taxes continue to be levied on above-mentioned products even post GST.

• Central excise duty continues to be levied on manufacture of tobacco, petroleum crude, diesel, petrol,
ATF and natural gas; [Tobacco and related products would be subjected to both GST and Excise Duty]
• State excise duty is leviable on manufacture of alcoholic liquor, opium, Indian hemp and narcotics,
• VAT is leviable on intra-State sale of petroleum crude, diesel, petrol, ATF, natural gas and alcoholic
liquor.
• Petroleum crude, diesel, petrol, ATF, natural gas are presently not taxable under GST and alcoholic
liquor is outside the ambit of GST.

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OVERVIEW OF GST

GST IN INDIA
Basic Principles of GST in India

(i) GST is a consumption or destination-based tax levied on the basis of the “Destination principle.”
(ii) Comprehensive tax regime covering both goods and services and collected on value-added at each
stage of the supply chain.
(iii) GST paid on the procurement of goods and services can be set off against that payable on the supply
of goods or services.

GST is levied on goods and services imposed at each point of SUPPLY

Based on value added principle just like VAT which was levied on intra-state sale

DUAL MODEL OF GST

The power to levy taxes would be subjectively distributed between Centre and States and there will be
separate levies in the form of
(i) Central Goods and Services Tax (CGST),

(ii) State Goods and Services Tax (SGST) / Union Territory Goods and Service Tax (UTGST) and

(iii) Integrated Goods and Services Tax (IGST)

enabling the tax credit across these three variants of taxes.

Currently, Brazil and Canada also follow dual GST model.

OTHER MODELS OF GST

1. Australian Model - tax is collected by the Centre and distributed to the States
2. Canadian Model - there are three variants of taxes
3. Kelkar-Shah Model based on Canada Model - taxes are collected by the Centre however, two different
rates of tax are to be levied by the Centre and the States
4. Bagchi-Poddar Model - Combination of Central Excise, Service Tax and VAT to make it a common base
of GST to be levied both by the Centre and the States separately

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 OVERVIEW OF GST

TYPES OF SUPPLY

INTRA STATE SUPPLY CGST levied by CG and

SGST levied by SG and UT with state legislature and
UTGST levied by UT without state legislatures
INTER STATE SUPPLY IGST levied by CG [CGST+SGST]

TYPES OF TAXES UNDER GST

INTRA INTER
STATE STATE
CGST IGST
SGST/
UTGST

INTRA STATE SUPPLY

LOCATION PLACE SAME

OF OF STATE /
SUPPLIER SUPPLY SAME UT

Where the location of the supplier and the place of supply of goods or services are in the same State/Union
territory, it is treated as INTRA-STATE SUPPLY of goods or services respectively.

CGST and SGST/UTGST is levied on all INTRA-STATE SUPPLIES of goods and/or services

IGST is levied on all INTER-STATE SUPPLIES of goods and/ or services.

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OVERVIEW OF GST

INTER STATE SUPPLY

TWO
LOCATION PLACE DIFFERENT
OF OF STATES/UTs/
SUPPLIER SUPPLY A STATE AND
UT

Where the location of the supplier and place of supply of goods or services are in (i) two different States
or (ii) two different Union Territories or (iii) a State and a Union territory, it is treated as INTER-STATE
SUPPLY of goods or services respectively.

LIST OF UNION TERRITORIES WITHOUT STATE LEGISLATURES

Andaman
& Nicobar
Islands

Chandigarh Lakshadweep

Dadra and
Nagar Haveli
Ladakh
and Daman
and Diu

Above mentioned Union Territories are governed by UTGST Act, 2017 for levying UTGST

LIST OF UNION TERRITORIES WITH STATE LEGISLATURES

Puducherry Delhi Jammu & Kashmir

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 OVERVIEW OF GST

INTRODUCTION TO CGST ACT, 2017 AND SGST/UTGST ACT,2017

CENTRAL GOODS & SERVICES TAX ACT, 2017

Applicable to whole of India including J&K

STATE GOODS & SERVICES TAX ACT, 2017

Applicable in respective states/union territory with state
legislatures [Delhi & Puducherry]

UNION TERRITORY GOODS & SERVICES TAX ACT, 2017

Applicable in union territory without state legislature

Definition of India: India means

(a) territory of India as referred to in Article 1 of the Constitution

(b) its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive
economic zone.
(c) the air space above its territory and territorial waters

CLASSIFICATION OF GOODS AND SERVICES

HSN (Harmonized System of Nomenclature) code is used for classifying the goods under the GST

A new Scheme of Classification of Services has been devised wherein the services of various descriptions
have been classified under various sections, headings and groups. Each group consists of various Service
Codes (Tariff). Chapters referred are the Chapters of the First Schedule to the Customs Tariff Act, 1975.

Classification of cut pieces of fabrics under GST (Unstitched Salwar Suits)

It has been represented that before becoming readymade articles or an apparel, the fabric is cut from
bundles or thans and sold in that unstitched state. The consumers buy these sets or pieces and get it
stitched to their shape and size. Fabrics are classifiable under chapters 50 to 55 of the First Schedule to
the Customs Tariff Act, 1975 on the basis of their constituent materials.

Mere cutting and packing of fabrics into pieces of different lengths from bundles or thans, will not change
the nature of these goods and such pieces of fabrics would continue to be classifiable under the respective
heading as the fabric [Circular No. 13/13/2017 GST dated 27.10.2017].
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OVERVIEW OF GST

REGISTRATION
Every supplier of goods and/ or services is required to obtain registration in the State/UT from where he
makes the taxable supply if his “aggregate turnover” exceeds ₹ 20 lakhs during a FY. The limit is ₹ 10 lakhs
if the person is carrying out business in the Special Category States.

Special Category States are Manipur, Mizoram, Nagaland & Tripura.

COMPOSITION SCHEME
In GST regime, tax (i.e. CGST and SGST/UTGST for intra-State supplies and IGST for inter-State supplies) is
payable by every taxable person and in this regard provisions have been prescribed in the law

For providing relief to small businesses making intra-State supplies, a simpler method of paying taxes and
accounting thereof is also prescribed, known as Composition Levy based on prescribed turnover limit.

EXEMPTIONS
Apart from providing relief to small-scale business, the law also contains provisions for granting exemption
from payment of tax on essential goods and/or services

MANNER OF UTILIZATION OF ITC

INTRA-STATE INTER-STATE
OUTPUT CGST OUTPUT SGST OUTPUT IGST
Credit to be utilized sequentially
Credit to be utilized Credit to be utilized
(i) IGST
sequentially sequentially
(ii) CGST
(i) IGST (i) IGST
(iii) SGST (only after balance of CGST is
(ii) CGST (ii) SGST
not available)

CROSS UTILIZATION OF CGST AND SGST/UTGST IS NOT AVAILABLE

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 OVERVIEW OF GST

UTILISATION OF INPUT TAX CREDIT [SECTION 49]

SGST/ UTGST to be used for payment of IGST only when credit of CGST is not available
[Section 49]

Section 49(5) prescribes the order of utilization of ITC. As per section 49(5)(c) and 49(5)(d), ITC of SGST
/UTGST should first be utilized towards payment of SGST /UTGST and the amount remaining, if any, may
be utilized towards payment of IGST.

The ITC on account of SGST /UTGST can be utilized towards payment of IGST only where the balance of
the ITC on account of CGST is not available for payment of IGST.

ITC of IGST to be fully utilised first [Section 49A]

The ITC of CGST, SGST /UTGST should be utilised towards payment of IGST, CGST, SGST /UTGST only after
the ITC of IGST has first been utilised fully towards such payment.

Order of utilization of ITC [Section 49B]

Section 49B provides that the Government may, on the recommendations of the Council, prescribe the
order and manner in Rule 88 of utilization of the ITC of IGST, CGST, SGST /UTGST towards payment of any
such tax. Section 49B also starts with a non obstante clause, “Notwithstanding anything contained in this
Chapter ……..”
Thus, the provisions of section 49B would prevail over the provisions contained in Chapter X: Payment of
Tax. However, utilization of ITC of CGST for payment of SGST /UTGST and vice versa will not be
prescribed.

Mechanism prescribed for utilisation of ITC [Rule 88A]

The newly inserted rule 88A allows utilization of ITC of IGST towards the payment of CGST and SGST /UT
GST in any order subject to the condition that the entire ITC of IGST is completely exhausted first before
the ITC of CGST or SGST /UTGST can be utilized.
The new rule provides as under:
(i) ITC of IGST should first be utilized towards payment of IGST.

(ii) Remaining ITC of IGST, if any, can be utilized towards the payment of CGST and SGST /UTGST in any
order, i.e. ITC of IGST can be first utilized either against CGST or SGST.

(iii) ITC of CGST, SGST /UTGST can be utilized towards payment of IGST, CGST, SGST /UTGST only after the
ITC of IGST has first been utilized fully.

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OVERVIEW OF GST

Flowchart to understand the process of utilization of ITC

ITC on account of Output IGST Output CGST Output SGST

IGST (I) (II) – In any order and in any proportion
(III) ITC on account of IGST to be completely exhausted mandatorily
CGST (V) (IV) Not permitted
SGST (VII) Not permitted (VI)

Illustration

Head Output liability Input Tax Credit

IGST 1000 1300
CGST 300 200
SGST/UTGST 300 200
Total 1600 1700

Option 1:

ITC on account of Discharge of Discharge of Discharge of Balance of ITC

output IGST Output CGST Output SGST
IGST 1000 200 100 0
ITC on account of IGST has been completely exhausted
CGST 0 100 Not permitted 100
SGST 0 Not permitted 200 0
Total 1000 300 300 100

Option 2:

ITC on account of Discharge of Discharge of Discharge of Balance of ITC

output IGST Output CGST Output SGST
IGST 1000 100 200 0
ITC on account of IGST has been completely exhausted
CGST 0 200 Not permitted 0
SGST 0 Not permitted 100 100
Total 1000 300 300 100

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 OVERVIEW OF GST
SEAMLESS FLOW OF CREDIT
Since GST is destination based, consumption tax, revenue of SGST ordinarily accrues to consuming States.
The inter-State supplier in exporting State is allowed to set off available credit of IGST, CGST and
SGST/UTGST (in that order) against the IGST payable on inter-State supply made by him.

The buyer in importing State is allowed to avail credit of IGST paid on inter-State purchase made by him.
Accordingly, under GST regime there is a seamless credit flow in case of inter-State supplies too.

The revenue of inter-State sale does not accrue to exporting State and exporting State transfers to the
Centre the credit of SGST/UTGST used in payment of IGST.

The Centre transfers to importing State credit of IGST used in payment of SGST/UTGST. Thus, the inter-
State trade of goods and services (IGST) needed a robust settlement mechanism amongst the States and
the Centre.

COMMON PORTAL
Common GST Electronic Portal – www.gst.gov.in – a website managed by Goods and Services Tax Network
(GSTN) to establish a uniform interface for taxpayer and a common and shared IT infrastructure between
the Centre and States. A common GST system provides linkage to all State/ UT Commercial Tax
Departments, Central Tax authorities, Taxpayers, Banks and other stakeholders.
FUNCTIONS OF THE GSTN

GSPs/ASPs
GSTN has selected certain IT, ITeS and financial technology companies, to be called GST Suvidha Providers
(GSPs). GSPs develop applications to be used by GSPs / ASPs taxpayers for interacting with the GSTN.
They act as a single stop shop for GST related services.
GSPs may take help of Application Service Providers (ASPs) who act as a link between taxpayers and GSPs.

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OVERVIEW OF GST

ILLUSTRATION ON INTRA-STATE SUPPLY

In case of local supply of goods/ services, the supplier would charge dual GST i.e., CGST and SGST at
specified rates on the supply.
SUPPLY OF GOODS/ SERVICES BY A TO B

Amount (in ₹)
Value charged for supply of goods/services 10,000
Add: CGST @ 9% 900
Add: SGST @ 9% 900
Total price charged by A from B for local supply of goods/ 11,800
services

The CGST & SGST charged on B for supply of goods/services will be remitted by A to the appropriate account
of the Central and State Government respectively. A is the first stage supplier of goods/services and hence,
does not have credit of CGST, SGST or IGST.

SUPPLY OF GOODS/SERVICES BY B TO C – VALUE ADDITION @ 20%

B will avail credit of CGST and SGST paid by him on the purchase of goods/ services and will utilise such
credit for being set off against the CGST and SGST payable on the supply of goods/services made by him to
C.
Amount
(in ₹)
Value charged for supply of goods/ services (₹10,000 x 120%) 12,000
Add: CGST @ 9% 1080
Add: SGST @ 9% 1080
Total price charged by B from C for local supply of goods/ 14160
services
COMPUTATION OF CGST, SGST PAYABLE BY B TO GOVERNMENT

Amount (in ₹)
CGST payable 1080
Less: Credit of CGST 900
CGST payable to Central Government 180
SGST payable 1080
Less: Credit of SGST 900
SGST payable to State Government 180

Note: Rates of CGST and SGST have been assumed to be 9% each for the sake of simplicity.

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 OVERVIEW OF GST

STATEMENT OF REVENUE EARNED BY CENTRAL AND STATE GOVERNMENT

Revenue to Central Revenue to State

Transaction
Government (₹) Government (₹)

Supply of goods/services by A to B 900 900

Supply of goods/services by B to C 180 180
Total 1080 1080

ILLUSTRATION ON INTER-STATE SUPPLY

SUPPLY OF GOODS/SERVICES BY X OF STATE 1 TO A OF STATE 1

Amount (in ₹)
Value charged for supply of goods/services 10,000
Add: CGST @ 9% 900
Add: SGST @ 9% 900
Total price charged by X from A for intra-State supply of 11,800
goods/services

X is the first stage supplier of goods/services and hence, does not have any credit of CGST, SGST or IGST.

SUPPLY OF GOODS/SERVICES BY A OF STATE 1 TO B OF STATE 2 – VALUE ADDITION

@ 20%
Amount (in ₹)
Value charged for supply of goods/services (₹10,000 x 120%] 12,000
Add: IGST @ 18% 2,160
Total price charged by A from B for inter-State supply of 14,160
goods/services

COMPUTATION OF IGST PAYABLE TO GOVERNMENT

Amount (in ₹)
IGST payable 2,160
Less: Credit of CGST 900
Less: Credit of SGST 900
IGST payable to Central Government 360

CA NIKUNJ GOENKA 1.20

OVERVIEW OF GST

The IGST charged on B of State 2 for supply of goods/services will be remitted by A of State 1 to the
appropriate account of the Central Government. State 1 (Exporting State) will transfer SGST credit of ₹ 900
utilised in the payment of IGST to the Central Government.

SUPPLY OF GOODS/SERVICES BY B OF STATE 2 TO C OF STATE 2 – VALUE ADDITION

@ 20%
B will avail credit of IGST paid by him on the purchase of goods/services and will utilise such credit for
being set off against the CGST and SGST payable on the local supply of goods/services made by him to C.

Amount (in ₹)
Value charged for supply of goods/ services (₹12,000 x 120%) 14,400

Add: CGST @ 9% 1,296

Add: SGST @ 9% 1,296
Total price charged by B from C for local supply of goods/services 16,992

COMPUTATION OF CGST, SGST PAYABLE TO GOVERNMENT

Amount (in ₹)

CGST payable 1,296

Less: Credit of IGST 1,296

CGST payable to Central Government Nil

SGST payable 1,296

Less: Credit of IGST (₹ 2,160 - ₹ 1,296) 864

SGST payable to State Government 432

The Central Government will transfer IGST credit of ₹ 864 utilised in the payment of SGST to State 2
(Importing State).

STATEMENT OF REVENUE EARNED BY CENTRAL AND STATE GOVERNMENTS

Revenue to
Revenue to Revenue to
Central
Transaction Government of Government
Government
State 1 (₹) of State 2 (₹)
(₹)
Supply of goods/services by X to A 900 900
Supply of goods/services by A to B 360
Transfer by State 1 to Centre 900 (900)
Supply of goods/services by B to C 432
Transfer by Centre to State2 (864) 864
Total 1,296 Nil 1,296

CA NIKUNJ GOENKA 1.21

 OVERVIEW OF GST

BENEFITS OF GST
1. Eliminates cascading effect of taxation: By subsuming most of Central & State taxes into a single tax
and by allowing a set-off of prior-stage taxes for transactions across entire value chain, it would mitigate
ill effects of cascading, improve competitiveness and improve liquidity of the businesses

2. Elimination of multiple taxes and double taxation: GST has subsumed majority of existing indirect tax
levies both at Central and State level into one tax i.e., GST is leviable uniformly on goods and services.
This will make doing business easier and will also tackle highly disputed issues relating to double taxation
of a transaction as both goods and services.

3. Boost to ‘Make in India' initiative: GST will give major boost to the ‘Make in India' initiative of the
Government of India by making goods and services produced in India competitive in the national as well
as international market.

4. Buoyancy to the Government Revenue: GST is expected to bring buoyancy to Government Revenue by
widening the tax base and improving the taxpayer compliance.

CA NIKUNJ GOENKA 1.22

CONSTITUTIONAL AMENDMENTS

CHAPTER 2

CONSTITUTIONAL
AMENDMENTS

CA NIKUNJ GOENKA 2.1

 CONSTITUTIONAL AMENDMENTS

CONSTITUTIONAL PROVISIONS

INTRODUCTION TO CONSTITUTION OF INDIA

India has a three-tier federal structure, comprising the Union Government, the State Governments and the
Local Government. The power to levy taxes and duties is distributed among three tiers of Governments, in
accordance with provisions of the Indian Constitution.

The significant provisions of the Constitution relating to taxation are:

ARTICLE 265 ARTICLE 245 ARTICLE 246

No tax shall be levied/collected The power for enacting laws is It gives the respective authority
except by authority of law. conferred on to Union and State Governments
This provision prohibits arbitrary (i) the Parliament for whole or for levying tax
collection of tax any part of India; and Seventh Schedule to Article 246:
(ii) the Legislature of a State for contains three lists under which
whole or any part of State Union and State Governments
has authority to make laws.
Major direct and
indirect taxes

Entries 82 to 91 of List I enumerate subjects where the Central Government has power to levy taxes

Entries 45 to 63 of List II enumerate the subjects where the State Governments have the power to levy
taxes

Residual Power is with Parliament

Article 246A of the Constitution introduced by the Constitution (101 st Amendment)

Act, 2016 has given power to levy GST

CA NIKUNJ GOENKA 2.2

CONSTITUTIONAL AMENDMENTS

NEED OF CONSTITUTIONAL AMENDMENT

Introduction of GST required amendment in the Constitution to enable integration of

(i) Central excise duty including additional duties of customs;

(ii) State VAT;
(iii) State specific taxes; and
(iv) Service tax

into a comprehensive GST and to empower both Centre and States to levy and collect it.

SIGNIFICANT PROVISIONS OF CONSTITUTION

(101ST AMENDMENT) ACT, 2016

Power to make laws with respect to GST [Article 246A]

(1) It grants power to Centre and State Governments to make laws with respect to GST imposed by Centre
or such State.

(2) Centre has exclusive power to make laws with respect to GST in case of INTER-STATE SUPPLY of goods
and/or services.

(3) In respect to the following goods, GST shall apply from date recommended by the GST Council:
• Petroleum Crude
• High speed diesel
• Motor spirit (known as petrol)
• Natural gas
• Aviation Turbine Fuel

(4) The provisions of Article 246A are notwithstanding anything contained in Articles 246 and 254. Article
254 deals with the supremacy of the laws made by Parliament.

Levy and collection of GST on INTER-STATE SUPPLY [Article 269A]

(1) It provides that GST would be levied and collected by Government of India on INTER-STATE SUPPLY
and such tax shall be apportioned between Union and States in the manner recommended by GST
Council.

(2) Import of goods or services or both into India is deemed to be INTER-STATE SUPPLY. Accordingly, the
Central Government to levy IGST on import which were earlier subject to Countervailing duty under
the Customs Tariff Act, 1975.

(3) In order to facilitate transfer of funds between the Centre and the States, amount collected as IGST
which has been used for payment of SGST shall not form part of the Consolidated Fund of India.

CA NIKUNJ GOENKA 2.3

 CONSTITUTIONAL AMENDMENTS

(4) Parliament is empowered to formulate the principles regarding place of supply and when supply of
goods, or of services, or both occurs in inter-State trade or commerce.

Power of Parliament to legislate with respect to a matter in the State List, in the national
interest/in case of emergency, extended to GST provided under Article 246A
[Article 249 and 250]

(1) Article 249 grants the Parliament the power to make laws with respect to a matter in the State list in
national interest in a case where the Council of States has declared by resolution supported by at-least
2/3rd of the members present and voting on any matter enumerated in the State List.
(2) Article 250 grants the Parliament the power to make laws with respect to any of the matters
enumerated in the State List if a proclamation of Emergency is in operation.

Residuary powers of legislation amended [Article 248]

Article 248 grants the residuary powers to Parliament to make laws with respect to any matter not
enumerated in the Concurrent List or State List. Such power shall include the power of making any law
imposing a tax not mentioned in either of those Lists.

Now, this power has been subjected to Article 246A, namely the power to make laws with respect to goods
and service tax to be imposed by the Centre and States

Distribution of GST between the Centre and the States [Article 270]

Article 270 is amended to provide for distribution of GST between the Centre and the States, by order of
the President after considering recommendations of the Finance Commission. This applies for those tax
amounts apportioned or payable to the Central Government for taxes levied by it under articles 246A(1)
and (2) and Clause (1) of 269A.

Increase in duty and tax [Article 271]

Article 271 empowers Parliament to increase any of the duties, or taxes referred to in articles 269 or 270.
It further provides that such surcharge is not shareable and remains with the Centre. Now this article is
amended to exclude GST from its purview.

Relevant Definitions [Article 366]

“Goods and services tax” means any tax on supply of goods, or services or both except taxes on the supply
of the alcoholic liquor for human consumption. [Article 366(12A)]

“Services” means anything other than goods. [Article 366(26A)]

“States” includes Union Territory with Legislature [Article 366(26B)]

“Goods” includes all materials, commodities, and articles” [Article 366(12)]

CA NIKUNJ GOENKA 2.4

CONSTITUTIONAL AMENDMENTS

Imposing restrictions as to imposition of tax on the sale or purchase of goods [Article 286]

Article 286 restrains the States from framing laws for imposition of any tax on the sale or purchase of goods
where such sale or purchase takes place outside the State or in course of the import of the goods into, or
export of the goods out of, the territory of India.

Amendment: Changes incorporated arising out of GST by substituting the words “sale or purchase” with
“supply” and words “goods” with “goods or services or both”.

Consequently, States have no right to impose GST on inter-State supply of goods or services or both. It will
be levied by Union Government under Article 269A as mentioned earlier

Formation of GST Council [Article 279A]

It empowers the President to constitute a joint forum of the Centre and States namely, Goods & Services
Tax Council (GST Council). Such provisions came into force on 12th September, 2016 and GST Council was
constituted on 15th September, 2016.

Functions of GST COUNCIL

• It is the main decision-making body that has been formed to finalize the design of GST;
• The governing body of GST comprises of Union Finance Minister, being the Chairman of the council and
the Minister of State (Revenue) and the State Finance/ Taxation Ministers.
• The duty of the Council is to make recommendations to the Union and the States on important issues
like tax rates, taxes to be subsumed in GST, model GST laws, exemptions, threshold limits, dispute
resolution, special provisions for special category states etc.
• It shall also recommend the date on which GST be levied on petroleum crude, high speed diesel, motor
spirit, natural gas and aviation turbine fuel.
• In the GST Council, a decision will be taken by at-least 3/4th majority. Votes of the Centre has a
weightage of 1/3rd of total votes and all states taken together has remaining 2/3rd.
• Quorum for GST meetings: ½ of total number of Members of the GST Council.
• No act or proceedings of the Goods and Services Tax Council shall be invalid merely by reason of—
(a) any vacancy in, or any defect in, the constitution of the Council; or
(b) any defect in the appointment of a person as a Member of the Council; or
(c) any procedural irregularity of the Council not affecting the merits of the case

Ratification by at-least half of states is required [Article 368]

Article 368 has been amended to include Article 279A also within its purview. Consequently, at least 2/3rd
of the majority in each House of the Parliament and ratification by at ½ of the States is specifically required
to make any amendment in Article 279A relating to GST Council.

CA NIKUNJ GOENKA 2.5

RELEVANT DEFINITIONS

CHAPTER 3
RELEVANT
DEFINITIONS

CA NIKUNJ GOENKA 3.1

 RELEVANT DEFINITIONS

RELEVANT DEFINITIONS
(1) Actionable claim means claim to any debt, other than a debt secured by mortgage of immovable
property or by hypothecation or pledge of movable property, or to any beneficial interest in movable
property not in the possession, either actual or constructive, of the claimant, which the civil courts
recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing,
conditional or contingent

(2) Agent means a person, including a factor, broker, commission agent, del credere agent, an auctioneer
who carries on the business of supply or receipt of goods or services or both on behalf of another.

(3) Aggregate turnover means aggregate value of

a) all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on
reverse charge basis),
b) exempt supplies,
c) exports of goods or services or both and
d) inter-State supplies of persons
e) having the same Permanent Account Number, to be computed on all India basis
f) but excludes central tax, State tax, Union territory tax, integrated tax and cess

(4) Agriculturist means an individual/HUF who undertakes cultivation of land

(a) by own labour, or
(b) by labour of family, or
(c) by servants on wages payable in cash or kind or by hired labour under personal supervision or the
personal supervision of any member of the family.

(5) Associated enterprises shall have the same meaning as assigned to it in Section 92A of the Income-tax
Act, 1961.
(6) Business: includes
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar
activity, whether or not it is for a pecuniary benefit
(b) any activity or transaction in connection with or incidental or ancillary to (a) above
(c) any activity or transaction in the nature of (a) above, whether or not there is volume, frequency,
continuity or regularity of such transaction
(d) supply or acquisition of goods including capital assets and services in connection with
commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a subscription or any other
consideration) of the facilities or benefits to its members, as the case may be;
(f) admission, for a consideration, of persons to any premises; and
(g) services supplied by a person as the holder of an office which has been accepted by him in the
course or furtherance of his trade, profession or vocation;

CA NIKUNJ GOENKA 3.2

 RELEVANT DEFINITIONS
(h) activities of a race club including by way of totalisator or a license to book maker or activities of a
licensed book maker in such club

(i) any activity or transaction undertaken by the Central Government, a State Government or any local
authority in which they are engaged as public authorities.

(7) Business entity means any person carrying out business.

(8) Capital goods means

• goods, value of which is capitalized in the books of account
• of the person claiming the ITC and
• which are used or intended to be used in the course or furtherance of business

(9) Casual Taxable Person

A person who occasionally undertakes transactions
• involving supply of goods or services or both
• in the course or furtherance of business, whether as principal, agent or in any other capacity,
• in a State or a Union territory where he has no fixed place of business;

(10) Composite Supply

• A supply made by a taxable person to a recipient
• consisting of two or more taxable supplies of goods or services or both, or any combination thereof,
• which are naturally bundled and supplied in conjunction with each other in the ordinary course of
business,
• one of which is a principal supply

Illustration — Where goods are packed and transported with insurance, the supply of goods, packing
materials, transport and insurance is a composite supply and supply of goods is a principal supply;

“principal supply” means

• supply of goods or services
• which constitutes predominant element of composite supply
• and to which any other supply forming part of that composite supply is ancillary

(11) “consideration” in relation to the supply of goods or services or both includes––

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to,
or for the inducement of, the supply of goods or services or both, whether by the recipient or by
any other person

(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement
of, the supply of goods or services or both, whether by the recipient or by any other person
but shall not include any subsidy given by the Central Government or a State Government:

Deposit given in respect of the supply of goods or services or both shall not be considered as payment
made for such supply unless the supplier applies such deposit as consideration for the said supply.

CA NIKUNJ GOENKA 3.3

 RELEVANT DEFINITIONS

(12) Continuous supply of goods

a) Supply of goods which is provided, or agreed to be provided, continuously or on recurrent basis
b) under a contract
c) whether or not by means of a wire, cable, pipeline or other conduit, and for which the supplier
invoices the recipient on a regular or periodic basis and
d) includes supplies notified by the Government

(13) Continuous supply of services

(a) Supply of services which is provided, or agreed to be provided, continuously or on recurrent basis
(b) under a contract
(c) for more than 3 months with periodic payment obligations
(d) includes supplies notified by the Government

(14) E-Commerce operator: means any person who owns, operates or manages digital or electronic facility
or platform for electronic commerce.

(15) Exempt supply means supply of any goods or services or both which
(a) attracts nil rate of tax or
(b) may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and
Services Tax Act, and
(c) includes non-taxable supply

(16) Family means

I. the spouse and children of the person, and
II. the parents, grand-parents, brothers and sisters of the person if they are wholly or mainly
dependent on the said person

(17) Fixed establishment means

• a place “other than registered place of business”
• characterized by a sufficient degree of permanence and
• suitable structure in terms of human and technical resources to supply services, or
• to receive and use services for its own needs

(18) Goods means every kind of movable property other than money and securities but includes actionable
claim, growing crops, grass and things attached to or forming part of the land which are agreed to be
severed before supply or under a contract of supply. [Sec. 2(52) of CGST Act].

(19) Goods transport agency means any person who provides service “in relation to” transport of goods by
road and issues consignment note, by whatever name called.

CA NIKUNJ GOENKA 3.4

 RELEVANT DEFINITIONS

(20) Input tax means CGST, SGST, IGST or UTGST charged on any supply of goods or services or both made
to him and includes
(a) IGST charged on import of goods;
(b) tax payable under Section 9(3) and 9(4) of CGST Act, 2017
(c) tax payable under Section 5(3) and 5(4) of IGST Act, 2017
(d) tax payable under Section 9(3) and 9(4) of CGST Act, 2017 of the respective State GST Act; or
(e) tax payable under Section 7(3) and Section 7(4) of UTGST Act, 2017

but does not include tax paid under the composition levy.

(21) India means the territory of India as referred to in article 1 of the Constitution, its territorial waters,
seabed and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other
maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and
other Maritime Zones Act, 1976, and the air space above its territory and territorial waters;

(22) Input means

• any goods “other than capital goods”
• used or intended to be used by a supplier in the course or furtherance of business

(23) Input service means any service used or intended to be used by a supplier in the course or furtherance
of business
(24) Input Service Distributor means
• an office of the supplier of goods or services or both
• which receives “tax invoices” issued u/s 31 towards the receipt of input services and
• issues a prescribed document for the purposes of distributing credit of CGST/SGST/IGST/UTGST paid
on the said services to a supplier of taxable goods or services or both having the same PAN as that
of the said office;

(25) Input Tax Credit means the credit of input tax

(26) Inward supply shall mean receipt of goods or services or both whether by purchase, acquisition or any
other means with or without consideration

(27) Job work means any treatment or process undertaken by a person on goods belonging to another
registered person and the expression “job worker” shall be construed accordingly.

(28) Location of the recipient of services means:

(a) where a supply is received at a place of business for which the registration has been obtained, the
location of such place of business;
(b) where a supply is received at a place other than the place of business for which registration has
been obtained (a fixed establishment elsewhere), the location of such fixed establishment;

CA NIKUNJ GOENKA 3.5

 RELEVANT DEFINITIONS

(c) where a supply is received at more than one establishment, whether the place of business or fixed
establishment, the location of the establishment most directly concerned with the receipt of the
supply; and
(d) in absence of such places, the location of the usual place of residence of the recipient;

(29) Location of the supplier of services means:

(a) where a supply is made from a place of business for which the registration has been obtained, the
location of such place of business;
(b) where a supply is made from a place other than the place of business for which registration has
been obtained (a fixed establishment elsewhere), the location of such fixed establishment;
(c) where a supply is made from more than one establishment, whether the place of business or fixed
establishment, the location of the establishment most directly concerned with the provisions of
the supply; and
(d) in absence of such places, the location of the usual place of residence of the supplier;

(30) Mixed supply means two or more individual supplies of goods or services, or any combination thereof,
made in conjunction with each other by a taxable person for a single price where such supply does not
constitute a composite supply.

(31) Non-taxable supply means a supply of goods or services or both which is not leviable to tax under CGST
Act or under IGST Act

(32) Non-resident taxable person means

• any person who occasionally undertakes transactions involving supply of goods or services or both,
• whether as principal or agent or in any other capacity,
• but who has no fixed place of business or residence in India

(33) Output tax in relation to a taxable person, means the tax chargeable under this Act on taxable supply
of goods or services or both made by him or by his agent but excludes tax payable by him on reverse
charge basis;

(34) Outward supply means

• supply of goods or services or both, whether by sale, transfer, barter, exchange, licence, rental, lease
or disposal or any other mode,
• made or agreed to be made by such person in the course or furtherance of business
(35) Person includes
(a) Individual;
(b) Hindu Undivided Family;
(c) Company;
(d) Firm;
(e) Limited Liability Partnership;
(f) Association of persons or a body of individuals, whether incorporated or not, in India or outside
India;

CA NIKUNJ GOENKA 3.6

 RELEVANT DEFINITIONS
(g) any corporation established by or under any Central Act, State Act or Provincial Act or a Government
company as defined in section 2(45) of the Companies Act, 2013;
(h) Body corporate incorporated by or under the laws of a country outside India;
(i) Co-operative society registered under any law relating to cooperative societies;
(j) Local authority;
(k) Central Government or a State Government;
(l) Society as defined under the Societies Registration Act, 1860;
(m) trust; and
(n) every artificial juridical person, not falling within any of the above

(36) Place of business includes

• place from where business is ordinarily carried on, including a warehouse, a godown or any other
place where a taxable person stores his goods, supplies or receives goods or services or both; or
• a place where a taxable person maintains his books of account; or
• a place where a taxable person is engaged in business through an agent.

(37) Principal means a person on whose behalf an agent carries on the business of supply or receipt of goods
or services or both;
(38) Principal place of business means place of business specified as the principal place of business in the
certificate of registration
(39) Registered person means a person who is registered under section 25 but does not include a person
having a Unique Identity Number

(40) Reverse charge means liability to pay tax by the recipient of supply of goods or services or both instead
of the supplier of such goods or services or both under section 9(3)/9(4), or under section 5(3)/5(4) of
the IGST Act.

(41) Recipient of supply of goods or services or both, means

Consideration is payable person who is liable to pay that consideration

No consideration is payable for person to whom goods are delivered /made available/ to
goods whom possession or use of goods is given / made available
No consideration is payable for
person to whom service is rendered,
services

(42) Registered person means a person who is registered under section 25 but does not include a person
having a Unique Identity Number

(43) Services: means anything other than goods, money and securities but includes activities relating to the
use of money or its conversion by cash or by any other mode, from one form, currency or
denomination, to another form, currency or denomination for which a separate consideration is
charged. Explanation clarifies that “services” includes facilitating or arranging transactions in
securities.
CA NIKUNJ GOENKA 3.7
 RELEVANT DEFINITIONS

(44) Supplier in relation to any goods or services or both, shall mean the person supplying the said goods
or services or both and shall include an agent acting as such on behalf of such supplier in relation to
the goods or services or both supplied.

(45) Taxable supply means a supply of goods or services or both which is leviable to tax under this Act

(46) Taxable person means a person who is registered or liable to be registered under section 22 or section
24. [Section 2(107) of CGST Act]

(47) Tax period means the period for which the return is required to be furnished

(48) Telecommunication service means service of any description (including electronic mail, voice mail,
data services, audio text services, video text services, radio paging and cellular mobile telephone
services) which is made available to users by means of any transmission or reception of signs, signals,
writing, images and sounds or intelligence of any nature, by wire, radio, visual or other electromagnetic
means;

(49) Turnover in state/UT means aggregate value of

g) all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on
reverse charge basis),
h) exempt supplies within a state/UT
i) exports of goods or services or both and
j) inter-State supplies of persons
k) having the same Permanent Account Number, to be computed on all India basis
l) but excludes central tax, State tax, Union territory tax, integrated tax and cess

(50) Usual place of residence means:

a. in case of an individual, the place where he ordinarily resides;
b. in other cases, the place where the person is incorporated or otherwise legally constituted

(51) Valid return means a return furnished under sub-section (1) of section 39 on which self-assessed tax
has been paid in full;
(52) Voucher means an instrument where there is an obligation to accept it as consideration or part
consideration for a supply of goods or services or both and where the goods or services or both to be
supplied or the identities of their potential suppliers are either indicated on the instrument itself or in
related documentation, including the terms and conditions of use of such instrument;
(53) Works contract means contract for building, construction, fabrication, completion, erection,
installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or
commissioning of any immovable property wherein transfer of property in goods (whether as goods or
in some other form) is involved in the execution of such contract

(54) Zero-rated supply means any of the following supplies of goods or services or both:
• Export of goods or services or both; or
• Supply of goods or services or both to a Special Economic Zone (SEZ) developer or a SEZ unit

CA NIKUNJ GOENKA 3.8

CHARGE OF GST

CHAPTER 4

CHARGE OF GST

CA NIKUNJ GOENKA 4.1

 CHARGE OF GST

CHAPTER OVERVIEW

S.L. NO TOPIC

1 CHARGE OF GST

2 TYPES OF SUPPLY AND KIND OF TAXES LEVIED

3 LEVY AND COLLECTION OF CGST, SGST & IGST

4 REVERSE CHARGE ON SERVICES

5 TAX PAYABLE BY E-COMMERCE OPERATOR

CA NIKUNJ GOENKA 4.2

CHARGE OF GST

CHARGE OF GST
The taxable event under GST is SUPPLY. Types of supply is enumerated below:

INTRA INTER
STATE STATE
CGST IGST
SGST/
UTGST
CGST and SGST/UTGST are levied on all INTRA-STATE SUPPLIES of goods and/or services while IGST is levied
on all INTER-STATE SUPPLIES of goods and/ or services.

INTER STATE SUPPLY [SECTION 7 OF IGST ACT 2017]

TWO
LOCATION PLACE DIFFERENT
OF OF STATES/UTs/
SUPPLIER SUPPLY A STATE AND
UT

Where the LOCATION OF THE SUPPLIER and PLACE OF SUPPLY of goods or services are in
(i) two different States or
(ii) two different Union Territories or
(iii) a State and a Union territory,
it is treated as INTER-STATE SUPPLY of goods or services respectively.
All IMPORTS of goods in India shall be deemed to be inter-State supplies and accordingly IGST shall be
levied on the imported goods in addition to the applicable custom duties.

CA NIKUNJ GOENKA 4.3

 CHARGE OF GST

EXAMPLES:

LOCATION OF SUPPLIER PLACE OF SUPPLY INTRA /INTER

Punjab Haryana Inter
Punjab Daman & Diu Inter
Daman & Diu Chandigarh Inter

All IMPORTS of services shall be deemed as inter-State supplies and accordingly IGST shall be levied on such
imports.

MEANING OF IMPORT:
A. Goods: Import of goods, means bringing goods into India from a place outside India.

B. Services – “Import of services” as defined in Section 2(11) of the IGST Act is a supply of any service
(i) where the supplier is located outside India,
(ii) the recipient is located in India, and
(iii) the place of supply of service is in India

CERTAIN SUPPLIES TO BE TREATED AS INTER-STATE SUPPLIES

A. Supply of goods or services or both when
(I) Supplier is located in India and
(II) Place of supply is outside India

“Location of recipient” is not material to qualify as supply in the course of inter-State trade or commerce.

B. Supply of goods or services or both TO / BY a Special Economic Zone developer/ SEZ unit

SEZ is a geographically bound zone within India where the economic laws relating to export and import
are more liberal as compared to other parts of the country. For all tax purposes, SEZ is considered to be
a place outside India.

Any supplies made to SEZ unit/developer or vice versa are inter-State supplies. It is noteworthy that
place of supply is not relevant in case of supplies to/from an SEZ unit or developer.

EXAMPLES

SUPPLY BY SUPPLY TO INTRA /INTER

SEZ IN UP PERSONS OUTSIDE SEZ
INTER
PERSONS OUTSIDE SEZ SEZ IN UP

C. Supply of goods or services or both in the “taxable territory”, not being an intra-State supply
and not covered elsewhere in this section

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CHARGE OF GST

INTRA STATE SUPPLY [SECTION 8 OF IGST ACT 2017]

LOCATION PLACE SAME

OF OF STATE /
SUPPLIER SUPPLY SAME UT

Where the LOCATION OF THE SUPPLIER and the PLACE OF SUPPLY of goods or services are in the same
State/Union territory, it is treated as INTRA-STATE SUPPLY of goods or services respectively.

EXAMPLES

LOCATION OF SUPPLIER PLACE OF SUPPLY INTRA /INTER

Punjab Punjab Intra
London Delhi Inter
Delhi Gujarat Inter
Puducherry Puducherry Intra
Daman & Diu Lakshadweep Inter

CERTAIN SUPPLIES NOT TO BE TREATED AS INTRA-STATE SUPPLIES

Certain supplies of goods/services shall not be treated as intra-State supplies even when the location of
supplier and place of supply fall within the same State/ Union Territory.

A. Supply of goods or services or both TO / BY a Special Economic Zone developer/ Special

Economic Zone unit
Supply of goods/services by a SEZ developer/unit or supply to a SEZ developer/unit shall not be treated
as intra-State supply.

B. Supply of goods made to a tourist [referred to in section 15 of the IGST Act]:

Tourist as a person not normally resident in India, who enters India for a stay of not more than 6
months for legitimate nonimmigrant purposes

Example: A tourist from USA visits India and purchases a shawl in Delhi. In this case, even though the
place of supply and location of supplier are in the same State, it will be treated as inter-State
transaction and will be eligible to IGST.

C. Goods imported into the territory of India till they cross the customs frontiers of India

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 CHARGE OF GST

Notes:
1) Any supply between following establishments shall be treated as establishments of distinct persons.
Where a person has:
• an establishment in India and any other establishment outside India;
• an establishment in a State / UT and any other establishment outside that State/ UT; or
• an establishment in a State / UT and any other establishment being a business vertical registered
within that State / UT.
2) A person carrying on a business through a branch or an agency or a representational office in any
territory shall be treated as having an establishment in that territory.

Services of short-term accommodation, conferencing, banqueting etc. provided to a SEZ

developer/SEZ unit – whether to be treated as an inter-State supply or an intra-State supply?

Place of Supply provisions: Section 12(3)(c) of the IGST Act provides that the place of supply of services
by way of accommodation in any immovable property for organising any functions shall be the location
at which the immovable property is located. Hence, if the location of supplier and place of supply is in
same state, it shall be considered as intra state supply.

Deeming fiction of Section 7 of IGST Act: Section 7(5)(b) of the IGST Act is a specific provision relating
to supplies of goods or services or both made to a SEZ developer or a SEZ unit, which states that such
supplies shall be treated as inter-State supplies.

It is an established principle of interpretation of statutes that in case of an apparent conflict between

two provisions, the specific provision shall prevail over the general provision.

It is clarified that such services provided to a SEZ developer or a SEZ unit shall be treated as an
inter-State supply [Circular No. 48/22/2018 GST dated 14.06.2018].

SUPPLIES IN TERRITORIAL WATERS [SECTION 9 OF IGST ACT 2017]

A. Where the location of the supplier is in the territorial waters, it shall be deemed that location of such
supplier is in the coastal State or Union Territory where the nearest point of the appropriate baseline is
located.

B. Similarly, in case where the place of supply is in territorial waters, the place of supply shall be deemed to
be in the coastal State or Union Territory where the nearest point of the appropriate baseline is located.

“Territorial Waters” is defined as a belt of coastal waters extending atmost 12 nautical miles from the
baseline of a coastal state.

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CHARGE OF GST

Example:

Sonu Traders, registered person in Maharashtra. In the month of September, it supplied taxable goods
worth ₹ 50 lakh to Rose Oil Corporation Ltd. in the territorial waters. The said territorial waters are located
at a distance of 8 nautical miles from the baseline of the State of Maharashtra and 9 nautical miles from
the base line of the state of Gujarat. You are required to determine the amount of net CGST and SGST and
/ or IGST payable in the month of September. Applicable rate of CGST 9% and SGST 9% or IGST 18%.

Solution:
Place of Supply = Maharashtra (inter-State Supply). CGST @9% is ₹ 4,50,000; and SGST @9% is ₹ 4,50,000

LEVY & COLLECTION OF CGST [SECTION 9 OF CGST ACT]

1. A tax called the Central Goods and Services Tax (CGST) shall be levied on all intra-State supplies of goods
or services or both.

2. The tax shall be collected and paid by the TAXABLE PERSON. However, intra-State supply of alcoholic
liquor for human consumption is outside the purview of CGST.

Meaning of Taxable Person: [Section 2(107) of CGST Act]

It means a person who is registered or liable to be registered under Section 22 or Section 24.
It is important to note that even an unregistered person who is liable to be registered is a taxable person.
Similarly, a person not liable to be registered, but has taken voluntary registration and got himself
registered is also a taxable person.

3. CGST would be levied on TRANSACTION VALUE under section 15 of the CGST Act.

4. Notified rates of CGST are 0%, 0.125%, 1.5%, 2.5%, 6%, 9% and 14%. Maximum rate of CGST will be 20%.

5. CGST on supply of the following items has not been levied immediately. It shall be levied with effect from
such date as may be notified by the Government on the recommendations of the Council:

Petroleum High speed Motor Spirit

crude diesel (Petrol)

Aviation
Natural Gas
Turbine Fuel

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 CHARGE OF GST

LEVY & COLLECTION OF IGST [SECTION 5 OF IGST ACT]

1. A tax called the Integrated Goods and Services Tax (IGST) shall be levied on all inter-State supplies of
goods or services or both.

2. The tax shall be collected and paid by the TAXABLE PERSON. However, inter-State supply of alcoholic
liquor for human consumption is outside the purview of IGST.

3. IGST would be levied on TRANSACTION VALUE under section 15 of the CGST Act.

4. Notified rates of IGST are 0%, 0.25%, 3%, 5%, 12%, 18% and 28%. Maximum rate of IGST will be 40%.

5. IGST on supply of the following items has not been levied immediately. It shall be levied with effect from
such date as may be notified by the Government on the recommendations of the Council:

Petroleum High speed Motor Spirit

crude diesel (Petrol)

Aviation
Natural Gas
Turbine Fuel

IGST rate= CGST rate + SGST rate (more or less)

GOODS & SERVICES IMPORTED INTO INDIA:

The IGST shall be levied and collected u/s 3 of the Custom Tariff Act, 1975 i.e. the additional duty shall be as
per the Custom Tariff Act, 1975 and the value shall also be determined as per the said Act.

In other words, IGST shall be levied as additional duty of customs in addition to basic customs duty under
the Customs Tariff Act, 1975.

While IGST on import of services is leviable under the IGST Act, the levy of the IGST on import of goods is
levied under the Customs Act, 1962 read with Customs Tariff Act, 1975.

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CHARGE OF GST

REVERSE CHARGE UNDER CGST – SECTION 9(3) & 9(4)

Normally, the concept of indirect tax prevails over the fact that it is charged and collected by one person
from another person. REVERSE CHARGE IS AN EXCEPTION.

Under Reverse charge, CGST shall be paid by the RECIPIENT of goods or services or both in the following
cases. The supplier would have no liability to pay.

Note: GST being an indirect tax, burden of the tax has to be passed on to the recipient. Under reverse
charge also, the burden to pay GST is on the recipient, but the compliance requirements, i.e. to obtain
registration under GST, deposit tax, filing returns with the Government, etc. has been shifted from supplier
to recipient.

• Supply of goods or services or both,

SECTION notified by Government on
9(3) recommendations of GST Council

• Supply of specified categories of goods or

SECTION services or both by an unregistered
9(4) supplier to specified registered persons
on recommendations of GST Council

Tutorial Note on Section 9(4) – Amended vide CGST (Amendment) Act 2018
Under the amended provision, tax under reverse charge is payable by the NOTIFIED class of registered
persons on NOTIFIED categories of intra-State supplies of goods and/or services received by such
registered persons from any unregistered supplier.

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 CHARGE OF GST

LIST OF SPECIFIED GOODS UNDER REVERSE CHARGE – SECTION 9(3)

Description of Goods Supplier of Goods Recipient of Goods
Cashew nuts (unshelled) Agriculturist Any registered person
or peeled
Bidi wrapper leaves Agriculturist Any registered person
(tendu) and Tobacco
Supply of lottery State Government, Union Territory Lottery distributor or selling
or any local authority agent. Distributor or selling
agent is liable to pay GST
Silk yarn Any person who manufactures silk Any registered person
yarn from raw silk or silkworm
cocoons for supply of silk yarn.
Used vehicles, seized Central Government, State Any registered person
and confiscated goods, Government, Union territory or a
old and used goods, local authority.
waste and scrap
Priority Sector Lending Registered Person Registered Person
Certificates
Raw cotton Agriculturist Registered Person

LIST OF SPECIFIED SERVICES UNDER REVERSE CHARGE – SECTION 9(3)

Notification No. 13/2017 CT (R) dated 28.06.2017 as amended prescribes following services:

Category of Supply of Services Supplier of Service Recipient of Service

Goods Transport Agency (GTA) in Goods Transport Agency (i) Registered factory
respect of transportation of (ii) Registered society
(who has not paid CGST @
goods by road to- (iii) Co-operative society
6% or IGST @ 12%)
(i) Registered factory (iv) Registered person under
(who has paid CGST @ 2.5%
(ii) Registered society GST
without ITC or 6% with ITC)
(iii) Co-operative society (v) Body corporate
(Refer Note 1)
(iv) Registered person under GST (vi) Any partnership firm
(v) Body corporate (registered or not)
(vi) Any partnership firm (vii) Casual taxable person
(registered or not) located in taxable
(vii) Casual taxable person territory

CA NIKUNJ GOENKA 4.10

CHARGE OF GST
Legal services, directly or indirectly. An individual advocate Any business entity located in
It means any service provided in including a senior advocate taxable territory
relation to advice, consultancy or or firm of advocates
assistance in any branch of law, in
any manner and includes
representational services before
any court, tribunal or authority.

Services supplied by an arbitral Any business entity located in

An Arbitral Tribunal
tribunal to business entity taxable territory

Sponsorship services provided to Any person Any body corporate /

any body corporate or partnership partnership firm in taxable
firm territory

Services supplied by Central, State Central, State Government, Any business entity located in
Government, Union Territory, local Union Territory, local taxable territory
authority to business entity authority
[excluding specified services]*

Services supplied by Central Central, State Government, Registered person

Government State Government, Union Territory, local
Union territory/ local authority by authority
way of renting of immovable
property to a person registered
under CGST Act, 2017
Service by way of renting of Any person Registered person
residential dwelling to a
registered person

Services supplied by Director of Director of company/ body Company or body corporate

company/body corporate corporate located in taxable territory

Services supplied by an insurance Insurance agent Any person carrying on

agent to any person carrying on insurance business located in
insurance business the taxable territory

Services supplied by a recovery Recovery agent Banking company or NBFC

agent to a banking company or a located in taxable territory
financial institution or NBFC

Supply of services by way of Music composer, Music company, producer or

transfer or permitting the use or photographer, artist, or the the like, located in the taxable
enjoyment of a copyright covered like territory
u/s 13(1)(a) of the Copyright Act,

CA NIKUNJ GOENKA 4.11

 CHARGE OF GST

1957 relating to original dramatic,

musical or artistic works

Supply of services by way of Author Publisher located in

transfer or permitting the use or the taxable territory
enjoyment of a copyright covered
u/s 13(1)(a) of the Copyright Act,
1957 relating to original literary
works
Reverse charge provisions will not apply if the author
a) has taken registration under the CGST Act, 2017, and
b) filed a declaration, in the form at Annexure I, within the time limit prescribed therein, with the
jurisdictional CGST / SGST commissioner, as the case may be, that he exercises the option to pay
CGST on the service specified above, under forward charge as per Section 9 (1) of the CGST Act, 2017,
and
c) to comply with all the provisions of CGST Act, 2017 as they apply to a person liable for paying the tax
in relation to the supply of any goods or services or both and
d) that he shall not withdraw the said option within a period of 1 year from the date of exercising
such option;
e) makes a declaration, as prescribed in Annexure II on the invoice issued by him in Form GST Inv-I to
the publisher

Overseeing Committee
Supply of services Reserve Bank of India
members of RBI

Services supplied by individual Individual Direct Selling Banking company or non-

Direct Selling Agents (DSAs) other Agents (DSAs) other than a banking financial company
than a body corporate, partnership body corporate, partnership (NBFCs) located in taxable
or limited liability partnership (LLP) or limited liability territory
firm to bank or non-banking partnership (LLP) firm
financial company (NBFCs).

Services provided by Business A banking company located in

Business facilitator
facilitator to a banking company the taxable territory

Services provided by an agent of

An agent of A business correspondent,
business correspondent to business
business correspondent located in the taxable territory
correspondent

Security services (services provided

by way of supply of security Any person other than a A registered person, located in
personnel) provided to a registered body corporate the taxable territory.
person: [This is not applicable on a

CA NIKUNJ GOENKA 4.12

CHARGE OF GST
registered person paying tax u/s
10 of the Act [Composition
scheme] (Refer Note 2)

Services supplied by any person by

way of transfer of development
rights or Floor Space Index (FSI)
Any person Promoter
(including additional FSI) for
construction of a project by a
promoter

Long term lease of land (30 years or

more) by any person against
consideration in the form of upfront
amount (called as premium, salami,
Any person Promoter
cost, price, development charges or
by any other name) and/or periodic
rent for construction of a project by
a promoter

Any person other than a

body corporate, who
Services provided by way of renting
supplies service to a body Any body corporate located in
of a motor vehicle provided to a
corporate & doesn’t issue the taxable territory
body corporate
an invoice charging CGST
@6% to service recipient

Lender i.e. a person who

deposits the securities
registered in his name or in
Services of lending of securities Borrower i.e. a person who
the name of any other
under Securities Lending Scheme, borrows the securities under
person duly authorised on
1997 (“Scheme”) of SEBI, as the Scheme through an
his behalf with an approved
amended approved intermediary of SEBI.
intermediary for the
purpose of lending under
the Scheme of SEBI

*Specified services mentioned below:

(i) Renting of immovable property
(ii) Services by Department of Posts by speed post, express parcel post, life insurance and agency services
provided to person other than CG/SG/UT/LA;
(iii) Services in relation to aircraft or vessel inside or outside the precincts of port/airport;
(iv) Transport of goods or passengers.

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 CHARGE OF GST

Note 1:
(i) GTA has been provided with an option to choose either to charge GST @ 5% without ITC or @ 12% GST
with ITC Under Forward charge (Earlier only 12% forward Charge was Available)

(ii) If Such option has not been exercised, and GTA wants to issue invoice @ 5% such service will be covered
under RCM U/s 9(3) of CGST Act.
(iii) Such Option for a Financial Year need to apply by 15th of March of Preceding FY.

(iv) The GTA wants to opt for charging GST @5% or 12% under Forward charge for FY 2022-23 should apply
the option on or before 16th August 2022.

Invoice for supply of the service charging CGST @ 2.5%/6% as applicable may be issued during the
period from the 18th July, 2022 to 16th August 2022 before exercising the option for the FY 2022-2023
but in such a case the supplier shall exercise the option to pay GST on its supplies on or before the 16th
August,2022

(v) The GTA Issuing Tax Invoice under Forward charge need to furnish a declaration in the Tax invoice as
follows

“I/we have taken registration under the CGST Act, 2017 and have exercised the option to pay tax on
services of GTA in relation to transport of goods supplied by us during the Financial Year _____ under
forward charge.”

(vi) The Recipient of Service while making payment need to ensure that, if Tax invoice has been issued by
the GTA does not charge GST under Forward charge and no declaration has been furnished for opting
of tax under Forward charge, GST under RCM need to be discharged by the recipient.

(vii) If GTA’s Turnover in any preceding FY from 2017-18 onwards exceeds Rs 20 cr. Then GTA needs to
furnish the following declaration in Tax Invoice

“I/We hereby declare that though our aggregate turnover in any preceding financial year from 2017-
18 onwards is more than the aggregate turnover notified under sub-rule (4) of rule 48, we are not
required to prepare an invoice in terms of the provisions of the said sub-rule”

Note 2: ** Reverse charge on GTA services and security services shall not apply to, -

(a) a Department or Establishment of the Central Government or State Government or Union territory; or
(b) local authority; or
(c) Governmental agencies;
which has taken registration under the CGST Act,2017 only for the purpose of deducting tax u/s 51 of the
said Act and not for making a taxable supply of goods or services.
It may be noted that the GTA services in above case have been simultaneously exempted from payment of
tax.

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CHARGE OF GST

Other points to be remembered

1. The person who pays or is liable to pay freight for transportation of goods by road in goods carriage,
located in the taxable territory shall be treated as the person who receives the service.
2. Body corporate includes a company incorporated outside India, but does not include co-operative
societies, any other body corporate prescribed by Central Government.
3. Business entity located in taxable territory who is litigant, applicant or petitioner shall be treated as the
person who receives the legal services.
4. Limited Liability Partnership formed and registered under the provisions of the Limited Liability
Partnership Act, 2008 shall also be considered as a partnership firm or a firm.
5. Renting of immovable property means allowing, permitting or granting access, entry, occupation, use or
any such facility, wholly or partly, in an immovable property, with or without the transfer of possession
or control of the said immovable property and includes letting, leasing, licensing or other similar
arrangements in respect of immovable property.
6. Insurance agent means an insurance agent licensed under section 42 of the Insurance Act, 1938 who
receives agrees to receive payment by way of commission or other remuneration in consideration of his
soliciting or procuring insurance business.

Received by specified recipient – Person liable to pay is recipient

GTA paying tax @ 5% Received by persons other than specified recipient (unregistered
individual end consumer) – Exempt from GST

Taxable under Forward charge. No restriction on availing input tax

GTA paying tax @ 12%
credit on goods and services used in supplying GTA service by GTA

7. The provisions of this notification, in so far as they apply to the Central Government, State Government,
shall also apply to the Parliament and State Legislature.

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 CHARGE OF GST

CIRCULARS ISSUED ON REVERSE CHARGE

Clarification regarding RCM on renting of motor vehicles service [Circular No. 130/49/2019 GST
dated 31.12.2019]
Service by way of renting of any motor vehicle designed to carry passengers where the cost of fuel is
included in the consideration charged from the service recipient are taxable at the following two rates:

(i) @ 5% provided supplier of services has taken only the limited ITC (of input services in the same line of
business) [Reverse charge is applicable and hence recipient is liable to pay GST] or

(ii) @ 12% where supplier of services opts to pay GST at said rate. In this case, there is no restriction on
availing ITC on goods and services used in supplying renting of motor vehicles service by the supplier of
service. [Forward charge is applicable and hence supplier is liable to pay GST]
Summary of Renting of Motor vehicle service

GST is payable @ 5% GST is payable @ 12%

Supplier is Body
Supplier is other than Body Corporate
Corporate Supplier issues invoice to
Recipient is Body Recipient is other than recipient charging GST @ 12%
Any recipient
Corporate Body Corporate
Reverse Charge Forward charge

Taxability of remuneration paid to director [Circular No: 140/10/2020 GST dated 10.06.2020]

In order to determine the leviability of tax on the remuneration paid to the directors, we first need to
ascertain whether the director is an employee of the company or not. Following two situations are possible:

Particulars Taxability
Services provided by the independent directors Such services are clearly outside the scope of
who are not employees of the said company to Schedule III of the CGST Act and are therefore
such company, in lieu of remuneration as the taxable in hands of the company, on reverse
consideration for the said services charge basis

Services provided by a director, irrespective of The part of director’s remuneration which are
name and designation, is an employee, next step declared as Salaries in the books of a company
would be to examine whether all the activities and subjected to TDS u/s 192 of the Income-tax
performed by the director are in the course of Act
employer - employee relation (i.e. a “contract of
Not taxable being consideration for services by an
service”) or is there any element of “contract for
employee to the employer in the course of or in
service”.
relation to his employment in terms of Schedule III.

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CHARGE OF GST
The part of employee director’s remuneration
which is declared separately other than salaries
in the company’s accounts and subjected to TDS
u/s 194J of the IT Act as fees for professional or
technical services

It is treated as consideration for providing services

which are outside the scope of Schedule III and is
therefore, taxable on reverse charge basis. i.e. the
company, is liable to discharge GST

Clarification regarding taxability of supply of securities under Securities Lending Scheme, 1997

SEBI has prescribed the Scheme for the purpose of facilitating lending and borrowing of securities. Under
the Scheme, lender of securities lends to a borrower through an approved intermediary to a borrower
under an agreement for a specified period with the condition that the borrower will return equivalent
securities of the same type or class at the end of the specified period along with the corporate benefits
accruing on the securities borrowed
The activity of lending of securities is not a transaction in securities as it does not involve disposal of
securities. Clause 4 of para 4 relating to the Scheme under the Scheme doesn’t treat lending of securities
as disposal of securities and therefore is not excluded from the definition of services.
The lenders earn lending fee for lending their securities to the borrowers
Clarification:

• The lender temporarily lends the securities held by him to a borrower and charges lending fee for the
same from the borrower. The borrower of securities can further sell or buy these securities and is
required to return the lended securities after stipulated period of time.
• The lending fee charged from the borrowers of securities has the character of consideration and this
activity is taxable in GST since 01/07/2017. Apart from above, the activities of the intermediaries
facilitating lending and borrowing of securities for commission or fee are also taxable separately.

• The supply of lending of securities under the scheme is leviable to GST@18%. The borrower of
securities shall be liable to discharge GST under RCM. The nature of GST to be paid shall be IGST under
RCM. [Circular No. 119/38/2019-GST dated 11 October 2019]

For the past period GST is payable under forward charge by the lender and request may be
i.e. from made by the lender (supplier) to SEBI to disclose the information about
01/07/2017 to borrower for discharging GST under forward charge. The nature of tax
30/09/2019 payable shall be IGST. However, if the service provider has already paid
CGST / SGST / UTGST treating the supply as an intra-state supply, such
lenders shall not be required to pay IGST again in lieu of such GST payments
already made.

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 CHARGE OF GST

With effect from The borrower of securities shall be liable to discharge GST under RCM. The
01/10/2019 nature of GST to be paid shall be IGST under RCM.

REVERSE CHARGE U/S 9(4)

If value of inputs and input services purchased from registered supplier is less than 80%, promoter has to
pay GST on reverse charge basis, u/s 9(4) of the CGST Act, @ 18% on all such inward supplies (to the extent
short of 80% of the inward supplies from registered supplier).

The promoter shall pay tax on supply of such cement on reverse charge basis, u/s 9(4) of the CGST Act, @
28% (CGST 14% + SGST 14%) from an unregistered person

GST on capital goods shall be paid by the promoter on reverse charge basis, u/s 9(4) of the CGST Act at the
applicable rates

REVERSE CHARGE UNDER IGST ACT, 2017

Similar to CGST Act, 2017 as mentioned above. Further, following 2 services are additionally included for
[

IGST purposes. Notification No. 10/2017 IT (R) dated 28.06.2017 as amended prescribes the same:

Category of Supply of Services Supplier of Service Recipient of Service

Any service supplied by any Any person located in a non- Any person located in the
person who is located in a non- taxable territory taxable territory other than
taxable territory non-taxable online recipient
t

Services supplied by a person A person located in non- Importer located in taxable

located in non-taxable territory taxable territory territory.
by way of transportation of Importer includes any owner,
goods by a vessel from a place beneficial owner or any person
outside India up to the customs holding himself out to be the
station of clearance in India importer.

Meaning of Non-taxable online recipient:

Non-taxable online recipient means

(i) any Government, local authority, governmental authority,
(ii) an individual or any other unregistered person
(iii) and receiving OIDAR services in relation to any purpose other than commerce, industry or any other
business or profession,
(iv) located in taxable territory.

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CHARGE OF GST

TAX PAYABLE BY ELECTRONIC COMMERCE OPERATOR ON NOTIFIED

SERVICES [SECTION 9(5)]
Meaning of Electronic Commerce Operator
It display products as well as services which are actually supplied by some other person to consumer, on
their electronic portal. The consumers buy such goods/ services through these portals. On placing the order
for a particular product/ service, the actual supplier supplies the selected product/ service to the consumer.
The price/ consideration for the product/ service is collected by the ECO from the consumer and passed on
to the actual supplier after the deduction of commission by the ECO.
On following services, the tax on intra-State supplies shall be paid by electronic commerce operator (ECO)
if such services are supplied through it.

(i) Transportation of passengers by a radio-taxi, motorcab, maxicab and motor cycle, omnibus or any other
motor vehicle;

(ii) Providing accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places
meant for residential or lodging purposes, except where person supplying such service through
electronic commerce operator is liable for registration under section 22(1) of the CGST Act

(iii) Services by way of house-keeping, such as plumbing, carpentering etc, except where the person
supplying such service through electronic commerce operator is liable for registration under
subsection 22(1) of the CGST Act.

(iv) Supply of restaurant service other than the services supplied by restaurant, eating joints etc. located at
specified premises.

“Specified premises” means premises providing hotel accommodation service having declared tariff of
any unit of accommodation above ₹ 7,500 per unit per day or equivalent”

Note: Restaurant is supplying services through E-COM only, he is not required to get registered under
GST. In case, he is already registered, he may continue with such registration or get them de-registered
under GST.

Relevant Definitions:

Motorcab means any motor vehicle constructed to carry not more than 6 passengers

Maxicab means any motor vehicle constructed carry more than 6 passengers, but not more than 12
passengers

Radio taxi means a taxi including a radio cab, which is in two- way radio communication with a central control
office and is enabled for tracking using Global Positioning System (GPS) or General Packet Radio Service
(GPRS). Example: Ola and Uber.

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 CHARGE OF GST

“Motor cycle, motor vehicle and omnibus shall have the same meanings as assigned to them respectively in
clauses (22), (25), (27), (28) and (29) of section 2 of the Motor Vehicle Act, 1988”

Other points to be remembered

(i) All the provisions of the CGST Act shall apply to such ECO as if he is the supplier liable for paying the tax
in relation to the supply of above services.

(ii) It is important to note here that the above provision shall apply only in case of supply of “services”

(iii) Who is liable to pay GST on such services?

Presence of ECO Liability to pay tax is on

ECO is located in taxable territory ECO
ECO does not have physical presence in the
Person representing the ECO
taxable territory

ECO has neither the physical presence nor any Person appointed by the ECO for purpose of
representative in the taxable territory paying tax

CBIC Circular No. 167/23/2021 on Restaurant Services through ECO – GST dated 17/12/2021

(1) No requirement of collection of TCS u/s 52

As ‘restaurant service’ has been notified under section 9(5) of the CGST Act, 2017, the ECO shall be liable
to pay GST on restaurant services provided through ECO. Accordingly, the ECOs will no longer be
required to collect TCS and file GSTR 8 in respect of restaurant services on which it pays tax in terms
of section 9(5). On other goods or services supplied through ECO, which are not notified u/s 9(5), ECOs
will continue to pay TCS in terms of section 52 of CGST Act, 2017 in the same manner at present.
(2) No requirement of mandatory registration u/s 24
As ECOs are already registered in accordance with rule 8 (in Form GST-REG 01) of the CGST Rules, 2017
(as a supplier of their own goods or services), there would be no mandatory requirement of taking
separate registration by ECOs for payment of tax on restaurant service u/s 9(5) of the CGST Act, 2017.
(3) Whether there is any liability on supply of restaurant services by unregistered person through
ECO?
Yes. ECOs will be liable to pay GST on any restaurant service supplied through them including by an
unregistered person.

(4) What would be the aggregate turnover of person supplying ‘restaurant service’ through ECOs
It is clarified that the aggregate turnover of person supplying restaurant service through ECOs shall be
computed as defined in section 2(6) of the CGST Act, 2017 and shall include the aggregate value of
supplies made by the restaurant through ECOs. Accordingly, for threshold consideration or any other

CA NIKUNJ GOENKA 4.20

CHARGE OF GST
purpose in the Act, the person providing restaurant service through ECO shall account such services in
his aggregate turnover.

(5) Other clarifications

(a) ECOs are not the recipient of restaurant service supplied through them. Since these are not input
services to ECO, these are not to be reported as inward supply (liable to reverse charge)

(b) It is clarified that ECO shall not be required to reverse ITC on account of restaurant services on which
it pays GST in terms of section 9(5) of the Act

(c) It may also be noted that on restaurant service, ECO shall pay the entire GST liability in cash (No ITC
could be utilised for payment of GST on restaurant service supplied through ECO)

(d) Considering that liability to pay GST on supplies other than ‘restaurant service’ through the ECO,
and other compliances under the Act, including issuance of invoice to customer, continues to lie
with the respective suppliers (and ECOs being liable only to collect tax at source (TCS) on such
supplies), it is advisable that ECO raises separate bill on restaurant service in such cases where ECO
provides other supplies to a customer under the same order

(e) The invoice in respect of restaurant service supplied through ECO under section 9(5) will be issued
by ECO.

(f) ECO is required to pay GST on services notified under section 9(5), besides the services/other
supplies made on his own account. On any supply that is not notified under section 9(5), that is
supplied by a person through ECO, the liability to pay GST continues on such supplier and ECO shall
continue to pay TCS on such supplies.

Thus, present dispensation continues for ECO, on supplies other than restaurant services. On such
supplies (other than restaurant services made through ECO) GST will continue to be billed, collected and
deposited in the same manner as is being done at present. ECO will deposit TCS on such supplies.

CA NIKUNJ GOENKA 4.21

COMPOSITION SCHEME

CHAPTER 5
COMPOSITION
SCHEME

CA NIKUNJ GOENKA 5.1

 COMPOSITION SCHEME

CHAPTER OVERVIEW

S.L. NO TOPIC

1 BENEFITS OF COMPOSITION SCHEME

2 WHO CAN OPT FOR COMPOSITION SCHEME

3 HOW TO COMPUTE AGGREGATE TURNOVER

4 RATES OF TAX UNDER COMPOSITION SCHEME

5 WHO IS NOT ELIGIBLE FOR COMPOSITION SCHEME

TAXPAYERS PERMITTED TO RENDER SERVICES “OTHER
6
THAN RESTAURANT SERVICES” UPTO A SPECIFIED LIMIT
7 COMPOSITION SCHEME FOR SERVICE PROVIDERS

8 PROCEDURAL COMPLIANCES

9 CONDITIONS AND RESTRICTIONS

10 VALIDITY OF COMPOSITION SCHEME

11 SUMMARY OF RELEVANT FORMS

CA NIKUNJ GOENKA 5.2

COMPOSITION SCHEME

1. BENEFITS OF COMPOSITION SCHEME

a) Bring simplicity and to reduce the compliance cost for the small taxpayers.

b) Optional for the suppliers and not mandatory

c) Eligible person opting to pay tax under this scheme can pay tax at fixed % of his “turnover” every
“quarter”, instead of paying tax at normal rate [5/12/18/28%].

d) Suppliers need not worry about classification of their goods or services or both, applicable GST rates

e) Suppliers are not required to raise any tax invoice, but simply need to issue a BILL OF SUPPLY wherein
no tax will be charged from the recipient.

2. WHO CAN OPT FOR THE COMPOSITION SCHEME [SECTION 10(1)]

A registered person, whose “aggregate turnover” in the preceding FY does not exceed ₹ 1.5 cr., may opt
to pay an amount calculated at prescribed rates during the current FY, in lieu of the tax payable by him
under Section 9(1).
The turnover limit for composition levy shall be ₹ 75 lakhs for 8 Special Category States mentioned as
under:

Arunachal Pradesh Sikkim

Manipur Tripura
Meghalaya Uttarakhand
Mizoram
Nagaland

*In case of Assam, Himachal Pradesh and Jammu and Kashmir, the turnover limit will be ₹ 1.5 cr.

3. HOW TO COMPUTE AGGREGATE TURNOVER

While computing the threshold limit of ₹ 1.5 crore/75 lakhs, inclusions and exclusions from aggregate
turnover are as follows:

INCLUSIONS EXCLUSIONS
Value of outward supplies CGST/ SGST/ UTGST/ IGST/ CESS
Taxable Supplies Value of exempt supply of services
Exempt supplies provided by way of extending deposits,
Exports loans or advances in so far as the
Inter-state supplies consideration is represented by way of
interest or discount
of persons having the same PAN be computed on all Value of inward supplies on which tax is
India basis payable under reverse charge

CA NIKUNJ GOENKA 5.3

 COMPOSITION SCHEME
Example: A dealer ‘X’ has two offices in Delhi. In order to determine whether ‘X’ is eligible to avail benefit
of the composition scheme, turnover of both the offices would be taken into account and if the same
does not exceed ₹ 1 crore, X can opt to avail the composition levy scheme (subject to fulfilment of other
prescribed conditions)

*Note: The value of exports and inter-State supplies might be relevant only while determining the
aggregate turnover of the preceding FY. These values are not relevant for determining the aggregate
turnover of the current FY in which the composition supplier has opted for composition levy as he is not
permitted to make inter-State supplies and exports in the said FY.

4. RATES OF TAX UNDER COMPOSITION SCHEME

CGST
S No. Category of registered persons LEVY ON
RATE

1 Manufacturers, other than manufacturers of ice cream, pan

masala and tobacco 0.5 %
Turnover in
Suppliers making supplies referred to Para 6(b) of Schedule II [i.e.
State/UT
2
supply by way of or as part of any service or of goods, being food 2.5 %
or any other article for human consumption or any drink]
[Restaurant services]
Turnover of
taxable supplies of
3 Any other suppliers (example traders) 0.5%
goods & services
in State/UT

Points to be remembered:
a) The above rates are specified u/r 7 of the CGST Rules, 2017. An equivalent amount of SGST is also
payable.
b) For traders, exempted supplies would not be added in the turnover for the purpose of levy of tax.

c) “Aggregate turnover” of preceding FY is relevant for the purpose of determining eligibility to avail
composition scheme, the tax has to be paid @ rates on the ‘turnover’ (or ‘turnover of taxable
supplies’, as the case may be) in a particular tax period.

Examples:
1. Tax is not payable on exempted turnover by other suppliers
Taxpayer ‘Bholaram’ is a trader, who has opted for composition levy for goods, of both taxable and
exempted goods. It has one retail showroom – A1 in Punjab and another retail showroom – A2 in
Rajasthan, both selling taxable as well as exempted goods. Total turnover (including taxable and
exempted goods) of the two showrooms in last FY was ₹ 115 lakhs (₹ 85 lakh + ₹ 30 lakhs). Turnover of
showrooms A1 and A2 in the first quarter of current financial year is ₹ 35 lakhs [A1 - ₹ 15 lakhs (₹ 5 lakhs
from sale of taxable goods and ₹ 10 lakhs from sale of exempted goods) and A2 - ₹ 20 lakhs (₹ 10 lakhs

CA NIKUNJ GOENKA 5.4

COMPOSITION SCHEME
from sale of taxable goods and ₹ 10 lakhs from sale of exempted goods)]. Compute the amount payable
under composition levy under section 10(1) & 10(2) of the CGST Act, 2017 by ‘Bholaram’.

Retail Location Turnover in Taxable turnover in Total Tax

Showroom previous FY (₹) 1st Quarter (1%)
A1 Punjab 85 lakhs 5 lakhs 5,000
A2 Rajasthan 30 lakhs 10 lakhs 10,000
Total 115 lakhs 15 lakhs 15,000

Note: A supplier, other than manufacturer and restaurant service provider, has to pay tax @ 1% (CGST+
SGST) of the turnover of only taxable supplies of goods and services in the State.

2. Tax is payable on turnover in state by manufacturers

Taxpayer ‘Tolaram’ is a manufacturer who has opted for composition levy for goods, having one unit –
A1 in UP and another unit – A2 in MP. Total turnover of two units in last FY was ₹ 115 lakhs (₹ 85 lakhs +
₹ 30 lakhs). Turnover of units A1 and A2 in the first quarter of current financial year is ₹ 5 lakhs and ₹ 10
lakhs respectively. Compute the amount payable under composition levy under section 10(1) & 10(2) of
the CGST Act, 2017 by ‘Tolaram’.

Retail Location Turnover in Turnover in 1st Total Tax

Showroom previous FY (₹) Quarter of this FY (₹) (1%) (₹)
A1 UP 85 lakhs 5 lakhs 5,000
A2 MP 30 lakhs 10 lakhs 10,000
Total 115 lakhs 15 lakhs 15,000

5. WHO IS NOT ELIGIBLE FOR COMPOSITION SCHEME [Section 10(2)]

Following persons shall not be eligible for composition scheme.

(i) Making inter-State outward supplies of goods or services

(ii) Supplier of services other than supplier of restaurant services
(iii) Making any supply of goods or services through e-commerce operators who are required to
collect tax at source
(iv) Supplier of goods or services which are not taxable under the CGST Act/SGST Act/ UTGST Act.
(v) Manufacturer of ice-cream; pan masala; tobacco; aerated water; Fly ash bricks or fly ash
aggregate with 90% or fly ash content; Fly ash blocks; Bricks of fossil meals or similar siliceous
earths; Building Bricks; Earthen or roofing tiles

(vi) Casual Taxable Person or Non-resident Taxable Person

No restriction on Composition Supplier to procure goods from inter-State suppliers

CA NIKUNJ GOENKA 5.5

 COMPOSITION SCHEME

Example: ABC Industries, a manufacturer in Mumbai, is engaged in supply of goods in Mumbai as well as
Chennai (i.e. inter-State supply of goods). Here, ABC Industries cannot enter into the composition scheme
as it is effecting inter-State supply of goods i.e. Chennai.

Reverse charge provisions u/s 9(3) and 9(4) is applicable on persons opting for
composition scheme

6. Composition scheme taxpayers permitted to render services “other than

restaurant services” upto a specified limit [Second proviso to Section 10(1)]
A registered person opting for composition scheme to supply services [other than restaurant services] of
specified value. This specified value is value not exceeding:

a) 10% of the ‘turnover in a State/UT’ in the preceding financial year; or

b) ₹ 5,00,000
whichever is higher.

A registered person opting for composition scheme can supply services [other than restaurant services]
whose turnover is:

(a) Turnover upto ₹ 50 lakhs in the preceding financial year - upto a maximum value of ₹ 5 lakhs.

(b) Turnover more than ₹ 50 lakhs and upto ₹ 1.5 crore in the preceding financial year - maximum
value of 10% of the turnover in a State/UT in the preceding financial year.

Example: Ramsewak has opted for composition scheme in the current financial year. His aggregate
turnover in preceding FY is ₹ 60 lakhs. In current FY, he can supply services [other than restaurant
services] upto a value of not exceeding:

(a) 10% of ₹ 60 lakh, i.e. ₹ 6 lakh or

(b) ₹ 5 lakh,
whichever is higher. Thus, he can supply services upto a value of ₹ 6 lakh in current FY.

Explanation to second proviso [Finance Act 2019]

For the purpose of second proviso, the value of exempt supply of services by way of extending deposits,
loans or advances in so far as the consideration is represented by way of interest or discount, shall not
be taken into account in computing value of turnover in a state/UT.

CA NIKUNJ GOENKA 5.6

COMPOSITION SCHEME

7. New Composition scheme for mixed suppliers or supplier of services having

aggregate turnover in preceding year upto ₹ 50 lakhs [Section 10(2A)]
Essentially, the composition scheme u/s 10(2A) is for small service providers like salon stylist, tailors, etc.
This scheme provides an option to such suppliers to pay tax @ 6% of the turnover in the current financial
year upto an aggregate turnover of ₹ 50 lakhs.

Who are the persons not eligible for composition scheme, but eligible under Section 10(2A)
A registered person whose aggregate turnover in the preceding financial year does not exceed ₹ 50 lakhs
and:
(i) who is exclusively engaged in supplying services other than restaurant services, [Service providers]
or

(ii) who is engaged in supply of services [other than restaurant services] along with supply of goods and/
or restaurant services of value exceeding ₹ 5 lakh in current FY. [Mixed suppliers]

Specified Conditions: Supplies are made by a registered person, -

(i) whose aggregate turnover in the preceding financial year was ₹ 50 lakhs or below;
(ii) who is not eligible to pay tax under Section 10(1) of the said Act; [normal composition scheme]
(iii) who is not engaged in making any supply of goods or services which is not leviable to tax under
the said Act;
(iv) who is not engaged in making any inter-State outward supply of goods or services;
(v) who is neither a casual taxable person nor a non-resident taxable person;
(vi) who is not engaged in making any supply of goods or services through an electronic commerce
operator who is required to collect tax at source u/s 52; and
(vii) who is not engaged in manufacturing of prescribed goods and services- Ice cream and other edible
ice, whether or not containing cocoa, Pan masala, Tobacco and manufactured tobacco substitutes
and aerated water.

Key points to be remembered

(i) The registered person shall not collect any tax from the recipient on supplies made by him nor shall
he be entitled to any credit of input tax.
(ii) The registered person shall issue, instead of tax invoice, a bill of supply

(iii) The registered person opting to pay CGST @ 3% u/s 10(2A) shall be liable to pay CGST @ 3% on
turnover in state/UT.

(iv) The registered person opting to pay tax u/s 10(2A) shall be liable to pay CGST on inward supplies on
which he is liable to pay tax u/s 9(3) u/s 9(4) of said Act at the applicable rates. [Reverse charge]

(v) Where more than one registered persons are having the same PAN, CGST on supplies by all such
registered persons shall pay tax u/s 10(2A).

CA NIKUNJ GOENKA 5.7

 COMPOSITION SCHEME
(vi) Where any registered person who has availed of input tax credit opts to pay tax u/s 10(2A), he shall
pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent
to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or
finished goods held in stock and on capital goods as if the supply made u/s 10(2A) attracts the
provisions of section 18(4) of the said Act and the rules made there-under and after payment of
such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.;

Inclusions and exclusions in Turnover [Explanation 1 and 2 to Section 10]

(a) For the purposes of computing aggregate turnover of a person for determining eligibility to pay tax,
aggregate turnover, [Explanation 1 to Section 10]

(i) includes the supplies from 01/04/XXXX to the date from which he becomes liable for
registration under the said Act.

(ii) not include value of exempt supply of services provided by way of extending deposits, loans or
advances in so far as the consideration is represented by way of interest or discount.

(b) For the purpose of determination of tax payable, turnover in state/UT shall not include following
supplies: [Explanation 2 to Section 10]

(i) Supplies from 01/04/XXXX to the date from which he becomes liable for registration under the
Act.

(ii) Exempt supply of services provided by way of extending deposits, loans or advances in so far as
the consideration is represented by way of interest or discount.

Examples:
1. Taxpayer ‘Padmavati’ is a salon stylist, who has opted for composition levy for services, having one
branch – B1 in Vasant Kunj, Delhi and another branch – B2 in Gurgaon, Haryana. Total turnover of two
branches in last FY was ₹ 45 lakhs (₹ 25 lakh + ₹ 20 lakh). Turnover of branches B1 and B2 in the first
quarter of current financial year is ₹ 5 lakh and ₹ 10 lakh respectively. Compute the amount payable
under composition levy u/s 10(2A) of the CGST Act, 2017 by ‘Padmavati’.

Solution:

Branch Location Turnover in Turnover in 1st Total Tax

previous FY (₹) Quarter of this FY (₹) (6%) (₹)
B1 Delhi 25 lakhs 5 lakhs 30,000
B2 Haryana 20 lakhs 10 lakhs 60,000
Total 45 lakhs 15 lakhs 90,000

CA NIKUNJ GOENKA 5.8

COMPOSITION SCHEME
2. A photographer ‘Champak’ has commenced providing photography services in Delhi from April this
year. His turnover for various quarters till December is as follows:

April - June: ₹ 20 lakhs

July - Sept: ₹ 30 lakhs
Oct - Dec: ₹ 20 lakhs

Discuss whether he is eligible to opt for scheme u/s 10(2A)

Solution:

In the given case, since Champak has started the supply of services in the current financial year, his
aggregate turnover in the preceding FY is Nil. Consequently, in the current FY, he is eligible for
composition scheme for services. He becomes eligible for the registration when his aggregate turnover
exceeds ₹ 20 lakhs. While registering under GST, he opts for composition scheme for services.

For determining his turnover of the State for payment of tax under composition scheme for services,
turnover of April-June quarter [₹ 20 lakhs] shall be excluded as the value of supplies from 01/04 of a
financial year up to the date when such person becomes liable for registration under this Act are to be
excluded for this purpose.

On next ₹ 30 lakhs [turnover of July-Sept quarter], he shall pay tax @ 6% [3% CGST and 3% SGST], i.e.
CGST ₹ 90,000 and SGST ₹ 90,000.

By the end of July-Sept quarter, his aggregate turnover reaches ₹ 50 lakhs.

Consequently, his option to avail composition scheme for services shall lapse by the end of July-Sept
quarter and thereafter, he is required to pay tax at the normal rate of 18%. Thus, the tax payable for
Oct-Dec quarter is ₹ 20 lakhs × 18%, i.e. ₹ 3,60,000.

Effective date in case of denial of composition option by tax authorities

In case of denial of option to pay tax under composition levy by the tax authorities, it has been clarified
that the effective date of such denial shall be from a date, including any retrospective date, as may be
determined by tax authorities. However, such effective date shall not be prior to the date of
contravention of the provisions of the CGST Act/ CGST Rules [Circular No. 77/51/2018 GST dated
31.12.2018].

CA NIKUNJ GOENKA 5.9

 COMPOSITION SCHEME

8. PROCEDURAL REQUIREMENTS

INTIMATION OF OPTING FOR COMPOSITION LEVY [RULES 3 & 4]

Relevant Case Particulars

Persons granted a) Electronically file an intimation in FORM GST CMP-01 prior to the
registration on appointed day but not later than 30 days from the appointed day, or such
provisional basis u/r further period as may be extended by the Commissioner.
24(1)(b) Note: The registered person shall not collect any tax from the appointed
[Rule 3(1)] & Rule day but shall issue bill of supply for supplies made after the said day in
3(4)] case the intimation in FORM GST CMP-01 is filed after the appointed day.

b) Electronically furnish details of stock, including the inward supply of goods

received from unregistered persons held by him on the day preceding the
date from which he opts to pay tax in FORM GST CMP-03, within 90 days
from the date on which the option for composition levy is exercised or
within such further period as may be extended by the Commissioner in
this behalf.

c) Effective date of composition levy shall be effective from the “appointed

day”. [Rule 4(1)]

Persons applying for a) Any person who applies for registration u/r 8(1) may give an option to pay
fresh registration u/r tax under section 10 in Part B of FORM GST REG-01.
8(1) [Rule 3(2)]
b) It would be considered as deemed intimation for composition scheme.

c) Intimation shall be considered only after grant of registration to the

applicant.

d) Effective from the date fixed under Rule 10(2) / 10(3) (Refer Note 1
below)

Opting composition a) Any registered person who opts to pay tax under section 10 shall file
scheme before the electronically an intimation in FORM GST CMP-02, prior to
beginning of FY commencement of the FY for which said option is exercised.
[Rule 3(3)] b) A statement in FORM GST ITC-03 shall be furnished in accordance with
Rule 44(4) of CGST Rules, 2017 within 90 days from the commencement
of the relevant FY.

c) Effective date of composition levy shall be effective from “beginning of

the financial year”. [Rule 4(1)]

CA NIKUNJ GOENKA 5.10

COMPOSITION SCHEME
Note 1: Effective date for determining date of registration

Situation Effective Date

Person has applied for registration within 30 days from date of liability to Date of liability of
obtain registration [Rule 10(2)] registration

Person has applied for registration after 30 days from date of liability to Date of the grant of
obtain registration [Rule 10(3)] registration

Illustration 1

If a person is liable to be registered on 11th Oct 2017 and he has applied for registration on 17th Oct 2017,
what is the effective date of registration for composition levy.

Illustration 2

A person is liable to be registered on 1st Oct 2017 and he has applied for registration on 17th Nov 2017.
Registration granted on 20th Nov 2017. What is the effective date of registration if he wants to opt
composition levy.

Intimation filed in respect of any place of business in any State/UT shall be deemed to be
intimation for all other places of business registered on same PAN [Rule 3(5)]

CA NIKUNJ GOENKA 5.11

 COMPOSITION SCHEME

9. CONDITIONS & RESTRICTIONS FOR COMPOSITION LEVY [RULE 5]

Person opting for composition levy has to comply with the following conditions:

Goods held in stock have not been

He is neither a casual taxable person nor purchased from unregistered supplier
a non-resident taxable person and where purchased, he pays tax under
reverse charge u/s 9(4) (Refer Note)

CONDITIONS &
RESTRICTIONS
He was not engaged in manufacture of
He shall pay tax u/s 9(3)/9(4) (reverse
notified goods such as ice cream, pan
charge) on inward supply of goods or
masala and tobacco and related
services or both
subsitutes and aerated water

Note: This condition applies in case where a builder/promoter opting for composition scheme has the
stock of the goods on which he is required to pay GST on reverse charge basis u/s 9(4) in one or more of
the following cases:
(i) Builder/promoter must purchase at least 80% of inputs and input services used in supplying the
service, from registered persons. In case of shortfall, he’s required to pay tax under reverse charge on
all such inward supplies (to the extent short of 80% of the inward supplies from registered supplier).

(ii) Where cement is received from an unregistered person, promoter/builder has to pay tax on supply of
such cement under reverse charge and

(iii) GST on capital goods is payable by the promoter on reverse charge basis.

OTHER RESTRICTIONS
a) He shall mention words “composition taxable person, not eligible to collect tax on supplies” at the
top of the bill of supply issued by him; and

b) He shall mention the words “COMPOSITION TAXABLE PERSON” on every notice or signboard displayed
at a prominent place at his principal place of business and at every additional place or places of
business.

c) Where the option is exercised under rule 3(1), the goods held in stock by him on the appointed day
have not been purchased:
A. in inter-State trade or commerce or
B. imported from a place outside India or
C. received from his branch situated outside the State or
D. from his agent or principal outside the State.

CA NIKUNJ GOENKA 5.12

COMPOSITION SCHEME

No fresh intimation required ever year and registered person may continue to pay tax
under Composition scheme subject to conditions prescribed u/s 10

10. VALIDITY OF COMPOSITION LEVY [SECTION 10(3) R/W RULE 6]

(i) The option exercised by registered person to pay tax under composition levy shall remain valid so
long as he satisfies all the conditions mentioned in section and rules.
(ii) The option to pay tax under composition scheme lapses from day on which his aggregate turnover
during the FY exceeds specified limit (₹ 1 core/₹ 75 lakhs).

(iii) Such person is required to pay normal tax u/s 9(1) from the day he ceases to satisfy any of the
conditions prescribed for composition levy. He shall issue tax invoice for every taxable supply made
thereafter.
(iv) Further, he is required to file an intimation for withdrawal from the scheme in FORM GST CMP-04
within 7 days of the occurrence of such event. Such application form is also required to be filed by
registered person who intends to withdraw from composition scheme before withdrawal.
A statement in FORM GST ITC-01 containing details of the stock of inputs and inputs contained in
semi-finished or finished goods held in stock on date of withdrawal/denial of option to be furnished in
case of withdrawal from composition scheme within 30 days from the date from which option is
withdrawn or from date of order passed by proper officer in Form GST CMP-07. [Rule 6(6)]

(v) However, such person shall be allowed to avail input tax credit in respect of the stock of inputs and
inputs contained in semi- finished or finished goods held in stock by him and on capital goods held by
him on the date of withdrawal and furnish a statement, within 30 days of withdrawal of the option,
containing the details of such stock held in prescribed form on the common portal.

Example: A person availing composition scheme during a financial year crosses turnover of ₹ 75 lakhs on
9th December. The option availed shall lapse from the day on which his aggregate turnover during the
financial year exceeds ₹ 75 lakhs, i.e. on 9th December in this case.

OTHER IMPORTANT POINTS

1. Composition scheme to be adopted uniformly by all the registered persons having the same PAN
All registered persons having the same Permanent Account Number (PAN) have to opt for composition
scheme. If one such registered person opts for normal scheme, others become ineligible for
composition scheme.
Example: A dealer ‘X’ has two offices in Delhi and is eligible for composition levy. If ‘X’ opts for the
composition scheme, both the offices would pay taxes under composition scheme and abide by all the
conditions as may be prescribed for the composition scheme.

CA NIKUNJ GOENKA 5.13

 COMPOSITION SCHEME

2. Composition scheme supplier cannot collect tax [Section 10(4)]

Taxable person opting for the composition scheme shall not collect tax from the recipient on supplies
made by him. It implies that a composition scheme supplier cannot issue a tax invoice.

3. Composition scheme supplier cannot enter into credit chain [Section 10(4)]
Taxable person opting for the composition scheme is not entitled to any credit of input tax.

OTHER RELEVANT FORMS FILED UNDER COMPOSITION SCHEME

Issue of show cause Show cause notice in FORM GST CMP-05 issued by proper officer for denying
notice by proper composition option within 15 days of the receipt of such notice as to why the
officer option to pay tax under section 10 shall not be denied. [Rule 6(4)]

Acceptance or a) Reply to show cause notice in FORM GST CMP-06 by registered person.
rejection of reply b) Proper Officer shall issue an order in FORM GST CMP-07 within 30 days of
filed against show the receipt of reply either accepting the reply or denying the option to pay
cause notice tax under section 10 from the date of the option or from the date of the
event concerning such contravention [Rule 6(5)]

One intimation of withdrawal for any place of business in any State or Union territory shall be
deemed to be an intimation for all other places of business on the same PAN [Rule 6(7)]

11. SUMMARY OF RELEVANT FORMS UNDER COMPOSITION SCHEME

Forms Purpose Due date
GST CMP-01 To opt for scheme by provisional Prior to appointed date or within 30
registration holder days of the said date
GST CMP-02 Intimation of willingness to opt for scheme Prior to the commencement of
by registered person Financial Year
GST CMP-03 Details of stock and inward within 90 days of exercise of option
supplies from unregistered person
GST CMP-04 Intimation of withdrawal from scheme within 7 days of occurring of event
GST CMP-05 SCN on contravention of rules or Act, issued On contravention
by Proper Officer
GST CMP-06 Reply to show cause notice Within 15 days
GST CMP-07 Issue of order Within 30 days
GST CMP-08 Statement for payment of self-assessed tax Quarterly basis till 18 th of the month
succeeding the quarter

CA NIKUNJ GOENKA 5.14

COMPOSITION SCHEME

Imposition of penalty in case of irregular availment of composition scheme [Section 10(5) read
with rule 6(4) and 6(5)]

If a taxable person has paid tax under the composition scheme though he was not eligible for the
scheme, the person would be liable to penalty and the provisions of section 73 or 74 of the CGST Act
shall be applicable for determination of tax and penalty.
The proper officer may issue a show cause notice to such person in prescribed form where he has
reasons to believe that the registered person was not eligible to pay tax under composition levy or has
contravened provisions of the Act/provisions of this Chapter,

Upon receipt of the reply to such show cause notice from the registered person in prescribed form, the
proper officer shall issue an order in prescribed form within 30 days of the receipt of such reply, either
accepting the reply, or denying the option to pay tax under composition levy from the date of the
option or from the date of the event concerning such contravention, as the case may be.

CA NIKUNJ GOENKA 5.15