UNIT - 04

GOODS AND SERVICES TAX (GST)

Introduction, Important terms. Structure and classification of GST. Concept
of Input Tax Credit

INTRODUCTION

TAXATION: BACKGROUND
In any Welfare State, it is the prime responsibility of the Government to fulfill the increasing
developmental needs of the country and its people by way of public expenditure. India, being a
developing economy, has been striving to fulfill the obligations of a Welfare State with its
limited resources; the primary source of revenue being the levy of taxes. Though the collection
of tax is to augment as much revenue as possible to the Government to provide public services,
over the years it has been used as an instrument of fiscal policy to stimulate economic growth.
Thus, taxes are collected to fulfill the socio-economic objectives of the Government.

What is a tax?
A tax may be defined as a "pecuniary burden laid upon individuals or property owners to
support the Government; a payment exacted by legislative authority. A tax "is not a voluntary
payment or donation, but an enforced contribution, exacted pursuant to legislative authority".
In simple words, tax is nothing but money that people have to pay to the Government, which is
used to provide public services.

DIRECT AND INDIRECT TAXES

Taxes are broadly classified into direct and indirect taxes.
Direct Taxes: A direct tax is a kind of charge, which is imposed directly on the taxpayer and
paid directly to the Government by the persons (juristic or natural) on whom it is imposed. A
direct tax is one that cannot be shifted by the taxpayer to someone else. A significant direct tax
imposed in India is income tax.
Indirect Taxes: If the taxpayer is just a conduit and at every stage the tax incidence is passed
on till it finally reaches the consumer, who really bears the brunt of it, such tax is indirect tax.
An indirect tax is one that can be shifted by the taxpayer to someone else.
Its incidence is borne by the consumers who ultimately consume the product or the service,
while the immediate liability to pay the tax may fall upon another person such as a manufacturer
or provider of service or seller of goods.
Also called consumption taxes, they are regressive in nature because they are not based on the
principle of ability to pay. All the consumers, including the economically challenged bear the
brunt of the indirect taxes equally.
Indirect taxes are levied on consumption, expenditure, privilege, or right but not on income or
property. Hitherto, a few indirect taxes were levied in India, namely, excise duty, customs duty,
Goods and Service Tax.

However, indirect taxation in India has witnessed a paradigm shift on July 01, 2017 with
converting all indirect txes into a unified indirect tax regime wherein a large number of Central
and State indirect taxes have been amalgamated into a single tax – Goods and Services Tax
(GST). The introduction of GST is a very significant step in the field of indirect tax reforms in
India. Customs duty will continue in post- GST regime.
Economists’ world over agree that direct and indirect taxes are complementary and therefore, a
rational tax structure should incorporate in itself both types of taxes.
INDIRECT TAX:
Indirect tax is defined as the tax imposed by the government on a taxpayer for goods and
services rendered. Unlike direct taxes, indirect tax is not levied on the income, revenue or profit
of the taxpayer and can be passed on from one individual to another.GST is one indirect tax for
the whole nation, which will make India one unified common market. GST is a single tax on
the supply of goods and services, right from the manufacturer to the consumer. Credits of input
taxes paid at each stage will be available in the subsequent stage of value addition, which
makes GST essentially a tax only on value addition at each stage. The final consumer will thus
bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the
previous stages.
Custom Duty is to be paid by an importer or exporter for the goods imported or exported out of
India. Excise Duty is levied on goods which are manufactured in India. Till 30 June 2017, most
of the goods came under its net. Later, GST was introduced which subsumed Excise duty. But
there are some goods that still fall under the excise laws such as tobacco products, aviation
turbine fuel, natural gas, high-speed diesel and petroleum crude. Goods and Services Tax
(GST) refers to the tax on supply of goods or services that must be paid by individuals or
businesses who have a turnover more than the prescribed limit

FEATURES OF INDIRECT TAXES

(i) 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.
(ii) 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.
(iii) 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.
(iv) No perception of direct pinch: Since, value of indirect taxes is generally inbuilt in
the price of the 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.
(v) 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.
(vi) 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.
CONCEPT OF GST

Before we proceed with the finer nuances of Indian GST, let us first understand the basic
concept of GST.
• GST is a value added tax levied on manufacture, sale and consumption of
goods and services.
• GST offers comprehensive
and continuous chain of tax credits from the
producer's point/service provider's point up to the
retailer's level/consumer‘s level thereby taxing
only the value added at each stage of supply
chain.
• The supplier at each stage is
permitted to avail credit of GST paid on the
purchase of goods and/or services and can set off
this credit against the GST payable on the supply
of goods and services to be made by him. Thus, only the final consumer bears the GST
charged bythe last supplier in the supply chain, with set-off benefits at all the previous stages.
• 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 FOR GST IN INDIA

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.
• The earlier indirect tax framework in
India suffered from various shortcomings. Under
the earlier indirect tax structure, the various indirect
taxes being levied were not necessarily mutually
exclusive.
To illustrate, when the goods were manufactured
and sold, both central excise duty (CENVAT) and State-Level VAT were levied. Though
CENVAT and State-Level VAT were essentially value added taxes, set off of one against the
credit of another was not possible as CENVAT was a central levy and State Level VAT was a
State levy.
• Moreover, CENVAT was applicable only at manufacturing level and not at
distribution levels. The erstwhile sales tax regime in India was a combination of origin based
(Central Sales Tax) and destination based multipoint system of taxation (State-Level VAT).
Service tax was also a value added tax and credit across the service tax and the central excise
duty was integrated at the central level.
• Despite the introduction of the principle of taxation of value added in India - at
the Central level in the form of CENVAT and at the State level in the form of State VAT - its
application remained piecemeal and fragmented on account of the following reasons:
Cascading effects of CENVAT and service tax are removed and a continuous chain of set-off
from the original producer‘s point/ service provider‘s point up to the retailer‘s level/
consumer‘s level is established.
In the GST regime, the major indirect taxes have been subsumed in the ambit of GST. The
erstwhile concepts of manufacture or sale of goods or rendering of services are no longer
applicable since the tax is now levied on ―Supply of Goods and/or services‖.

EVOLUTION OF GST IN INDIA

• In 2000, the Vajpayee Government started discussion on GST by setting up an

Empowered Committee, headed by Asim Dasgupta (West Bengal Finance Minister) to design
the GST model. Thereafter, the Task Force on Implementation of the Fiscal Responsibility and
Budget Management Act.
• 2003 (Chairman: Vijay Kelkar) recommended the removal of all inefficient and
distortionary taxes so that India obtains the efficiencies of a single national tax, and suggested a
comprehensive GST based on VAT principle.
• The idea of moving towards a GST was proposed in 2005 by the then Union Finance
Minister, P. Chidambaram in his budget speech for the year 2005-06 where he observed that the
entire production-distribution chain should be covered by a goods and services tax that
encompasses both the Centre and the States. He reiterated his idea in 2006-07 budget speech
and proposed April 1, 2010, as the date for introducing GST. Towards this objective, an
Empowered Committee (EC) of State Finance Ministers was to work with the Central
Government to prepare a roadmap for introduction of GST.
• The final version of the report of EC was presented in the form of ‘A Model and
Roadmap for Goods and Services Tax in India’ on April 30, 2008.
• After receiving comments on the report from Government of India and concerned
officials of the State Governments and taking into account their recommendations, the EC
released the First Discussion paper on Goods and Services Tax in India on November 10, 2009
to obtain the inputs of industry, trade bodies, and people at large.
• On 22nd March 2011, the Constitution (115th Amendment) Bill was introduced in the
Lok Sabha to operationalize the GST and enable Centre and States to make laws for levying of
GST. However, the Bill lapsed with the dissolution of the 15th Lok Sabha.
• Thereafter, on 19th December 2014 the Constitution (122nd Amendment) Bill, 2014 was
introduced in the Lok Sabha to address various issues related to GST. It is noteworthy that the
introduction of GST required a Constitutional amendment as the Constitution did not vest
express power either in the Central Government or State Government to levy tax on the ‘supply
of goods and services.
• While the Centre was empowered to tax services and goods up to the production stage,
the States had the power to tax sale of goods. Since the GST regime requires goods and
services to be simultaneously taxed by both the Central and State Governments, a
Constitutional amendment was needed.
• The Constitution (122nd Amendment) Bill, 2014 was passed by the Lok Sabha on 6th
May, 2015 after which the Rajya Sabha passed the Bill with 9 amendments on 3rd August,
2016. The Lok Sabha then passed the modified Bill on 8th August 2016.
• After getting approval of half of the States, it was sent to the President for his assent
which was given on 8th September 2016. Thus, the road to GST rollout was cleared and the
process of enactment was completed.

SALIENT FEATURES OF GST IN INDIA

The salient features of GST in India have been highlighted below:
• Supply as the base: GST would be applicable on “supply” of goods or services as
against the erstwhile concept of tax on the manufacture of goods or on sale of goods or on
provision of services.
• Destination-based tax: As opposed to the previous principle of origin-based taxation,
GST would be based on the principle of destination-based consumption taxation.
• Dual GST: The Centre and the States would simultaneously levy tax on a common base.
The GST to be levied by the Centre would be
called Central GST (CGST) and the GST to be
levied by the States (including Union territories
with legislature) would be called State GST
(SGST). Union territories without legislature
would levy Union territory GST (UTGST).
• Inter-State supply: An integrated GST
(IGST) would be levied on inter-State supply of
goods or services. This would be collected by the
Centre so that the credit chain is not disrupted.
Imports of goods and services would be treated as inter-State supplies and would be subject to
IGST. (This would be in addition to applicable customs duties).
• Central taxes subsumed: GST would subsume the following taxes that were levied and
collected by the Centre: Central excise duty; Additional duties of excise; Additional duties of
customs (commonly known as countervailing duty); special additional duty of customs (SAD);
service tax; and cesses and surcharges insofar as they relate to supply of goods or services.
• State taxes subsumed: GST would subsume the following taxes that were levied and
collected by the State: State VAT; Central Sales Tax; purchase tax; luxury tax; entry tax;
entertainment tax (except those levied by the local bodies); taxes on advertisements; taxes on
lotteries, betting and gambling; and State cesses and surcharges insofar as they relate to supply
of goods or services.
• Applicability: GST would apply to all goods and services except alcohol for human
consumption. GST on five specified petroleum products (crude, petrol, diesel, aviation turbine
fuel, natural gas) would be applicable from a date to be recommended by the GST Council.
• Threshold for GST: A common threshold exemption would apply to both CGST and
SGST. Taxpayers with an annual turnover of ` 20 lakh (` 10 lakh for special category States
(except J&K) as specified in article 279A of the Constitution) would be exempt from GST. A
compounding option (i.e. to pay tax at a flat rate without credits) would be available to small
taxpayers (including to manufacturers other than specified category of manufacturers and
service providers) having an annual turnover of up to ` 1 crore (` 75 lakh for special category
States (except J&K and Uttarakhand) enumerated in article 279A of the Constitution). The
threshold exemption and compounding scheme is optional.
• Exports: All exports and supplies to Special Economic Zones (SEZs) and SEZ units
would be zero-rated. 10. Input tax credit: Credit of CGST paid on inputs may be used only for
paying CGST on the output and the credit of SGST/UTGST paid on inputs may be used only
for paying SGST/ UTGST. In other words, the two streams of input tax credit (ITC) cannot be
cross utilized, except in specified circumstances of inter-State supplies for payment of IGST.
(For details, see the Chapter on Input Tax Credit).
• Electronic filing of returns: There will be electronic filing of returns by different class
of persons at different cut-off dates. Various modes of payment of tax available to the taxpayer
including internet banking, debit/credit card and National Electronic Funds Transfer
(NEFT)/Real Time Gross Settlement (RTGS).
• Tax deduction on payment made: While the provision for TDS has not been notified
yet, it is obligatory on certain persons including government departments, local authorities and
government agencies, who are recipients of supply, to deduct tax at the rate of 1% from the
payment made or credited to the supplier where total value of supply, under a contract, exceeds
` 2,50,000.
• Tax collection at source by E-commerce operators: While the provision for TCS has
not been notified yet, it is obligatory for electronic commerce operators to collect ‘tax at
source’, at such rate not exceeding 2% of net value of taxable supplies, out of payments to
suppliers supplying goods or services through their portals.
• Refund: Refund of tax can be sought by taxpayer or by any other person who has borne
the incidence of tax within two years from the relevant date. Refund is to be granted within 60
days from the date of receipt of complete application and interest is payable if refund is not
sanctioned within 60 days.
• Anti-profiteering clause: An anti-profiteering clause has been provided in order to
ensure that d tax incidence on goods or services or both to the consumers.
ADVANTAGES/BENEFITS OF GST:

Common Advantages:
GST is a win-win situation for the entire country. It brings benefits to all the
stakeholders of industry, Government and the consumer. It will lower the cost of goods and
services, give a boost to the economy and make the products and services globally competitive.

The significant benefits of GST are discussed hereunder:

• Creation of unified national market: GST aims to make India a common market
with common tax rates and procedures and remove the economic barriers thus paving the way
for an integrated economy at the national level.
• Mitigation of ill effects of cascading: By subsuming most of the Central and State
taxes into a single tax and by allowing a set-off of prior-stage taxes for the transactions across
the entire value chain, it would mitigate the ill effects of cascading, improve competitiveness
and improve liquidity of the businesses.
• 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 which is
leviable uniformly on goods and services. This will make doing business easier and will also
tackle the highly disputed issues relating to double taxation of a transaction as both goods and
services.
• Boost to Make in India' initiative: GST will give a 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.
• Buoyancy to the Government Revenue: GST is expected to bring buoyancy to the
Government Revenue by widening the tax base and improving the taxpayer compliance.
Advantages to Consumers:
1. Decrease in the price of Goods & Services: Since GST is charged at all levels of the supply
chain, a considerable difference can be found in the prices of the products. While consumers
would have to pay separate taxes before, they now have to pay just one tax without having to
worry about others taxes. A customer will be able to avail the benefits of GST cost that will be
lesser than VAT or service taxes. Food items that fall under the range 0-5% GST will be
extremely beneficial for the customers since they are cheaper to buy.
Packaged products like shampoos, tissue papers, toothpaste, soaps, electronic items have
become cheaper.
2. Same price around the country : One of the major advantages of GST is the fact that a
consumer will be able to avail the product at the same price anywhere in the country. However,
the products that fall under the GST tax-slab come under this advantage.
3. Simplified tax system : The entry of GST into the economy has made the tracking of taxes
easier than ever before.
Since GST works on a computerized system, consumers can be fully aware of the amount they
are paying in taxes for the goods and services.

Benefits of GST to Traders:

1. Transparency: Traders could be wholesalers, retailers, importers and exporters, etc. One
of the major advantages is the transparency that comes with GST. It makes the business
transaction easy for traders as they have to pay GST for everything, they purchase along the
supply chain.
2. Easy borrowing: Digitalization has brought about immense ease in transactions to
society and has made life much easier for both consumers and traders. GST brought the
recording of every financial transaction on its system which makes it easier for small and large
businesses to maintain their transactions’ record. Maintaining this record makes it much easier
to take loans from banks or other businesses since the system has the history of the assets and
the repayment ability of the trader.
3. Easy entry into the market: This is another major advantage for any business under the
GST tax regime. With the clarity in market processes, a better flow of action between the
various traders can be maintained. This makes the entry of any trader into the market easier as
compared to previous times.

Benefits to Government
1.Foreign Investments: Goods and Service Tax was (GST) was launched with a motto of
‘One Tax one Nation’. Common accountable markets help promote Indian products in foreign
markets.
2.Boost in export and import duty: Attracting foreign investment will not only help Indian
products and services reach global platform, but also give a boost to export and import industry.
This also would help create employment.
Other Advantages of GST
• GST eliminates the cascading effect of tax
• Higher threshold for registration
• Composition scheme for small businesses
• Simple and easy online procedure
• The number of compliances is lesser
• Defined treatment for E-commerce operators
• Improved efficiency of logistics
• Unorganized sector is regulated under GST

DISADVANTAGES/LIMITATIONS/DEMERITS OF GST
To holistically comprehend the GST advantages and disadvantages in India, we must also
check out the challenges in the new system.
• Increased Costs: To comply with the GST-suggested accounting practices, businesses
need to upgrade their software. The specialised GST-compliant software comes with additional
costs of purchasing, installation, training, and maintenance. All of this has increased the overall
operational expenses of businesses.
• Higher Tax Liability of SMEs: Before GST, small and medium enterprises (SMEs)
with a turnover in excess of ₹1.5 Cr were liable to pay excise duty. However, under GST, any
business with a turnover of more than ₹20 L has to pay taxes. Although, for businesses with an
annual turnover of less than ₹1 Cr, a composition scheme exists that allows them to reduce their
burden, its caveats and conditions require an in-depth cost-benefit analysis.
• Penalties and Fines: Most SMEs usually lack the resources and infrastructure to comply
with the new tax system. Then, there is the complication of grasping the GST-related nuances.
If not fully onboard with the new process, companies can face fines and penalties adding to
their operational costs.
• Impact on Unorganised Sector: While the unorganised sector such as construction and
textile has come under the ambit of GST, the businesses operating within it are still struggling
to become GST-compliant in their infrastructure.
• An Increase in Operational Costs: As we have already established that GST is
changing the way how tax is paid, businesses will now have to employ tax professionals to be
GST-complaint. This will gradually increase costs for small businesses as they will have to bear
the additional cost of hiring experts. Also, businesses will need to train their employees in GST
compliance, further increasing their overhead expenses.
• Compliance Burden: GST compliance is quite high due to the filing of 3 tax returns
every single month. Besides, now it is mandatory for the companies to register for the GST in
all states wherever they perform business. The whole procedure of registering with the
regulatory body, producing GST-compliant invoices, maintaining digital records, and filing
returns have put a huge stress burden on SMEs and others.
• Adapting Online Taxation System: Unlike earlier, businesses are now switching from
pen and paper invoicing and filing to online return filing and making payments. This might be
tough for some smaller businesses to adapt to. Cloud-based GST billing software is definitely
an answer to this problem. Business owners need to only upload their invoices, and the
software will populate the return forms automatically with the information from the invoices.
• Multiple Registrations: For organisations with branches in more than one state in India,
it is extremely tedious to comply with the GST rules. There is no single compliance with the
same, contrary to popular opinion. They will have to register with each state and obey
compliance procedures
• Various GST Types: The concept of one country, one tax affects the compliance system
of GST which includes CGST, SGST, and IGST.
• Complexities for the Businesses: The GST Act has provided the power of companies to
central and state governments. Thus, connecting the bylaws. This has increased the uncertainty
for many entrepreneurs around the country.
• Other Teething Issues: GST was hurriedly implemented in 2017. Since the financial
year was already underway, many companies found it challenging to comprehend the new
requirements and adopt the system. However, this has become more congenial in the last six
years.
• Other Issues: Multiple Tax Rate, Requirement of skilled man power and Knowledge of
internet & English is required

LEVY AND COLLECTION OF GST:

GST shall be levied a tax called the central goods and services tax on all intra-State and Inter-
State supplies of goods or services or both, except on the supply of alcoholic liquor for human
consumption, on the value determined under section 15 and at such rates, not exceeding twenty
per cent., as may be notified by the Government on the recommendations of the Council and
collected in such manner as may be prescribed and
shall be paid by the taxable person.
The GST on the supply of petroleum crude, high
speed diesel, motor spirit (commonly known as
petrol), natural gas and aviation turbine fuel shall be
levied with effect from such date as may be notified
by the Government on the recommendations of the
Council.
Thus, taxes deferred to be included into GST
(a) Petroleum crude;
(b) High speed diesel;
(c) Motor spirit (commonly known as petrol);
(d) Natural gas.
 (e) Aviation turbine fuel.
(f) Alcoholic Liquor for Human Consumption
(g) Taxes on entertainment which were earlier collected by the State shall after GST be
collected by local authorities like Panchayat or a Municipality or a Regional Council or a
District Council.

FRAMEWORK OF GST AS INTRODUCED IN INDIA

i.Dual GST: India has adopted a dual GST which is imposed concurrently by the Centre and
States, i.e. Centre and States simultaneously tax goods and services. Centre has the power to
tax intra-State sales &States are empowered to tax services. GST extends to whole of India
including the State of Jammu and Kashmir.
ii.Structure of GST: GST is a destination based tax applicable on all transactions involving
supply of goods and services for a consideration subject to exceptions thereof. GST in India
comprises of Central Goods and Service Tax (CGST) - levied and collected by Central
Government, State Goods and Service Tax (SGST) - levied and collected by State
Governments/Union Territories with State Legislatures and Union Territory Goods and Service
Tax (UTGST) - levied and collected by Union Territories without State Legislatures, on intra-
State supplies of taxable goods and/or services. Inter-State supplies of taxable goods and/or
services are subject to Integrated Goods and Service Tax (IGST). IGST is approximately the
sum total of CGST and SGST/UTGST and is levied by Centre on all inter-State supplies.
iii.Legislative Framework: There is single legislation – CGST Act, 2017 – for levying GST.
Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli, Daman and Diu and
Chandigarh] are governed by UTGST Act, 2017 for levying UTGST. States and Union
territories with their own legislatures [Delhi and Puducherry] have their own GST legislation
for levying SGST. Though there are multiple SGST legislations, the basic features of law, such
as chargeability, definition of taxable event and taxable person, classification and valuation of
goods and services, procedure for collection and levy of tax and the like are uniform in all the
SGST legislations, as far as feasible. This is necessary to preserve the essence of dual GST.
iv.Classification of Goods and Services: HSN (Harmonised System of Nomenclature)
code is used f or 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.
v.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 ` 40 lakh
during a FY. However, the limit of `40 lakh will be reduced to `20 lakh if the person is
carrying out business in the Special Category States – [10 Special Category States are specified
in Article 279A(4)(g) of the Constitution] - States of Arunachal Pradesh, Telangana,
 Puducherry, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand.
vi.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. However, 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.
vii.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.
viii.Manner of utilization of ITC: Input Tax Credit (ITC) of CGST and SGST/UTGST is
available throughout the supply chain, but cross utilization of credit of CGST and
SGST/UTGST is not possible, i.e. CGST credit cannot be utilized for payment of
SGST/UTGST and SGST/UTGST credit cannot be utilized for payment of CGST. However,
cross utilization is allowed between CGST/SGST/UTGST and IGST, i.e. credit of IGST can be
utilized for the payment of CGST/SGST/UTGST and vice versa.
ix.Seamless Flow of Credits: Since GST is a destination based consumption tax, revenue of
SGST ordinarily accrues to the consuming States. The inter-State supplier in the exporting State
is allowed to set off the 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 the importing State
is allowed to avail the credit of IGST paid on inter-State purchase made by him. Thus, unlike
the earlier scenario where the credit chain used to break in case of inter- State sales on account
of non-VAT table CST, 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 the exporting State and
the exporting State transfers to the Centre the credit of SGST/UTGST used in payment of
IGST.
The Centre transfers to the importing State the 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. A Common Portal was needed which
could act as a clearing house and verify the claims and inform the respective Governments to
transfer the funds. This was possible only with the help of a strong IT Infrastructure.
x.GST Common Portal/GST Network: GSTN is Goods and Service Tax Network. It is a non-
profit and non-government organization which is setup to manage the entire I-T system of the
GST portal, which is the mother database for GST. The government will use this portal to track
every financial transaction and will provide taxpayers with all services – from maintaining all
tax details to registration for the filing of taxes.

Resultantly, Common GST Electronic Portal – www.gst.gov.in– a website managed by Goods

and Services Network (GSTN) [a company incorporated under the provisions of section 8 of
the Companies Act, 2013] has been set by the Government to establish a uniform interface for
the tax payer and a common and shared IT infrastructure between the Centre and States.
The GST portal is accessible over the Internet (by taxpayers and their CAs/Tax Advocates etc.)
and Intranet by Tax Officials etc. The portal is one single common portal for all GST related
services. A common GST system provides linkage to all State/ UT Commercial Tax
Departments, Central Tax authorities, Taxpayers, Banks and other stakeholders. The eco-
system consists of all stakeholders starting from taxpayer to tax professional to tax officials to
GST portal to Banks to accounting authorities. Primarily, GSTN provides three front end
services to the taxpayers namely registration, payment and return through GST Common Portal.

The functions of the GSTN are as follows

• Facilitating registration.
• Forwarding the returns to central and state authorities; computation and
settlement of IGST.
• Matching of tax payment details with banking network.
• Providing various mis reports to the central and the state
governments based on thetaxpayer return information.
• Providing analysis of taxpayers' profile; and running the matching
engine for matching, reversal and reclaim of input tax credit.

TAXES MERGED IN GST

CENTRAL & STATE TAXES MERGED IN GST:

Change the introduction as “Goods and Services Tax (GST), is an Indirect tax that has replaced
various indirect taxes levied at both Central and State level and has unified them all under one
national market across India. It is a comprehensive, multi-stage, destination-based tax that is
levied on every value addition. It is indirectly levied on the supply of goods and services.
Under the GST regime, the tax is levied at every point of sale. In the case of intra-state sales,
Central GST and State GST are charged. Inter-state sales are chargeable to Integrated GST. The
most important feature of GST is that it removes the cascading effect on the sale of goods and
services. However, GST in a federal structure like India is very complex and faces numerous
challenges in its proper implementation. We, at Khurana & Khurana, provide consulting &
assistance in the proper implementation of GST.
We also provide a review of the GST implementation done by a company.
• Central (Duties and Taxes) Merged under GST:
• Central Excise Duty (including Additional Excise Duty) – Central Excise is a duty
imposed on the manufacturing of goods in India and the collection of this duty is done by the
Central Board of Excise and Customs.
• Service Tax – Service Tax is a tax that is levied by the government on the services
provided and it is borne by the customers. It is an indirect tax, wherein the service provider
collects the tax from the service receiver and pays to the Government.
• Additional Customs Duty – It is a duty equivalent to Central Excise Duty which is
imposed on manufacturing. It is calculated on the value base of goods including landing
charges and basic customs duty (excluding anti-dumping duty, safeguarding duty, etc).
• Special Additional Duty of Customs – It is payable at 4% on the goods imported and this
is instead of VAT/ Sales Tax.
• Central Surcharges and Cess – Surcharge is a charge on tax and as the name suggests, it
is an additional charge, and it is basically on personal income tax (on high-income slabs) and
on corporate income tax. Cess is imposed by the central government and is levied for a specific
purpose.

State (Duties and Taxes) Merged under GST:

• Value Added Tax (VAT) – VAT is an indirect tax on the goods and services that are
provided at the state or domestic level. It is imposed at each stage in the chain of distribution
and production from the raw materials till the valuation of the product and it is borne by the
end-users (customers) in the Distribution channel.
• Central Sales Tax – CST, is levied on sales, which is affected by inter-state trade. CST is
an indirect tax on consumers. As it is centrally levy, so it is administered by the concerned state
where the sales originated. Octroi & Entry Tax – Octroi is a tax which is charged by local
authority say, Municipality and Entry Tax is charged by State.
• Purchase Tax – Purchase tax is a tax that is imposed on the purchase of goods by the state
government, and it is applied to a wide range of goods.
• Luxury Tax – A Luxury Tax is levied on articles that are either expensive or optional
• Taxes on lottery, betting and gambling – Tax which is imposed on Lottery winnings,
Gambling and Betting calculated as Tax Deduction at Source and it is deducted from Income
• Entertainment Tax – Entertainment Tax is a tax levied by the government on things
related to entertainment like movie tickets, commercial shows, matches etc.

IMPORTANT TERMS & DEFINITIONS

1. GOODS:
“Goods’’ means every kind of movable property other than money and securities but includes
actionable claims, 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.
The above is summarized as under:
Goods include:
• Every kind of movable property
• Actionable claims
• 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.
• A goods does not include:
• Money and
• Securities

• Meaning of actionable claims: Section 2(1) of GST Act states that actionable claims shall
have the meaning assigned to it in section 3 of Transfer of Property Act, 1882. As per section 3
of above act, actionable claims means a claims to any debt, other than a debt secured by
mortgage of immovable property

• Whether actionable claims liable to GST? As per section 2(52) of the CGST/SGST Act
actionable claims are to be considered as goods. Schedule III read with Section 7 of the
CGST/SGST Act lists the activities or transactions which shall be treated neither as supply of
goods nor supply of services. The Schedule lists actionable claims other than lottery, betting
and gambling as one of such transactions. Thus, only lottery, betting and gambling shall be
treated as supplies under the GST regime. All the other actionable claims shall not be supplies
and therefore GST is not applicable on it.

2. SERVICES:

• Section 2(102) of the Central Goods & Service Tax Act, 2017 (‘CGST Act’) defines
“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.
Analysis:
For the sake of better understanding, the above definition is simplified as under;
services means ‘anything’ other than
o goods,
o money and
o securities,
o a transfer of title in goods or immovable property, by way of sale ,gift or in any other
manner,
o a transaction in money or auction able claim.
o a provision of service by employee to employer in course of or in relation to his
employment.
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.
When it is said ‘anything’ other than goods is service, it is important to know what is the
meaning of ‘anything’?
One may fairly conclude that though the definition of service states ‘anything’ other than
goods, for the purpose of GST legislation, the contextual meaning of the term ‘anything’ is to
be taken.
The meaning of service is to be decided from the recipient point of view and not supplier’s
point of view. The intent or willingness of the recipient to receive the service is important. If
something is forced upon the recipient, the same may not be a service.

3. TAXABLE PERSON:
A ‘taxable person’ under GST, is a person who carries on any business at any place in India and
who is registered or required to be registered under the GST Act. Any person who engages in
economic activity including trade and commerce is treated as taxable person.
‘Person’ here includes individuals, HUF, company, firm, LLP, an AOP/ BOI, any corporation
or Government company, body corporate incorporated under laws of foreign country, co-
operative society, local authority, government, trust, artificial juridical person.

4. REGISTERED PERSON:
A person who is registered under section 25 but does not include a person having a Unique
Identity Number. Every person whose aggregate turnover of goods and services is more than
the prescribed limit of aggregate need to be registered under GST act.Apart from that some
other persons to be registered under sect 24 not considering the amount of turnover e.g.inter
state supplier, e-commerce operator, casual person, non-resident person. (Unique Identification
Number, UIN, is a special class of GST registration for foreign diplomatic missions and
embassies which are not liable to taxes in the Indian territory. Any amount of tax (direct or
indirect) collected from such bodies is refunded back to them.)

Who is Liable to get Registered under GST?

Any business whose turnover in a financial year exceeds Rs 40 lakhs (Rs 20 lakhs for North
Eastern and hill states). Note: If your turnover is supply of only exempted goods/services
which are exempt under GST, this clause does not apply.
• Every person who is registered under an earlier law (i.e., Excise, VAT, Service Tax
etc.) needs to register under GST, too.
• When a business which is registered has been transferred to someone/demerged, the
transferee shall take registration with effect from the date of transfer.
• Anyone who drives inter-state supply of good
• Casual taxable person Non-Resident taxable person
• Agents of a supplier
• E-commerce operator

5. PRINCIPAL: Principal means a person on whose behalf an agent carries on the business
of supply or receipt of goods or services or both (a commercial agent, who in the ordinary
course of his business has authority to sell goods, to consign goods for sale, to buy goods or to
raise money on the security of goods on behalf of his principal.) ,by whatever name called ,who
carries on the business of supply or receipt of goods or services or both on behalf of another.
6. AGENT: Agent means a person ,including a factor (component),broker ,commission
agent, arhatia, del-credere agent (A del credere agency is a type of principal-agent relationship
wherein the agent acts not only as a salesperson, or broker, for the principal, but also as a
guarantor of credit extended to the buyer.),an auctioneer or any other mercantile agent
7. CASUAL TAXABLE PERSON: Casual taxable person” means 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. A casual taxable person (other than
those making supply of specified handicraft goods) making taxable supply in India has to
compulsorily take registration. There is no threshold limit for registration.
8. SUPPLY: What is supply under GST?
Supply includes sale, transfer, exchange, barter, license, rental, lease and disposal. If a person
undertakes either of these transactions during the course or furtherance of business for
consideration, it will be covered under the meaning of Supply under GST.
Supply has two important elements: Supply is done for a consideration
Supply is done in course of furtherance of business, If the aforementioned elements are not met
with, it is not considered as a sale.
9. SUPPLIER: Under GST, a supplier shall refer to as someone who supplies any goods or
services. A supplier also includes an agent acting on behalf of a supplier for the supply of
goods or services.
10. Location of Supplier Location of supplier is usually where a supply is made from, a
place mentioned as a principal place of business on the GST registration certificate. In case the
supplier distributes the supply apart from the places as mentioned on the GST registration
certificate, the supplier can use the location of a place mentioned on the GST registration
certificate. If the supplier makes the supply from more than one location, the supplier can treat
the location of the supplier which directly reflects the concerned supply. If the supplier is
unable to determine the place of supply, the concerned individual shall use the usual place of
residence of the supplier as the location of the supplier on the GST invoice.
11. RECIPIENT: Recipient of the supply of goods or services is someone who is liable for
payment of consideration for the supply of goods or services. If no consideration is payable, the
person to whom the goods are delivered or made available, or uses the goods or services shall
apply as the recipient. The word recipient shall also apply to the reference to an agent acting on
behalf of a recipient.
12. Location of Recipient: The location of the recipient in relation to the site of the provider
shall determine the type of GST to use on the transaction. The location of consignee usually
refers to the place of business that reflects on the GST registration certificate (In the case of
B2B supply), the place of supply shall act as the location.
If the supply is received at a place which is not mentioned on the GST registration certificate,
then the location of that place can be used as the location of recipient.
If the consignee receives the supply at more than one place, then the provider shall use the
location most directly concerned with the receipt of supply as the location of recipient.
In the absence of any of the above, the supplier shall use the location of the usual place of
residence of the recipient as the location of the recipient.

13. AGGREGATE TURNOVER:

“aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of
inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies,
exports of goods or services or both and inter-State supplies of persons having the same
Permanent Account Number, to be computed on all India basis but excludes central tax, State
tax, Union territory tax, integrated tax and cess.
14. INPUT:
Input means any goods other than capital goods ,used or intended to be used by a supplier in
the course or furtherance of business.
15. INPUT SERVICE:
Input service means any service used or intended to be used by a supplier in the course or
furtherance of business .
16. INPUT TAX: Input tax means the central tax (CGST), State tax (SGST), integrated tax (IGST)
or Union territory tax (UTGST) charged on supply of goods or services or both made to a registered
person. It also includes tax paid on reverse charge basis and integrated tax goods and services tax
charged on import of goods. It does not include tax paid under composition levy. Input tax is the tax
paid or payable in the course of business on purchases of any goods made from a registered
dealer of the State.
17. OUTPUT TAX: Output tax is the tax charged or chargeable by a registered dealer for
the sale of goods in the course of business, whether the sale is made locally or even outside the
State. In simple words input tax is paid by a dealer on local purchases of business inputs and
output tax is the tax charged by a dealer on his sales.
18. INPUT SERVICE DISTRIBUTER: An Input service distributor (ISD) is a business which
receives invoices for services used by its branches. It distributes the tax paid, to such branches on
a proportional basis by issuing an ISD invoice. The branches can have different GSTINs but must have
the same PAN as that of ISD.
Example . Head office of ABC limited is located at Bangalore having branches at Chennai,
Mumbai and Kolkata. The head office incurred annual software maintenance expense(service
received) on behalf of all its branches and received the invoice for the same. Since software is
used by all its branches, the input tax credit of entire services cannot be claimed at Bangalore.
The same has to be distributed to all the three locations. Here, the Head office at Bangalore is
the Input Service Distributor.
19. BUSINESS: Business includes-
• Any trade, Commerce, manufacture, profession, vacation, Adventure, wager or any
othersimilar activities whether or not it is for a pecuniary benefit.
• Any activities or transactions in connection with or incidental or an
ancillary to above.
• Any activity or transaction in nature or above, whether or not there is a
volume frequency, continuity or regularity of such transaction.
• Supply or acquisition of goods including capital asset & service in
connection with commencement or closure of business
• Provision by a club, association, society or any such body for a
subscription or any other considerations of the facilities or benefits to its members, as the case
may be.
• Admission, for a consideration, of person to any premises and
• Services supplied by a person as the holder of an office which has been
accepted by him in the course of furtherance of his trade profession or vacation.
• Services provided by a race club by way of totalisator or a licence to
book maker in such club. Any activity or transaction undertaken by the central government, a
state government or any local authority in which they are engaged as public authorities.
20. CONSIDERATION:
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 but shall not include any subsidy given by the Central Government or a State
Government; (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: Provided that a 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.
21. ELECTRONIC COMMERCE OPERATOR:
Electronic Commerce means the supply of goods or services or both, including digital products
over digital or electronic network.
22. CAPITAL GOODS: capital goods” means goods, the value of which is capitalized in the
books of account of the person claiming the input tax credit and which are used or intended to be used
in the course or furtherance of business.
23. GST IDENTIFICATION NUMBER (GSTIN): Under the GST regime, all taxpayers will be
exacted into one common platform and the registration will be assigned by one single authority.
All the businesses registered under GST will be assigned a unique Goods and Services Tax
Identification Number (GSTIN). It is estimated that nearly 8 million taxpayers will be migrated
from various platforms into GST. Under GST, each taxpayer will be given a state-wise 15
digits Goods and Service Taxpayer Identification Number (GSTIN).
The breakup of the GST Identification Number are as follows
• The first two digits of this number represent the state code, which is as per Indian census
2011.
• The next ten digits are the Permanent Account Number (PAN) of the taxpayer.
• The 13th digit will be assigned based on the number of registration done within the state.
• The 14th digit will be Z by default.
• The last digit may be an alphabet or a number, it is basically a check code.
24. AGRICULTURIST: Agriculturist” means an individual or a Hindu Undivided Family
who undertakes cultivation of land:
(a) by own labour, or
(b) by the labour of family, or
(c) by servants on wages payable in cash or kind or
(d) by hired labour under personal supervision or
(e) the personal supervision of any member of the family.
25. VOUCHER: Voucher refers to an instrument where the receiver shall accept it as consideration
or part consideration for a supply of goods or services or both and the supplier supplies the goods or
services or both or the identities of their potential suppliers shall either indicate on the instrument
itself or in related documentation, including the terms and conditions of use of such instrument.
26. WORK CONTRACT: Works contract means a contract for building, construction, fabrication,
completion, erection, installation, fitting out, improvement, modification, repair, maintenance,
renovation, alteration or commissioning of any immovable property wherein the transfer of property
in goods (whether as goods or in some other form) shall involve in the execution of such contract.
works contract” means an agreement for carrying out for cash, deferred payment or other valuable
consideration, building, construction, fabrication, erection, installation, fitting out, improvement,
modification, repair, renovation or commissioning of any immovable property Thus, work contract
only includes 12 types of contract as works contract, which are as follows: building construction,
fabrication, erection, installation, fitting out, improvement, modification, repair, renovation or
commissioning of any movable or immovable property.
27. JOB WORK: The definition of Job-work under GST is covered under section 2(68) of the CGST
Act, 2017 states “Any treatment or process undertaken by a person on goods belonging to another
registered person”. Therefore, a job worker is a person (registered or unregistered) who is processing
or treating the goods of another registered person and the owner of the goods is called the Principal in
this respect.
28. PLACE OF BUSINESS:
Place of business includes:
• a place from where the business is ordinarily carried on and includes 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, by whatever
name called.

INPUT TAX CREDIT (ITC)

INPUT TAX CREDIT (ITC): INTRODUCTION:

Input tax credit (ITC) is an integral and essential part of the GST that ensures tax is levied only
on the incremental value addition done by the businesses at each stage of the overall supply
chain. The credit for taxes paid on inputs, capital goods, or input services against the output tax
payable are the cornerstone of the GST regime. This credit mechanism showcases the inherent
essence of GST as a tax on value addition, where the ultimate responsibility of paying GST lies
with the end consumer of goods or services.
However, taxpayers must fulfil specific requirements to enter the credit chain and avail of this
credit. From the government’s perspective, adhering to the procedures and restrictions outlined
in the GST law ensures a seamless flow of tax collection and credit being granted throughout
the taxation ecosystem, thus preventing abuse or misuse.
Input credit means at the time of paying tax on output, a dealer can reduce the tax which was
already paid on inputs and pay the balance amount. When registered dealer buy a
product/service from a registered dealer and pay GST on the purchase. On selling, such
product/service collect the tax. The dealer adjust the taxes paid at the time of purchase with the
amount of output tax (tax on sales) and balance liability of tax (tax on sales minus tax on
purchase) has to be paid to the government. This mechanism is called utilization of input tax
credit. All regular taxpayers must report the amount of input tax credit (ITC) in their monthly
GST returns of Form GSTR-2B and GSTR-3B.
Input Tax Credit’ or ‘ITC’ means the Goods and Services Tax (GST) paid by a taxable person
on any purchase of goods and/or services that are used or will be used for business. ITC
value can be reduced from the GST payable on the sales by the taxable person only after
fulfilling some conditions. These conditions given under the GST law are more or less in line
with the pre-GST regime, except for a few additional ones such as GSTR-2B. These rules are
direct and maybe stringent in nature.
ITC can be claimed only for business purposes. ITC will not be available for goods or
services exclusively used for:
• Personal use
• Exempt supplies
• Supplies for which ITC is specifically not available

WHO CAN CLAIM ITC?

OR
ELIGIBILITY TO CLAIM ITC:
ITC can be claimed by a person registered under GST only if he fulfils ALL the conditions as
prescribed.
• The dealer should be in possession of tax invoice
• The said goods/services have been received
• Returns have been filed.
• The tax charged has been paid to the government by the supplier.
• When goods are received in instalments ITC can be claimed only when the last lot is
received.
• No ITC will be allowed if depreciation has been claimed on tax component of a capital
good.
ITC in case of goods received in lots or instalments:
Provided that where the goods against an invoice l are received in lots or installments, l the
registered person shall be entitled to take credit upon receipt of the last lot or instalment.
WHO CANNNOT CLAIM ITC:
OR
NOT ELIGIBLE TO CLAIM ITC:
ITC cannot be claimed in the following cases:
• Purchase of capital goods used for non-business purposes.
• Composition dealers
• Purchase of capital goods used for manufacturing exempted goods
• Blocked credits [Section17 (5)]
Note: If taxpayers have availed and used ineligible ITC, interest of 18% has to be paid. Interest
need not be paid if ineligible ITC is only availed, without being used.

DOCUMENTS REQUIRED FOR CLAIMING ITC:

The following documents are required for claiming ITC:
• Invoice issued by the supplier of goods/services
• The debit note issued by the supplier to the recipient (if any)
• Bill of entry
• An invoice issued under certain circumstances like the bill of supply issued instead of tax
invoice if the amount is less than Rs 200 or in situations where the reverse charge is applicable
as per GST law.
• An invoice or credit note issued by the Input Service Distributor(ISD) as per the invoice
rules under GST.
• A bill of supply issued by the supplier of goods and services or both.

CONDITIONS TO CLAIM AN INPUT TAX CREDIT UNDER GST:

Section 16 of the CGST Act lays down the conditions to be fulfilled by GST registered buyers
to claim ITC. The conditions are summarised as follows-
Such input tax credit is eligible for claims if the goods or services purchased are further used
for business purposes and not personal use.
• Buyer must hold such tax invoice or debit note or document evidencing payment towards
the purchase. For example, Mr Manoj wants to claim an ITC of Rs.5,600 as he found the
ITC entry in GSTR-2B of January 2022 as of 10th February 2022 but he has not received the
invoice till 20th February 2022, being the date of filing the returns. He cannot claim Rs.5,600
as ITC while filing GSTR-3B of January 2022 due to the absence of the invoice.
• Such tax invoice or debit note is filed by the supplier in Form GSTR-1 and it appears in the
buyer’s Form GSTR-2B.
For example, Mr Manoj received a tax invoice dated 13th January 2022 for purchases and
wants to claim an ITC of Rs.5,600 but has not found the ITC entry in GSTR-2B of January
2022 as of 20th February 2022. He cannot claim Rs.5,600 as ITC while filing GSTR-3B of
January 2022.
• The buyer has received the goods and/or services. The goods are said to be received if it is
delivered by the supplier to the buyer or his representative or agent or another person as
directed, against a document of transfer of title of goods. On the other hand, the services are
said to be received if it is rendered by the supplier to the buyer or another person as directed.
For instance, Mr Manoj received a tax invoice for purchases dated 10th January 2022 but
has not yet received goods until 20th February 2022. The taxpayer cannot report ITC on that
tax invoice in GSTR-3B for January 2022 and may claim it in future once goods are
delivered.
• The buyer must furnish the GST returns in Form GSTR-3B.
• Where the goods are received in lots or instalments, ITC will be allowed to be availed
when the last lot or instalment is received.
• The buyer must pay towards the supply of goods and/or services within 180 days from the
invoice date. If they fail to, then the ITC already claimed will need to be paid to the
government, along with interest payable under Section 50.* The ITC claim can be again
made once the payment is made to the supplier.
• No ITC will be allowed if depreciation has been claimed on the tax component of a capital
good purchased.
• ITC on a tax invoice or debit note belonging to a financial year must be claimed within the
time limit given by the GST provisions, explained in the next section.
• Common credit of ITC must be identified and split as it is used together for selling both
exempt and taxable supplies, and/or business and non-business activity.

TIME LIMIT TO CLAIM AN INPUT TAX CREDIT UNDER GST:

The time limit to claim ITC against an invoice or debit note is earlier of two dates, given
below:
• The due date for filing GST returns for September of the next financial year.
• The date of filing the annual returns in form GSTR-9 relating to that financial year.
For instance, XY Corp, a buyer with a purchase invoice dated 8th December 2021 (FY 2021-
22), wants to claim GST paid on that purchase. As per the criteria laid down to find out the time
limit, the two dates are as follows:
• The due date of filing GST return for September 2022 (belonging to FY
2022-23) is 20th October 2022**.
• The date of filing GST annual return for FY 2021-22 is 31st December 2022.
The earlier of the two is the date up till when the XY Corp can claim ITC of FY 2021-22.
Therefore, the last date is 20th October 2022 and XY Corp can claim this ITC in any of the tax
periods between April 2021 to September 2022.
Note: For debit notes, the above condition must be considered with respect to the debit note
itself and not the original invoice that it is linked to.
RULES/PROCESS FOR TAKING INPUT TAX CREDIT (ITC):
Even if a business fulfils the eligibility criteria, it still has to comply with certain conditions to
claim ITC under GST. Let's take a look at these conditions:
1. Timely Filing of GST Returns:
A business can claim ITC only if it has furnished all the GST returns required under the law.
Any delay in filing GST returns can lead to the rejection of the ITC claim.
2. Invoicing Requirements:
Under GST, proper invoicing is crucial for claiming ITC. The following are the invoicing
requirements for claiming ITC:
a. The tax invoice issued by the supplier must contain all the details required under the law,
such as the name, address, and GSTIN of the supplier and the recipient, the description,
quantity, and value of goods or services, the rate and amount of GST charged, etc.
b. The recipient must verify the details of the supplier and the goods or services received before
claiming the ITC.
c. The recipient must possess a valid tax invoice or debit note or any other prescribed document
to claim ITC.
3. Matching of Invoices:
Matching of invoices is a critical condition for claiming ITC under GST. The recipient must
ensure that the details of the invoices match with the details furnished by the supplier in his
GST returns. In case of any mismatch, the ITC claim can be rejected.
4. Reversal of ITC:
A business has to reverse the ITC claimed earlier in case of the following scenarios:
a. If the goods or services are used for non-business purposes.
b. If the recipient fails to make payment to the supplier within 180 days from the date of issue
of invoice.
c. If the supplier fails to pay the tax collected to the government.
d. If the supplier has issued a tax invoice incorrectly or fraudulently.

BLOCKED CREDIT:
OR
CASES WHERE ITC CANNOT BE AVAILED/CLAIMED:
1. Motor vehicles & conveyances:
ITC is not available for Motor vehicles used to transport persons, having a seating capacity of
less than or equal to 13 persons (including the driver). Further, ITC is not available on vessels
and aircraft. For example, XYZ & Co. buys a car for their business. They cannot claim ITC on
the same. Exceptions to ITC on motor vehicles/vessels/aircrafts ITC will be available when the
vehicle is used for making taxable supplies by the following.
a. Supply of other vehicles or conveyances, vessels or aircrafts., If you are in the business of
supplying cars then ITC will be available.
b. Transportation of passengers. For example, Happy Tours purchased a bus for inter-city
transport of passengers. ITC is available.
c. Imparting training on driving, flying, navigating such vehicle or conveyances or vessels
or aircrafts, respectively.
d. Transportation of goods. ITC will be allowed on motor vehicles (and other conveyances)
used to transport goods from one place to another. However, this is concerning other
transporters and not goods transport agencies (GTA).
2. Food, beverages, club memberships and others:
ITC is not for the supply of following goods or services or both:
• Food and beverages
• Outdoor catering
• Beauty treatment
• Health services
• Cosmetic and plastic surgery
However, ITC will be available if the category of inward and outward supply is same or the
component belongs to a mixed or composite supply under GST. Examples- Ajay Enterprises
arranges for an office party for its employees. Ajay Enterprises will not be able to claim ITC on
the food & beverages served.
3. Services of general insurance, servicing, repair and maintenance:
No ITC is allowed on services of general insurance, servicing, repair and maintenance in so far
as they relate to motor vehicles, vessels or aircraft referred to in (1). Exceptions to ITC on
insurance, repair or maintenance Same as exceptions mentioned for motor
vehicles/vessels/aircrafts where received by a taxable person engaged—
(I) In the manufacture of such motor vehicles, vessels or aircraft; or
(II) In the supply of general insurance services in respect of such motor vehicles, vessels or
aircraft insured by him
4. Sale of membership in a club, health, fitness centre:
No ITC will be allowed on any membership fees for gyms, clubs etc. Example- X, a Managing
Director has taken membership of a club and the company pays the membership fees. ITC will
not be available to the company or Mr. X.
5. Rent-a-cab, life insurance, health insurance;
ITC is not available for rent-a-cab, health insurance and life insurance. However, the following
are exceptions, i.e., ITC is available for-
• Any services which are made obligatory for an employer to provide its employee by the
Indian Government under any current law in force
• If the category is same for the inward supply and outward supply or it is a part of the
mixed or composite supply
• leasing, renting or hiring of motor vehicles, vessels or aircraft with exceptions same as
those mentioned.
6. Travel:
ITC is not available in the case of travel, benefits extended to employees on vacation such as
leave or home travel concession. For example, ABC Ltd. offers a travel package to its
employees for personal holidays. ITC on GST paid by ABC Ltd. for the holiday package will
not be allowed. ITC will be allowed for travel for business purposes. Please read our article to
know more about the impact of GST on air fare and rail fare.
7. Works contract
ITC shall not be available for any work contract services. ITC for the construction of an
immovable property cannot be availed, except where the input service is used for further work
contract services. For example, XYZ Contractors are constructing an immovable property.
They cannot claim any ITC on the works contract. However, XYZ hires ABC Contractors for a
portion of the works contract. XYZ can claim ITC on the GST charged by ABC Contractors.
Please read our article on GST impact on works contract.
8. Constructing an immovable property on own account:
No ITC is available for goods/services for construction of an immovable property on his own
account. Even if such goods/services are used in the course or furtherance of business, ITC will
not be available. But this rule does not apply to plant or machinery. ITC is available on inputs
used to manufacture plant and machinery for own use.
9. Composition Scheme:
No ITC would be available to the person who has made the payment of tax under composition
scheme in GST law. Please read our extensive guides on composition scheme under GST and
whether you are eligible for it.
10. No ITC for Non-residents:
ITC cannot be availed on goods/services received by a non-resident taxable person. ITC is only
available on any goods imported by him. Please read our articles on GST on non-residents and
the registration process for non-residents.
11. No ITC for personal use:
No ITC will be available for the goods/ services used for personal purposed and not for
business purposes. Find out more on how to calculate the amount of common credit applicable
for business if you use the same input for both business and personal uses.
12. No ITC on Free samples and destroyed goods:
No ITC is available for goods lost, stolen, destroyed, written off or given off as gift or free
samples.
 UNIT 05
SUPPLY: MEANING, SCOPE AND TIME

SUPPLY: MEANING
The incidence of tax is the foundation stone of any taxation system. It determines the point at
which tax would be levied, i.e. the taxable event. The earlier framework of taxable event in
various statutes was prone to catena of interpretations resulting in litigation since decades.
Broadly, the controversies related to issues like whether a particular process amounted to
manufacture or not, whether the sale was pre-determined sale, whether a particular transaction
was a sale of goods or rendering of services etc. The GST laws resolve these issues by laying
down one comprehensive taxable event i.e: ―Supply‖ - Supply of goods or services or both
The Definition of supply:
“The expression “supply” includes––
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange,
license, rental, lease or disposal made or agreed to be made for a consideration by a person in
the course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of
business;
(c) the activities specified in Schedule I, made or agreed to be made without a consideration;
and
(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule
II”.

Inclusive definition of Supply

The definition of supply under GST is not an exhaustive definition. A definition is said to be
exhaustive when it gives complete meaning
and the meaning cannot be stretched any
further. But this is not the case with the
definition of supply under the Act. It uses the
words “includes” and not “means”. Hence,
the definition of supply can be extended even
beyond what is provided under the law.
The concept of supply is the key stone of the
GST architecture. The provisions relating to
meaning and scope of supply are contained in
Chapter III of the CGST Act read with
various Schedules given under the said Act.
Therefore, following shall be discussed in this chapter:

As per Section 7(1) Supply includes: As per Section 7(2) Supply excludes:
(a) all forms of supply of goods or (a) activities or transactions specified in
services or both such as sale, transfer, Schedule III; or
barter, exchange, licence, rental, lease (b) such activities or transactions undertaken
or disposal made or agreed to be made by the Central Government, a State
for a consideration by a person in the Government or any local authority in
course or furtherance of business; which they are engaged as public
(b) import of services for a consideration authorities, as may be notified by the
whether or not in the course or Government on the recommendations of
furtherance of business; the Council,
(c) the activities specified in Schedule I, Note: Activities specified in Schedule III (i.e.
made or agreed to be made without a Negative list):
consideration; and 1. Services by employee to employer in
(d) the activities to be treated as supply of the course of or in relation to his
goods or supply of services as referred employment.
to in Schedule II. 2. Services by court or Tribunal
3. Services by Member of Parliament and
others
4. Services by funeral, burial etc.
5. Sale of land/Building
6. Actionable claim other than lottery,
betting and gambling.

PARAMETERS/ESSENTIALS OF SUPPLY/VALID SUPPLY:

OR
COMPONENTS/INGREDIANTS/ELEMENTS OF SUPPLY/VALID SUPPLY:
a. Supply of goods and/or services
b. Supply should be by a registered taxable person.
c. Supply is for a valid consideration.
d. Supply should be in taxable territory.
e. Supply is meant for the business/furtherance of business
f. Supply can be regular or irregular basis.
a. Supply of goods or services:
When a transaction takes place, if there is a transfer of title of goods, then it is considered as
supply of goods. For example, when you buy a pen from a retailer, the ownership of the pen is
transferred from the retailer to you, the customer. When there is a transfer of right in goods
without transfer of title, it is considered as supply of service. For example, if you are availing
transportation services, then the right of using the service is transferred to you, while the
ownership still stays with the transportation company.
 b. Supply should be taxable
Supply of goods or services can either be taxable or tax-exempt. Taxable supplies are goods and
services that attract GST. Tax-exempt supplies include supply of goods or services that belong to
a specific category mentioned in the GST Act.
c. Supply should be made by a taxable person
A taxable person is defined as a person who is registered under the GST, or is a liable to register,
or a person who has voluntarily registered.
Supply between two non-taxable people will not be considered as supply under GST.
If a person supplies goods or services in different states or has multiple business verticals, then
they are required to register separately for each state or vertical. Each of these registered entities
will be considered as a taxable person.
d. Supply should be made within a taxable territory
Taxable territory means any place in India except the State of Jammu and Kashmir.
e. Supply should be made in exchange for consideration
Consideration can be defined as a barter of goods or services, or payment made for a supply in
money, or in kind. A prepayment or deposit toward a supply is also as accepted as a
consideration by the government.
According to CGST Act, the following activities that will be treated as supply even if it is made
without consideration.
• When a business permanently transfers or disposes its assets for which input tax credits have
been availed.
• Supply made between two related or separate persons for business purposes.
• Supply of goods by an agent on behalf of the supplier or supply received by an agent on behalf
of a customer.
• When a taxable person imports services from a related person, or from his or her own business
outside of India for business purposes.
g. Supply should be made in the course of business or in the interest/furtherance of a
business:
GST is applicable only on business transactions. Hence, for a transaction to be a considered as
supply under GST, it has to be made for business purposes.If supplies are made for personal
purposes, it will not be considered as a supply under GST.

SCOPE OF SUPPLY
OR
VARIOUS FORMS OF SUPPLY
The definition of supply includes all forms of supplies. It means the definition extends beyond
the supplies exemplified under the definition. Hence, “supply “includes all forms of supply such
as:
 • Sale: It is one of the forms of transfer of property in goods for cash, deferred payment
or other valuable consideration. It refers to the transfer of property irrespective of its
specifications. In terms of consideration, the sale may include cash or deferred payments.
Basically, it is defined as a transfer of property in goods for cash or transfer of rights to
use any good.
• Transfer: It normally refers to the transfer of property by which an individual can
convey his property in any given time period to other individuals or to himself. It
includes sale, exchange, extinguishment of rights, relinquishment, conversion,
redemption.
• Barter: This involves the exchange of one commodity for another. It also includes
swapping, parting ways with or transferring for an equivalent amount of cash, etc. It is
exchange of goods for goods. For example, if guns are purchased by paying the price in
gold, it is barter and covered under the definition of supply.
• Exchange: This refers to commodity exchanges, and the GST value is calculated on the
original price or valuation of the goods and not the remaining amount after exchange. If
new AC is purchased in exchange for old AC valued at 25% of its original cost and by
paying balance amount in cash, the act of giving away old AC in exchange is an act of
supply.
• License: When business entities obtain special privileges like licences, mining rights,
and natural resource extraction rights against payment of fees or royalties, it is considered
a licence. It is permission to use something. For example, if a person is granted a license
to use equipment in consideration for some compensation then such permission or license
is an act of supply.
• Rental: Rental income consists of payments for renting out commercial or residential
complexes. Normally, the GST Act states that no GST shall be calculated on rent.
Providing an immovable property for rent is an act of supply.
• Lease: The act of letting out a property for defined period of time is lease. For example,
if land is given for one year lease, this is an act of supply.
• Disposal: Disposal is an act of throwing away a property at a value much lower than its
acquisition cost. For example, sale of scrap of furniture is an act of disposal.

CLASSIFICATION/TYPES/KINDS OF SUPPLY:
The following are the types of supply under GST:
• Inward Supply/Input Supply: Inward supply means receiving goods or services or both. It
refers to the receipt of goods and services or both, whether by purchase, acquisition or any
other means with or without consideration.
• Outward Supply/output Supply: It means a supply of goods or services or both, whether by
sale, transfer, barter, exchange, license, rental, lease or disposal or any other mode, made
or agreed to be made by such person in the course or furtherance of business.
• Continuous Supply: As the phrase suggests, is an on-going process. The goods/services are
supplied periodically and the payments are also made periodically, often monthly. For
example, supplying bricks to builders is a continuous supply of goods because there will be
 periodic supply for a long time. Telecom and internet services provided by telecom
companies are other examples of continuous supply of services.There is a further
classification for continuous supply in supply in GST. Those are the following:
• Continuous supply for Goods: According to Section 2(32) of CGST Act,
2017 'continuous supply of goods' means a supply of goods which is
provided, or agreed to be provided, continuously or on a recurrent basis,
under a contract, whether or not by means of wire, cable, pipeline or other
conduits, and for which the supplier invoices the recipient on a regular or
periodic basis.
• Continuous Supply for Services: According to Section 2(33) of CGST
Act, 2017 continuous supply of services' means a supply of services which
is provided, or agreed to be provided, continuously or on recurrent basis,
under a contract, for a period exceeding three months with periodic
payment obligations.
• Taxable Supply: Taxable supply refers to a supply of goods and services or both which is
leviable to tax under CGST Act." - Section 2(108) of CGST Act, 2017. Supply of all the
goods and/or services,on which GST is applicable are known as taxable supply. In other
words, supply of goods or services on which GST is payable are taxable supply.
• Non- Taxable Supply: Non - taxable supply means a supply of goods or services or both
which is not leviable to tax under CGST Act or under the IGST Act." - Section 2(78) of
CGST Act, 2017. Non-taxable supply means a supply of goods or services or both which is
not leviable to tax under CGST Act or under the IGST Act. A transaction must be a
‘supply’ as defined under the GST law to qualify as a non-taxable supply under the GST.
The Government can specify the products which are fully or partially exempted through
notification. It is applicable to all the states and but they can also make amendments if they
could specify the reason. Note: Only those supplies that are excluded from the scope of
taxation under GST are covered by this definition – i.e., petrol, diesel, ATF, crude oil,
alcoholic liquor for human consumption etc.
• Exempted Supply: Exempt supply means a supply of any goods or services or both which
attracts nil rate of tax or which may be wholly exempt from tax under Section 11, or under
section 6 of IGST Act, and includes the non-taxable supply." - Section 2(47) of CGST Act,
2017. Exempt supplies comprise the supplies that are wholly or partially exempted from
CGST or IGST, by way of a notification amending Section 11 of CGST Act or Section 6 of
IGST Act; Tax need not be paid on these supplies. Input tax credit attributable to exempt
supplies will not be available for utilization/setoff.
▪ Exemption should be in public interest
▪ By the way of issue of notification
▪ Must be recommended by the GST Council
Absolute exemption or conditional exemption may be for any goods and / or services of
any specified description. Examples:
• Transmission or distribution of electricity by an electricity transmission or distribution
utility, Services by Reserve Bank of India.
• Fresh vegetables, meat, eggs, fruits, food grain, pulses, fresh milk and pasteurised milk
 etc.

• Zero Rated Supply: All supplies on which the output tax is Zero, but the ITC is available
are known as Zero Rate Supply. As per the GST Law exports are meant to be zero rated
the zero rating principle is applied in letter and spirit for exports and supplies to SEZ.
Section 16(1) of the IGST Act, 2017Supply of goods and services on which no tax is
payable but Input Tax Credit pertaining to that supply is admissible. According to
Section 16(1) of IGST Act, 2017, 'Zero rated supplies' means any of the following goods
or services or both:
(i) Export of goods of services or both.
(ii) Supply of goods or services to a Special Economic Zone developer.

• Inter-State Supply: According to Section 7(1) of IGST Act, subject to the provisions
Section 10, the supply of goods, where the location of the supplier and the place of
supply are in -
(i) Two different states;
(ii) Two different Union territories; OR
(iii) A state and a Union territory, shall be treated as supply of goods.
Similarly in Section 7(3), subject to the provisions of Section 12, the supply of services, where
the location of the supplier and the place of supply are in -
(i) Two different states;
(ii) Two different Union territories; OR
(iii) A state and a Union territory
shall be treated as a supply of service in this course.

• Intra- State Supply: As per Section 8(1) of IGST Act, subject to the provisions of Section
10, supply of goods where the location of the supplier and the place of supply of goods
are in the same state or same Union territory shall be treated as intra-state supply with
respect to the fact that the following goods shall NOT be treated as intra- state supply
which are -
(i) Supply of goods to or by a Special Economic Zone developer.
(ii) Goods imported into the territory of India till they cross the customs frontiers of
India; or
(iii) Supplies made to a tourist referred to in section 15.

• B2C Supply: which stands for business-to-consumer, is a process for selling products
directly to consumers.
• B2B Supply: which stands for business-to-business, is a process for selling products or
services to other businesses.

• Composite Supply:
All supplies are not such simple and clearly identifiable supplies. Some of the supplies will be a
combination of goods or combination of services or combination of goods and services both. A
composite supply would mean 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;
A supply comprising of two or more goods/services, which are necessarily supplied in
conjunction with each other as per frequent business practices followed in that area. In other
words, these items cannot be supplied individually. There is a principal supply and a secondary
supply in the whole transaction. In such cases, the tax rate on principal supply will apply to the
entire supply.
According to Section 2(30) of CGST Act 2017, 'composite supplies' means 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 bundles and supplied in conjunction with
each other in the ordinary course of business, one of which is principal supply. In other words we
can say that in composite supply the given combination cannot be supplied individually. It can be
only supplied together. The typical example for a composite supply is an accommodation in a
hotel. It is a whole package and we cannot separate it. The person can never demand for a single
thing in this whole package. There is a further classification in composite supply. It is as follows:
(i) Principle Supply: It is the important product in the composite supply of goods and services
(ii) Dependent Supply: It is the product that is dependent on the principle supply.
Examples:
• Supply of an AC with the installation services.
• Supply of Coaching classes services with study material
• Supply of train ticket services with meal
• Supply of mobile hand set with charger.
• Where goods are packed and transported with insurance.
• Supply of goods, with packing materials and transport.
Tax rates of Composite Supply:
In the case of composite supply, the insurance and transportation rates cannot be provided
separately. So the tax rate applicable to the principle supply is the tax rate applicable to other
products in the supply.

• Mixed Supply:
A 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; Illustration: A supply of a package consisting of
canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied
for a single, price is a mixed supply. Each of these items can be supplied separately and is not
dependent on any other. It shall not be a mixed supply if these items are supplied separately.
In order to identify if the particular supply is a Mixed Supply, the first requisite is to rule out
that the supply is a composite supply. A supply can be a mixed supply only if it is not a
composite supply. As a corollary it can be said that if the transaction consists of supplies not
naturally bundled in the ordinary course of business then it would be a Mixed Supply. Once the
amenability of the transaction as a composite supply is ruled out, it would be a mixed supply,
classified in terms of a supply of goods or services attracting highest rate of tax.
According to Section 2(74) of CGST Act 2017, '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 fir a single price where supply does not constitute a composite supply. If we
consider a box full of items including watches, bags, chocolates etc, its supply can be considered
as mixed supply because each of the products can be supplied individually. When we consider
the GST rate, it will be the highest GST rate applicable on the goods or services included in the
combination of mixed supply. In mixed supply each commodity can sell separately.
Example:
• Buying a Christmas package consisting of cakes, aerated drinks, chocolates, Santa caps,
and other gift items.
• Gift packet consisting namkeen, sweets and chocolates.
Each of these items can be sold separately and are not dependent on each other. This is a mixed
supply.
Tax rates of Mixed Supply: For mixed supply, the GST rate will be the highest on the goods and
services. It will be included in the given combination of mixed supply.

SIGNIFICANCE OF CONSIDERATION IN SUPPLY

Generally, there cannot be supply without consideration, barring a few exceptions provided in
Schedule I of CGST Act.
For example Gift from relatives, Donation received by temple, free samples distributed by
pharmaceutical company to doctors, Gifts under promotional scheme of the products.
Definition of Consideration
Further, the term consideration is defined under section 2(31) of CGST Act as follows:
“consideration” in relation to the supply of goods or services or both includes––
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 but shall not include any subsidy given by the Central Government or a State
Government;
Cases of Supply without Consideration:
Section 7(1)(c) read with Schedule I of the CGST Act specifies the following activities without
consideration to be treated as supply: \
• Permanent transfer or disposal of business assets where input tax credit has been availed
on such assets.
• Supply of goods or services or both between related persons or between distinct persons
as specified in section 25, when made in the course or furtherance of business:
Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an
employer to an employee shall not be treated as supply of goods or services or both.
 • Supply of goods— by a principal to his agent where the agent undertakes to supply such
goods on behalf of the principal; or by an agent to his principal where the agent
undertakes to receive such goods on behalf of the principal.
• Import of services by a taxable person from a related person or from any of his other
establishments outside India, in the course or furtherance of business

SERVICES NOT COVERED UNDER GST:

OR
NEGATIVE LIST OF SERVICES:
OR
SCHEDULE III:
There are certain activities which are items not covered under GST. They are beyond the scope
of GST, i.e., GST will not apply on them. These are classified under Schedule III of the GST
Act as “Neither goods nor services”.
1. Services by an employee to the employer in relation to his employment
Related parties include employer-employee which raised many concerns whether
employment now attracted GST. This clarification has been brought in to clarify whether
GST is not applicable on employment. An employee will still pay income tax on salary
earned
2. Court/Tribunal Services including District Court, High Court and Supreme Court
3. Duties performed by:
The Members of Parliament, State Legislature, Panchayats, Municipalities and other local
authorities, Any person who holds a post under the provisions of the Constitution.
Chairperson/Member/Director in a body established by the government or a local body
and who is not an employee of the same
4. Services of a funeral, burial, crematorium or mortuary including transportation of the
deceased
5. Sale of land and sale of building
6. Actionable claims (other than lottery, betting and gambling)
Actionable Claims’ means claims which can be enforced only by a legal action or a suit,
example a book debt, bill of exchange, promissory note. A book debt (debtor) is not
goods because it can be transferred as per Transfer of Property Act but cannot be sold.
Bill of exchange, promissory note can be transferred under Negotiable Instruments Act
by delivery or endorsement but cannot be sold. Actionable claims are neither products
nor services. They can be considered as something in lieu of money. So GST will not
apply on these. Lottery, betting and gambling attract 28% GST.
7. Supply of goods from a place in the non-taxable territory to another place in the non-
taxable territory without such goods entering into India.
8. Supply in Customs port before Home consumption:
a. Supply of warehoused goods to any person before clearance for home
consumption;
 b. Supply of goods by the consignee to any other person, by an endorsement of
documents of title to the goods, after the goods have been dispatched from the
port of origin located outside India but before clearance for home consumption.
Schedule I
Activities to be treated as Supply even if made without consideration
1. Permanent transfer or disposal of business assets where input tax credit has been availed
on such assets.
2. Supply of goods or services or both between related persons or between distinct persons
as specified in section 25, when made in the course or furtherance of business:Provided
that gifts not exceeding fifty thousand rupees in value in a financial year by an employer
to an employee shall not be treated as supply of goods or services or both.
3. Supply of goods—
a. by a principal to his agent where the agent undertakes to supply such goods on
behalf of the principal; or
b. by an agent to his principal where the agent undertakes to receive such goods on
behalf of the principal.
4. Import of services by a person from a related person or from any of his other
establishments outside India, in the course or furtherance of business.

TIME OF SUPPLY
• There is levy of Tax on supply as per section 9 of CGST Act, but such tax needs to be
paid as per provision of time of supply as contained in section 12 and section 13 of CGST
Act.
• Section14 of CGST Act decides time of supply in case there is change in rate of tax on
supply of goods or services.
• In general Time of Supply means the point when Liability to pay tax arise. E.g. There is
agreement between service provider and service recipient to supply professional service
on which tax is to be payable, but when this tax is to be payable is decided as per
provision of Time of Supply.
• Time of Supply is different for goods and service, even Time of supply provision are
different for supply covered under forward charge and supply covered under reverse
charge.
a. Time of supply of Goods:
Time of supply of goods is earliest of:
i. Date of issue of invoice
ii. Last date on which invoice should have been issued
iii. Date of receipt of advance/ payment.
Example: Mr. X sold goods to Mr. Y worth Rs 1,00,000. The invoice was issued on 15th
January. The payment was received on 31st January. The goods were supplied on 20th January.
Let us analyze and arrive at the time of supply in this case. Time of supply is earliest of
Date of issue of invoice = 15th January and Last date on which invoice should have been issued
= 20th January. Thus, the time of supply is 15th January.
 b. Time of Supply for Services:
Time of supply of services is earliest of:
i. Date of issue of invoice
ii. Date of receipt of advance/ payment.
iii. Date of provision of services (if invoice is not issued within prescribed period)
Let us understand this using an example:
Mr. A provides services worth Rs 20000 to Mr. B on 1st January. The invoice was issued on
20th January and the payment for the same was received on 1st February. In the present case, we
need to 1st check if the invoice was issued within the prescribed time. The prescribed time is 30
days from the date of supply i.e. 31st January. The invoice was issued on 20th January. This
means that the invoice was issued within a prescribed time limit.
The time of supply will be earliest of Date of issue of invoice = 20th January, Date of payment =
1st February. This means that the time of supply of services will be 20th January.
COMPOSITION SCHEME
CONCEPT OF COMPOSITION SCHEME:
The Indian Government, in recent years, has introduced several schemes and initiatives to help boost
the country’s small business sector. The GST Composition Scheme is set to further simplify tax
compliance for eligible businesses. To help ease the implementation and the tax compliance procedure
for small taxpayers like Small and Medium-sized Enterprises (SMEs), Micro, Small and Medium
Enterprises (MSME)s, and small traders, the central government has introduced this Goods and Services
Tax (GST) Composition scheme. The GST composition scheme already exists under many state Value
Added Tax (VAT) laws.

GST composition Scheme is an optional scheme under the GST module. It is a convenient and faster
mode of compliance to the GST scheme of taxation. It is available for the benefit of the small scale and
medium scale enterprises. It helps the customers escape the tedious process of GST filing and other
compliances. GST Composition Scheme allows the customer to pay GST at minimum rates applicable
under the Act.
Section 10 of the GST law lays down the provisions
for the composition scheme under GST. This is an
alternative method of taxation designed to simplify
compliance and reduce costs for small taxpayers. It
allows a business or person registered under this
scheme to pay tax at a specific percentage of their
turnover. This tax is to be paid every quarter, instead
of at the regular rate every month. This composition scheme under GST was introduced by the
government for taxpayers with a turnover below Rs 1.5 crore who do not wish to register as a normal
taxpayer. Such taxpayers can choose to get registered under this scheme and opt to pay taxes at a
nominal rate.

WHO CAN OPT THE COMPOSITION SCHEME:

OR
ELIGIBLITY TO OPT FOR COMPOSITION SCHEME:
As mentioned before, taxpayers with annual turnover below Rs. 1.5 crore can opt for this scheme.
Further, special category states, this limit has been further reduced to Rs. 75 lakh per year. These states
include:
• Himachal Pradesh
• Tripura
• Sikkim
• Nagaland
• Mizoram
• Meghalaya
• Manipur
• Assam
• Arunachal Pradesh
This cap is, however, set solely for manufacturers, traders and restaurants that do not serve alcohol. For
service providers, the cap is set at Rs. 50 lakhs. One must remember here that the collective turnover of
businesses registered under the same PAN will be considered while gauging their eligibility to avail the
benefits extended under GST Composition Scheme.

FEATURES/CHARACTRISTICS OF COMPOSITION SCHEME:

• Eligibility: Everyone is not eligible to register under the GST composition scheme. Taxpayers or
people whose annual turnover is up to Rs. 1.5 crore for the supply of goods (Rs. 50 Lacs for the
supply of services) in a financial year. Turnover for special category States, the limit is now
increased to Rs 75 Lacs.. The small traders should fill up GST CMP-01 form to accept the
 scheme.
• Quarterly Filing Returns: Instead of submitting returns 3 – 4 times in a month, taxable persons
or registered taxpayers will be required to submit or filing tax returns only one time in every
quarter under the GST composition scheme.
• Intra- State Supplies: Local suppliers, who supply goods or services within a state can take
advantage of the GST composition scheme. Inter-state suppliers will come under the regular GST
laws.
• Bill of supply, not tax invoice: Registered taxpayers under the GST composition scheme will be
required to show the bill of supply instead of tax invoice to the tax authorities. A person paying
taxes under the composition scheme can issue a bill of supply instead of an invoice. Exemptions
up to 5 lakhs for services under the composition scheme are also available.
• Not Eligible for Input Tax Credit: According to section 16, goods and services on which
composition tax has already been paid (under section 8) do not apply for Input Tax Credit.
• Tax Rate: Manufacturers and traders – 1% (0 .5% central and 0.5% state), Restaurants services –
5% ( 2.5% central and 2.5 state ), Other service Providers-6% ( 3% central and 3% state )
• GST Only on Taxable supplies: Earlier it was a provision to pay composition GST even on the
exempted goods but now after 1st January 2018, the GST will be only payable on the
taxable goods.
• Penalty: If the taxable person is not eligible for the GST composition scheme, then the tax
authorities can charge a penalty equal to the amount of tax on such person along with his tax
liability. Be careful when availing of this scheme and paying taxes. The penalty will be imposed
according to the provision of section 73 or 74 if an individual represents incorrect data under the
composition scheme.
• Compulsory Registrations: For availing of the benefits of this scheme, taxpayers need to make
compulsory registration. If in case, the taxpayer’s annual income turnover exceeds 1.5 Crore, then
he will be transferred to the regular scheme.
• Filing Returns & Tax Payments: Individuals or registered taxpayers can pay tax under the
provisions of Composition Scheme shall provide a return in an official form and official manner
within the eighteen days after the end of the relevant quarter. GST CMP 08 form has been
officially declared by the government for depositing payment quarterly under the Composition
Scheme.

WHO CANNOT OPT THE COMPOSITION SCHEME

OR
INELIGIBLE TAXPAYERS FOR COMPOSITION SCHEME:
i. Manufacturers of ice-cream, pan masala, or tobacco.
ii. Businesses engaged in making inter-state supplies including stock transfer to own branches outside
the state.
iii. Businesses registered as casual taxable person or non-resident taxable person.
iv. Businesses supplying goods through an e-commerce operator required to collect TCS under
Section 52 of CGST Act 2017.
v. Businesses engaged in supplies not leviable to tax under GST.
vi. A supplier who has purchased any goods or services from an unregistered supplier unless he has
paid GST on such goods or services on reverse charge basis.
vii. Suppliers exceeding the aggregate turnover threshold limit specified for opting for a composition
scheme.
 RATE OF TAX UNDER COMPOSITION SCHEME:
S.NO Eligible Taxpayers Rates of GST
1 Manufactures 1% (0.5 % CGST + 0.5 % SGST)
2 Restaurtant Services 5% (2.5 % CGST + 2.5 % SGST)
3 Traders 1% (0.5 % CGST + 0.5 % SGST)
4 Other Services 6 % (3 % CGST + 3 %
SGST)

CONDITIONS AND RESTRICTIONS FOR COMPOSITION SCHEME:

i. Not a casual taxable person.
ii. Not a non-resident taxable person.
iii. Dealers opting for a composition scheme under GST cannot claim any Input Tax Credit.
iv. Some goods like alcohol are not taxable under GST. Dealers supplying these goods cannot be
registered for GST under the composition scheme.
v. The reverse charge mechanism requires taxpayers to pay tax at normal rates on all transactions.
vi. If the taxpayer has several businesses registered under the same PAN, either they must all be
registered for the composition scheme in GST collectively or can opt-out of it.
vii. All signboards at the place of business of the taxpayer must mention ‘composition taxable person’.
viii. All bills of supply issued by the taxpayer must also mention ‘composition taxable person’.

GST COMPOSITION SCHEME BILL FORMAT:

Businesses must supply a “Bill of Supply” for outward supply of goods. This bill also must feature the
words ‘Composition Taxable Person, Not Eligible to Collect Tax on Supplies”. There are key elements of
the bill that must be adhered to:
Supplier name, GST Identification Number (GSTIN) and Address
Unique serial number termed as bill of supply number
Date of issue of bill of supply
Recipient details such as name, address and GSTIN (if registered)
HSN code of goods being supplied
Description/quantity of goods/services (as applicable)
Total value of supplies (adjusted for applicable discounts)
Signature/digital signature of the supplier
GST COMPOSITION RETURN FORMS:
A GST composition scheme dealer is required to file a quarterly composition return form i.e. Form GSTR-
4 by the 18th of the month after the end of the quarter. Also, annual compositions return form i.e. Form
GSTR-9A has to be filed by the 31st of December of the next financial year. All these forms must be duly
signed and filed electronically on Common Portal, either directly or through a Facilitation Centre notified
by the Commissioner. As per the latest notifications, the late fees for failure to furnish returns in Form
GSTR-4 by the composition scheme last date have been waived off to the extent of the amount in excess
INR 50 per day for every day the failure continues. In case of the filing of NIL Returns in Form GSTR-4,
the late fees for failure to furnish return by the composition scheme last date, have been waived off to the
extent of the amount in excess of INR 20 per day for every day the failure continues.

BENEFITS OF GST COMPOSITION SCHEME

The GST Composition Scheme has been initiated under the GST Taxation Scheme for the benefit of the
small taxpayers who can escape the tedious proceedings of the GST tax regime. This enables the small
businesses and medium taxpayers to pay GST at reduced rates of taxation and also helps them meet the
limited compliance requirements.
The benefits of GST Composition Scheme are detailed below.
• Reduced Compliance:
GST Composition Scheme allows the taxpayers to meet reduced compliance with respect to tax returns.
The GST scheme requires the taxpayers to file monthly returns along with the annual returns. The GST
composition scheme, however, requires the taxpayers to submit only quarterly returns. This reduces the
burden of maintaining the detailed books of accounts as well as the tedious procedure to file multiple
returns. The businesses can thus focus better on the operations part of the business and generating more
profits rather than wasting precious time and manpower on compliance procedures.
• Reduced Tax Liability
The tax liability for the taxpayers under the composition scheme is one of the main advantages of the
composition scheme. Tax payers under the composition scheme are not allowed to take or collect tax
separately from the buyers in an invoice. But the tax rate under the composition scheme is competitive
enough that the taxpayers end up paying less tax than what they would have paid had they been under the
normal tax structure.
• Increased Liquidity
One of the biggest challenges faced by the small businesses is that of liquidity. The reduced tax liability of
the taxpayer under the composition scheme ensures that the tax outflow of taxpayers is less which results
in higher liquidity. Also, the taxpayers can collect input tax credit only after the supplier duly files the tax
returns. In the composition scheme, the taxpayers are not allowed to take the tax credit hence they do have
to worry about the supplier filing their tax returns on time so they can avail the credit. They only have to
pay GST at reduced rates and file their returns duly for compliance under the GST Composition Scheme.

LIMITATIONS UNDER GST COMPOSITION SCHEME

The GST Composition Scheme had been introduced with the idea to reduce the burden of GST tax and
compliance for the small and medium businesses. The intention was to make GST simpler so they can
adopt the scheme without any hassles and thus benefit from the scheme. However, the GST composition
scheme does have some limitations and concerns that are faced by such small taxpayers. These limitations
are discussed below.
• Inter-State Business disallowed:
GST Composition Scheme prohibits the taxpayer under the scheme to take part in inter-state sale or
business. This limits the horizons of the small businesses and in turn hampers their chances of growth and
expansion. Tax payers under this scheme cannot execute any import or export of goods and services
beyond their state. They are allowed to carry on their business only within the state limits.
• Input Tax credit Disallowed
The taxpayers are not allowed to take credit of the input tax under the composition scheme of the GST Act.
This rule is applicable on all the dealers and the buyers under the composition scheme.
• Stringent Penal Provisions:
GST Composition Scheme since being launched as a benefit for the small businesses comes with many
stringent provisions in case it is violated or misused. Taxpayers who are wrongly registered under the GST
Compositions Scheme if found guilty are liable to pay the entire tax evaded retrospectively along with
interest and penalty up to 100% of such amount.
• Payment of taxes from one’s own pockets:
Taxpayers under the GST Composition Scheme are not allowed to issue tax invoices. They are also not
eligible to take input tax credit from the suppliers. This results in the taxpayers paying the GST from their
own pockets. Even if the rate of taxation is reduced, this still results in funds outflow from the pocket of
the registered taxpayer.
• Limited scope of trade:
Registered taxpayers are not allowed to supply non-taxable or exempted goods. These further limits the
scope of trade of the taxpayers registered under the GST Composition Scheme.
The above limitations make it difficult for the smooth acceptance and proceedings of the GST composition
scheme. These limitations have been addressed to the GST Council and due suggestions for the same are
sought.

DIFFERENCE BETWEEN NORMAL DEALER & COMPOSITE DEALER

A composite supplier has a different and reduced set of compliance when compared with the normal
taxpayer. The same can be better understood through a comparison as under
Basis of
Difference Composite Supplier Normal Supplier

Rate of GST A lower tax of rate up to the A higher rate of tax up to 28%
maximum of 6% has been has been notified in this case.
prescribed.

Input Tax Cannot take benefit of ITC on ITC can be availed to set off
Credit inward supply (purchases) the output tax liability

Pass on the The composite supplier cannot The normal taxpayer can pass
credit and pass on the credit of tax to the on the credit as well as
incidence of recipient. incidence of taxes payable
the tax onto the recipient

Annual Return Annual summary of the Annual summary of the

transaction is to be filed in transaction is to be filed in
form GSTR 9A form GSTR 9

Monthly / One quarterly return i.e. GSTR Three monthly returns need to
Quarterly 4 needs to be filed by be filed by a normal supplier
Returns composition taxpayer namely GSTR 1, GSTR 2 &
GSTR 3/ 3B

Inter-State Cannot make interstate supply Can make interstate supply

Supply without restrictions.

COMPUTATION OF ASSESSABLE VALUE & GST LIABILITY

STRUCTURE OF GST IN INDIA:
OR
CONCEPT OF CGST, SGST, UTGST AND IGST:

a. CGST: Central Goods and Services Tax:

It is levied & collected under the authority of CGST Act, 2017 passed by the Parliament. It is a
tax levied on Intra State Supplies of both goods and services by the Central Government and is
governed by the CGST Act, 2017.
 b. SGST : State Goods and Services Tax :
It is levied& collected under the authority of SGST Act, 2017 passed by respective State. It is a
tax levied on Intra State Supplies of both goods and services by the State Government and is
governed by the SGST Act, 2017.
c. UTGST: Union Territory Goods and Services Tax:
It is levied & collected under the authority of UTGST Act, 2017 passed by the Parliament. This
is applicable to Union Territories, i.e., Andaman & Nicobar Islands, Lakshadweep, Dadra &
Nagar Haveli, Daman & Diu, Chandigarh and other territory. SGST is levied under the
respective state legislations. Jammu & Kashmir & Laddakh has been made union territories but
for the time being J&K SGST Act is applicable. Dadra & Nagar Haveli & Daman & Diu are to
be merged into a single Union Territory.
d. IGST : Integrated Goods and Services Tax:
It is levied on all inter-state supplies in the GST regime and addresses the ills of the Central Sales
Tax. The IGST mechanism ensures that the tax money goes to the state where consumption takes
place. Though IGST is levied by the centre, the revenue does not belong fully to the centre. The
tax revenue collected as IGST goes partially to the Centre as CGST and the remaining to the
State/UT where consumption takes place as SGST/UTGST.
CONCEPT OF TRANSACTION VALUE:
Value of supply will be transaction value which is price actually paid or payable provided the:
a. Supplier and recipient should not be related person and
b. Price charged must be the sole consideration.
As per valuation provision, transaction value should be taken for the purpose of valuation under
GST and “Transaction value” has been explained in the section as the price actually paid or
payable for the supply of goods and/or services or both where the supplier and the recipient of
the supply are not related and the price is the sole consideration for the supply.
From this, it can be gathered that there should be a clear nexus between the supply of goods or
services and the amount received by the supplier of goods or services. If no linkage can be
established between the price paid or payable and the supply of goods/services, the inclusion of
the price within the valuation may be examined. In that case. Applicable Valuation rules
provides the mechanism to identify value of supply.
What shall be included in Transaction Value?
As per section 15(1), Transaction value also include the following component.
a. Any taxes, duties, cesses, fees and charges levied under any law for the time being in
force other than GST Act if charged separately by supplier. Hence other than CGST +
SGST + IGST + Compensation cess, all other taxes, duties, cess or fee shall be included
in transaction value.
b. Any amount that supplier is liable to pay, but instead of supplier, recipient incur such
amount and this has not been included in price charged by supplier. This is thirdparty
payment made by recipient on behalf of supplier, such expenses needs to be added in
transaction value. In normal circumstances, the supplier will have to incur certain
 expense and is required to pay such amount to third party. He would include such
expenses in final price charged to customer but in some cases customer makes payment
to such third party directly hence supplier doesn’t include such amount in his bill, still it
would form part of transaction value.
c. Incidental expenses, including commission and packing, charged by the supplier to the
recipient of a supply and any amount charged for anything done by the supplier in respect
of the supply of goods or services or both at the time of, or before delivery of goods or
supply of services. This is additional expenses over and above price of goods or services
that supplier is incurring on behalf of recipient that needs to be added in transaction
value. E.g. Packing charges will be charged to customer and will form part of transaction
value. Installation and testing charge at recipient location will be added being amount
charged for something done by supplier in respect of supply at the time of making the
supply.
d. Interest or late fee or penalty for delayed payment of any consideration for any
supply. Any additional consideration charged by supplier from recipient on default or late
payment off consideration in form of interest or penalty should be added in transaction
value. E.g. Mr. X charged Rs.15000 as interest for delayed payment of consideration
beyond due date from Mr.Y. in this case, Interest will form part of transaction value but it
needs to be noted that time of supply in such case will be when the supplier receives such
additional consideration.
e. Subsidies directly linked to the price excluding subsidies provided by the Central
Government and State Governments. On inclusion of subsidies provided by Central or
state Government, transaction value will reduce. If subsidies are provided by somebody
other than by Central or state government then Transaction value will not be reduced.
Such subsidy is added to the value of supply of the supplier who receives the subsidy.
What shall not be included in Transaction value?
Transaction value shall not include Discount which is given before or at the time of supply if
such discount is provided in Invoice itself. When discount is not provided in invoice or when
discount is offered after effecting supply, then also it will be not included in transaction value
provided;
a. There is agreement in force at or before supply to grant such discount and such discount
can be specifically linked to relevant invoice and
b. Recipient of goods or service has reversed input tax credit attributable to such discount
.Discount given in invoice is always deducted from value of supply provided and GST
will be calculated on net taxable value.
FORMAT FOR THE CALCULATION OF ASSESSABLE /TAXABLE VALUE
(For the Value of Supply of Goods)
PARTICULARS AMOUNT

Transaction Value XXXXX

(+) Inclusions: ( If charged separately/if not included in above Price)

1. All the Taxes, Duties, Charges, Fees (excluding GST) XXXXX

2. Supply related Expenses like Loading and XXXXX
weighting/inspection/Testing/Quality Control, Packing charges,
Commission, Installation and certification
3. Interest, Late fees or Penalty for the delayed payment. XXXXX
4. Design and Engineering Expenses XXXXX
5. Insurance, Freight, Carriage and Transportation Charges XXXXX
6. Non Government Subsidies XXXXX
7. After Sales Services / Guarantee charges. XXXXX

(-) Exclusions:
1. All type of Discounts at, after or before the supply(Compulsory) XXXXX
2. GST ( If it is included in above Price) XXXXX

ASSESSABLE OR TAXABLE VALUE XXXXX

What if Supplier and Recipient are related or price is not sole consideration?
when supplier and Recipient are related or even price is not sole consideration, then Value of
supply shall be determined based on the Valuation Rules.
1. Value of supply of goods or services where the consideration is not wholly in money
(Rule 27)
In such case the value of supply shall be
a. Open Market value of such supply
b. If open market value is not available then consideration in money plus money equivalent
of the non-money consideration if such amount known at the time of supply.
c. If by the above two method, the value cannot be determined, then the value of supply will
be the value of supply of goods or services or both of like kind and quality.
d. If by above three method, value can not be determined then value will be consideration in
money plus 10% Mark up as per Rule 30 or by other reasonable means as per rule 31 of
CGST Rules.
EXAMPLES IN DIFFERENT CASES OF VALUE OF SUPPLY
WHERE FULL CONSIDERATION IS NOT PAYABLE IN MONEY:
Example 01 :
Where a new T.V. is purchased by Joshi for Rs. 20,000 and giving his old T.V. set in
Exchange at the same time the price of the T.V. without exchange is Rs. 25,000.
So the value of supply shall be: Rs. 25,000 (a)
Example 02 :
Where a new T.V. is purchased by Joshi for Rs. 20,000 and giving his old T.V. set in
Exchange at the same time the price of the old T.V. given in exchange is Rs. 2,000.
So the value of supply shall be: Rs. 22,000 (b)
Example 03 :
 Where a new T.V. of SAMSUNG is purchased by Joshi Rs. 26,000 in cash and giving his
old T.V. set in Exchange at the same time the price of the same model of L.G. T.V. is Rs.
30,000.
So the value of supply shall be: Rs. 30,000 (c)

2. Value of supply of goods or services or both between distinct or related persons,

other than through an agent (Rule 28)
Relationship may influence the price and hence there is separate valuation rules in case of
transaction between related person. Value of supply in case of supply between distinct
person as specified in sections 25(4) and 25(5) of CGST Act or related person as
mentioned above, other than where supply is made through an agent, shall be:
a. Open market value of such supply
b. if the open market value is not available then value of supply of goods or services of
like kind and quality will be the value;
c. If by above two method, value can not be determined then value will be 110% of cost
as per Rule 30 or by other reasonable means as per rule 31 of CGST Rules
3. Value of supply of goods made or received through an agent (Rule 29)
When supply is made through an agent then value of supply shall be:
a. Open market value of the goods being supplied or
b. At the option of supplier, value shall be 90% of price charged by recipient on supply
of like kind and quality goods to its non-related customer when goods are being
further supplied by recipient.
c. When value can not be determined as per above two situation then value of supply
shall be 110% of cost as per Rule 30 or by other reasonable means as per rule 31 of
CGST Rules.

PRACTICAL QUESTIONS WITH SOLUTION

ASSESSABLE VALUE & GST LIABILITY (IN CASE OF SUPPLY OF GOODS)
Practical Question 01:
The supply particulars of M/s Khandelwal and Sons are as under
1. Gur (Bought from farmers & Sold) 4,00,000
2. Ground nut 2,00,000
3. Cotton (Purchased from farmer & supplied to ginning factory) 5,00,000
4. Red Chilly (Bought from Registered dealer) 3,00,000
5. Jira 1,00,000
6. Garlic (purchased from farmer) 6,00,000
7. Kirana goods (Bought from Reg. supplier) 8,00,000
8. Sabudana 48,000
Railway, freight and expenses amounting Rs. 10,000 charged separately have been included in
the supply of cotton. Kirana goods worth Rs. 20,000 were returned after supply and credit note
issued. Compute Aggregate Turnover and Taxable Value under GST.
Solution:
 COMPUTATION OF AGGREGATE TURNOVER AND TAXABLE TURNOVER
1. Gur (Bought from farmers & Sold) 4,00,000
2. Ground nut 2,00,000
3. Cotton (Purchased from farmer & supplied to ginning factory) 5,00,000
4. Red Chilly (Bought from Registered dealer) 3,00,000
5. Jira 1,00,000
6. Garlic (purchased from farmer) 6,00,000
7. Kirana goods (Bought from Reg. supplier) 8,00,000
8. Sabudana 48,000
AGGREGATE TURNOVER 29,48,000
(-) Exempted Supply of Goods
1. Gur 4,00,000
2. Garlic 6,00,000 10,00,000
19,48,000

(-) Sales Returns of Kirana Goods 20,000

TAXABLE TURNOVER 19,28,000

Practical Question 02:

Lotus Electronics made the following sales in April 2021:
10 TV Sets @ Rs. 12,000 each
20 ACs @ Rs. 45,000 each
12 Washing machines @ Rs. 15,000
5 Music systems @ Rs. 3,000 each
They are offering 20% trade discount to their customers. Applicable rate of GST is 14% + 14%.
They paid GST of Rs. 1,00,000 at the time of the purchases of these electronic items. Calculate
net GST liability.
Solution:
CALCULATION OF ASSESSABLE VALUE AND NET GST LIABILITY
TV sets 10*12,000 = 1,20,000
AC 20*45,000 = 9,00,000
Washing machine 12*15,000 = 1,80,000
Music systems 5*3,000 = 15,000
12,15,000
(-) Trade Discount (@20%) 2,43,000
ASSESSABLE VALUE 9,72,000

GST on output supply (28% on Rs. 9,72,000) 2,72,160

(-) GST paid on input supply (ITC) 1,00,000
NET GST LIABILITY 1,72,160

Practical Question 03:

Following details are available regarding the supply of the grocery store for the month of May
2020:
Wheat Rs. 2,50,000
Soap Rs. 32,000
Rice Rs. 1,20,000
Biscuits Rs. 45,000
Chocolates Rs. 80,000
Plastic Items Rs. 1,10,000
Sugar Rs. 56,000
Washing Powder Rs. 34,000
Sugar is supplied to the dealers of other states. A trade discount of 10% is offered on the sale of
biscuits.
Freight charges of Rs. 2,000 recovered separately on supply of plastic items. Packing charges of
Rs. 1,000 is recovered separately on supply of soap. Calculate Assessable Value.

Solution:
CALCULATION OF ASSESSABLE VALUE

1. Wheat EXEMPT
2. Soap 32,000
3. Rice EXEMPT
4. Biscuits 45,000
5. Chocolates 80,000
6. Plastic Items 1,10,000
7. Sugar EXEMPT
8. Washing Powder 34,000
3,01,000
(+) Inclusions:
1. Freight on plastic items 2,000
2. Packing Charges on Soap 1,000
(-) Exclusions:
1. Trade Discount on Biscuits 4,500
(10% on Rs. 45,000)
ASSESSABLE VALUE 2,99,500

Practical Question 04:

ABC Stores is registered dealer of Indore (MP). They purchased goods of Rs. 3,00,000 with
CGST 6% and SGST 6% from Bhopal. They also purchased a computer for office use from
Indore for Rs. 50,000 plus CGST 9% and SGST 9%. They also purchased goods of Rs. 2,00,000
from Lucknow plus IGST of 12%.
The details of their sales are as under:
Sold goods to Composition dealer of Indore Rs. 1,00,000 + CGST 6% and SGST 6%
Sold goods to dealer of Jaipur Rs. 1,60,000 plus IGST at 12%
Sold goods to dealer of Delhi Rs. 1,40,000 plus IGST at 12%

Solution:
Computation of Net GST Liability of ABC Stores.
Particulars CGST SGST IGST
Intra state output Supply Rs. 1,00,000 6,000 6,000 NIL
Inter state output Supply Rs. 1,60,000 NIL NIL 19,200
Inter state output Supply Rs. 1,40,000 NIL NIL 16,800
6,000 6,000 36,000
Less Input Tax Credit (ITC):
Intra state input Supply Rs. 3,00,000 18,000 18,000 NIL
Intra state input Supply Rs. 50,000 4,500 4,500 NIL
Inter state input Supply Rs. 2,00,000 NIL NIL 24,000
GST LIABILITY (16,500) (16,500) 12,000
Less Adjustment of CGST 12,000 NIL (12,000)
NET GST LIABILITY (4,500) (16,500) NIL

Practical Question 05:

ABC Traders is a registered dealer from Delhi. They purchased goods of Rs. 2,00,000 plus 18%
from Mumbai for use in his factory, they also purchased some more inputs from Delhi for Rs.
1,00,000 plus 6+6. Their total expenses on the production are Rs. 50,000.
The profit margin for the dealer is 30% on the total cost of production. They sold 70% of
produced goods to a dealer of Patna and 20% to a local dealer. The rate of GST is 28% on
produced goods. Calculate net GST Liability.

SOLUTION:
CALCULATION OF COST OF PRODUCTION, PROFIT AND SALES
PARTICULARS AMOUNT
Cost of Production:
e. Inter state Input Supply 2,00,000
f. Intra state input Supply 1,00,000
g. Production Expenses 50,000
TOTAL COST OF PRODUCTION 3,50,000
(+) Profit Margin (@30%) 1,05,000
TOTAL SALES 4,55,000

Inter state Output Supply (@70% on Rs. 4,55,000) 3,18,500

Intra state Output Supply (@20% on Rs, 4,55,000) 91,000

Computation of Net GST Liability of ABC Traders.

Particulars CGST SGST IGST
Intra state output Supply Rs. 91,000 12,740 12,740 NIL
Inter state output Supply Rs. 3,18,500 NIL NIL 89,180
Less Input Tax Credit (ITC):
Intra state input Supply Rs. 1,00,000 6,000 6,000 NIL
Inter state input Supply Rs. 2,00,000 NIL NIL 36,000
NET GST LIABILITY 6,740 6,740 53,180

Practical Question 06:

Following is the detail of the output and input supply of M/s Ramesh Traders Bhopal for the
month of March 2021:
Intrastate sales of goods Rs. 4,00,000
 Interstate sales of goods Rs. 3,50,000
Interstate purchases of goods Rs. 1,50,000
Intrastate purchases of goods Rs. 60,000
At the end of the last month following are the balances brought forward regarding input tax
credit from the account of the trader:
CGST – Rs. 25,000; SGST Rs. 45,000 and IGST Rs. 50,000.
The applicable rate of GST is 18%. Calculate the net GST Liability for the month of March
2021.
Solution:

Computation of Net GST Liability of Ramesh Traders.

Particulars CGST SGST IGST
(9%) (9%) (18%)
Intra state output Supply Rs. 4,00,000 36,000 36,000 NIL
Inter state output Supply Rs. 3,50,000 NIL NIL 63,000
Less: Input Tax Credit (ITC):
Intra state input Supply Rs. 60,000 5,400 5,400 NIL
Inter state input Supply Rs. 1,50,000 NIL NIL 27,000
GST LIABILITY 30,600 30,600 36,000
(-) Input Tax Credit b/fd (25,000) (45,000) (50,000)
5,600 (14,400) (14,000)
(-) Adjustment of ITC of IGST (5,600) NIL 5,600
NET GST LIABILITY NIL (14,400) (8,400)

NOTE:
ITC ADJUSTMENT RULE:
CGST: CGST, IGST
SGST: SGST,IGST
IGST: IGST, CGST, SGST

Practical Question 07:

Following is the detail of the output and input supply of M/s KK Traders Bhopal for the month
of March 2021:
Intrastate sales of goods Rs. 2,00,000
Interstate sales of goods Rs. 1,70,000
Interstate purchases of goods Rs. 1,30,000
Intrastate purchases of goods Rs. 30,000
At the end of the last month following are the balances brought forward regarding input tax
credit from the account of the trader:
CGST – Rs. 15,000; SGST Rs. 20,000 and IGST Rs. 25,000.
The applicable rate of GST is 18%. Calculate the net GST Liability for the month of March

Computation of Net GST Liability of KK Traders.

Particulars CGST SGST IGST
(9%) (9%) (18%)
Intra state output Supply Rs. 2,00,000 18,000 18,000 NIL
Inter state output Supply Rs. 1,70,000 NIL NIL 30,600
Less: Input Tax Credit (ITC):
Intra state input Supply Rs. 30,000 2,700 2,700 NIL
Inter state input Supply Rs. 1,30,000 NIL NIL 23,400
GST LIABILITY 15,300 15,300 7,200
(-) Input Tax Credit b/fd 15,000 20,000 25,000
300 (4,700) (17,800)
(-) Adjustment of ITC of IGST (300) NIL 300
NET GST LIABILITY NIL (4,700) (17,500)

ASSESSABLE VALUE & GST LIABILITY (IN CASE OF SUPPLY OF SERVICES)

Practical Question 01:

LP Solutions is providing information technology software services and provide the following
information related to the services rendered, invoice issued and payment received for these
services, for month ended on 31st March 2021 –
a. Amount received on 31st March, 2016 for up gradation and enhancement of software service
Rs 7,50,000
b. Service provided to United Nations in New Delhi for analysis, design and programming of
latest information technology software – Rs 6,00,000
c. Service billed to various clients Rs 56,00,000
GST has been charged separately in all the bills. Compute the value of total taxable services and
the total GST payable by LP Solutions @ 18% for month ended on 31st March, 2021.
Solution:
Computation of taxable value of services provided by LP solutions
2. Up gradation and enhancement of software service Rs 7,50,000
3. Service provided to United Nations in New Delhi EXEMPT
4. Service billed to various clients Rs 56,00,000
Taxable value of Services Rs. 63,50,000
So GST Liability (@ 18%) Rs. 11,43,000

Practical Question 02:

GK Ltd. is a company engaged in the service of recruitment and supply of manpower. It
furnishes the following details pertaining to the April 2021
a. Amount collected from clients for recruitment of Permanent Staff – Rs 5,00,000 and for
recruitment of Temporary Staff – Rs 3,00,000
b. Amounts collected from clients for pre –recruitment screening – Rs 2,50,000
c. Domestic helps arranged for friends & relative (Value of similar services is Rs 45,000 to
other customers) – Nil
d. Amount collected from a warehouse of agricultural produce for labour provided for
loading and unloading. – Rs 1,75,000
e. Amount received from employers for conducting campus interviews in colleges Rs
2,00,000.
Compute the value of taxable services rendered and the total GST payable @18% by the
assessee. All above amounts are inclusive of GST.
Solution:
Computation of taxable value of services provided by GK Ltd.
1. Amount collected from clients for recruitment of Permanent Staff Rs 5,00,000
2. Amount collected from clients for recruitment of Temporary Staff Rs 3,00,000
3. Amounts collected from clients for pre –recruitment screening Rs 2,50,000
4. Domestic helps arranged for friends & relative Rs. 45,000
5. Amount collected from a warehouse for labour services Rs 1,75,000
6. Amount received from employers for conducting campus interviews Rs 2,00,000
Total Value of Services including GST Rs. 14,70,000
Less: GST included ( 14,70,000*18/118) Rs. 2,24,237
Taxable value of Services Rs. 12,45,773

Practical Question 03:

HR Hotels Ltd. is running 10 hotels in different part of the country. Following detail are
available from the month of Sept. 2020.
a. Budget Rooms: 30 rooms at declared rent of Rs. 800 per day, 50% rooms occupied for 25
days.
b. Economy Rooms: 50 rooms declared rent Rs. 1,100 per day, 70% rooms occupied for 20
days at 10% discount.
c. Deluxe Rooms: 20 rooms, at Rs. 1,500 per day, 75% occupied for 20 days at 20%
discount.
d. AC Rooms: 10 rooms at Rs. 2,000 per day 50% occupied for 15 days at 30% discount.
e. Marriage Hall: Rs. 40,000 per day, occupied for only 3 days at 20% discount.
Calculate Taxable value of the services of this company, if GST is charged separately in the
invoice. Also calculate the GST liability for the month.

Solution:
Computation of Taxable value of the services of HR Hotels Ltd.

1. 30 Budget Rooms (Declared Rent is less than Rs. 1,000) EXEMPT

2. 50 Economy Rooms (Rs. 990*35*20) 6,93,000
3. 20 Deluxe Rooms (Rs. 1,200*15*20) 3,60,000
4. 10 AC Rooms ((Rs. 1,400*5*15) 1,05,000
5. Marriage Hall (Rs. Rs. 32,000*3) 96,000
Taxable value of the services 12,54,000
GST Liability (@18% on Rs. 12,54,000) 2,25,720

Practical Question 04:

Compute the GST liability of Mr . Verma, an air travel agent for May 2021 using the following
details:
a. Basic Air fare collected for Domestic booking of tickets – Rs 45,00,000
b. Basic Air fare collected for International booking of tickets – Rs 90,00, 000
c. Commission received from the airlines towards the sale of above tickets – Rs 12,00,
Mr. Verma is not eligible for Small Service Providers exemption, also GST has been charged
separately
 Computation of Taxable value of the services of Mr. Verma Air Travel Agent.
Taxable value:
Domestic Booking (5% of 45,00,000) Rs. 2,25,000
International Booking (10% of 90,00,000) Rs. 9,00,000
Total Taxable Value Rs. 11,25,000

So GST Payable = 18% on 11,25,000 = Rs. 2,02,500.

Q.1. Following details are available regarding the supply of the VIP General Stores for the
month of Sept 2021:
Biscuits Rs. 96,000
Ice cream Rs. 1,12,000
Pet Bottles Rs. 2,37,000
Sugar Rs. 87,000
Washing Soap Rs. 89,000
Besan Rs. 45,000
Cosmetic Products Rs. 3,76,000
Rice Rs. 1,20,000
Sugar is supplied to the dealers of other states. A trade discount of 10% is offered on the sale of
ice cream. Freight charges of Rs. 3,500 recovered separately on supply of biscuits. Packing
charges of Rs. 4,000 is recovered separately on supply of washing soap. Calculate Assessable
Value.

Q.2 Following is the detail of the output and input supply of a registerd Traders Bhopal for the
month of Oct. 2020:
Intrastate sales of goods Rs. 3,96,000
Interstate sales of goods Rs. 3,75,000
Interstate purchases of goods Rs. 45,000
Intrastate purchases of goods Rs. 60,000
At the end of the last month, following are the balances brought forward regarding input tax
credit from the account of the trader:
CGST – Rs. 31,000; SGST Rs. 51,000 and IGST Rs. 48,000.
The applicable rate of GST is 12%. Calculate the net GST Liability for the month of Oct.
2021

Q.3. GP Computers made the following sales in April 2021:

20 keyboards @ Rs. 800 each
15 CPUs @ Rs. 34,000 each
12 Monitors @ Rs. 8,000
5 Printers @ Rs. 12,,000 each
They are offering 20% trade discount to their customers. Applicable rate of GST is 14% + 14%.
Calculate net GST liability.
Q. 4. Speed Ltd. is a company engaged in the service of courier and transport of goods It
furnishes the following details pertaining to the April 2021
a. Amount collected from clients for domestic courier – Rs 1,24,000 and for international
courier – Rs 2,87,000
 b. Amounts collected from clients for parcel courier – Rs 1,56,000
c. Amount collected from a warehouse of transport of agricultural produce Rs 3,95,000
d. Amount received from customers for cargo services Rs 2,37,000
Compute the value of taxable services rendered and the total GST payable @18% by the
assessee. All above amounts are inclusive of GST.
Q.5. A dealer registered under GST provides the following information for the month of August
2020
Intrastate purchases of taxable goods Rs. 2,50,000
Interstate taxable supply of goods Rs. 6,00,000
Intrastate taxable supply of goods Rs. 3,75,000
He has the following input tax credit at the beginning of the month CGST – Rs. 40,000, SGST –
Rs. 60,000 and IGST- Rs. 50,000. Rate of CGST, SGST and IGST is 9%, 9% and 18%
respectively. Compute the Net GST payable by the dealer.

Q.6. The supply particulars of M/s Sethi & Sons are as under
1. Sugar (Bought from farmers & Sold) 2,55,000
2. Wheat 1.20,000
3. Mustard (Purchased from farmer) 3,50,000
4. Almond Oil (Bought from Registered dealer) 2,20,000
5. Coconut Oil 2,85,000
6. Garlic (purchased from farmer) 4,45,000
7. Stationery goods (Bought from Reg. supplier) 1,35,000
8. Soyabean 1,75,000
Railway, freight and expenses amounting Rs. 22,000 charged separately have been included in
the supply of sugar. Stationery goods worth Rs. 13,000 were returned after supply and credit note
issued. Compute Aggregate Turnover and Taxable Value under GST.

Q.7. MRT Tea Traders is a retail supplier of tea leaves presents the following expected
information for the year
1) Cost of input purchase Rs. 35 lakh
2) Input tax @ 5% on purchases.
3) Value of Goods supplied (at fixed selling price inclusive of all taxes) Rs. 42 lakh (GST on
taxable supply @ 5%)
4) Expenses of keeping detailed accounting records required under the GST laws will be Rs.
84,000 per annum, which shall be reduced to Rs. 30,000 if composition scheme is opted. Other
exp. are 3,60,000 per annum (in each position) Should firm adopt composition alternative or not?

Q.8. From the following information, compute value of taxable supply under IGST Act in
respect of inter-state supply.
1) Value of machine (including GST 18%) 12,50,000
2) The invoice value includes the following
a) Design charges 8,700
b) Consultancy charges in relation to pre-installation planning 12,500
c) Testing charges 9,300
d) Inspection charges 8,200
3) Trade discount actually allowed shown separately in invoice 70,000

Q.9. KJ Electronics supplied the following electrical goods on 18th May 2020:

a. 2 Air Conditioners - @ Rs. 55,000 each

b. 5 Washing machines - @ Rs. 15,000 each
c. 7 Mixers - @ Rs. 5,000 each
d. 5 TV sets – Rs. 20,000 each
Tax rate on AC is 28% and on all other items 12%. Tax is charged separately. Find out the
amount of GST payable.

Q.10. Mr. Bhavesh Jain is a Chartered Accountant and registered under GST. His receipts were
as under:

a. Accounting service remuneration Rs. 2,95,000

b. Audit fees received Rs. 3,38,000
c. Tax consultancy fees received Rs. 3,65,000
d. Advance fees for presenting the side of business clients in the reference of appeals
regarding income tax and GST Rs. 1,36,500.

The aforesaid receipts are excluded from GST. Calculate the taxable value of services and
find out GST payable if effective GST rate is 18%.

Q.11. GT Traders Ltd. is the manufacturer of mixer grinders. It gets order for the supply of
100 mixer grinders from a distributor. For this order following items are charges by them:

a. Price Per unit Rs. 2,000

b. Packing charges per unit Rs. 100
c. Trade discount @20% on Rs. 2,000.
d. Transit insurance premium Rs. 5,000.
e. Outward freight Rs. 15,000 and loading charges Rs. 4,000.
f. Interest charged for delayed payment Rs. 3,000.
Find out the taxable value and GST payable, if tax rate is 18%.

Q.12. ‘Fit & Fine’ is a fitness centre providing various services for the physical and mental
wellbeing to the customers. Following are the income of the centre for the
quarter ended on 31st March 2021.
1. Charges for weight reduction and slimming programme Rs. 6,57,600
2. Charges for physical fitness exercises facility provided Rs. 4,42,300
3. Charges for sauna-steam bath Rs. 1,58,500
4. Charges for gymnasium/aerobics Rs. 2,07,900
5. Yoga and meditation programme Rs. 3,63,200
6. Charges for therapeutic massages Rs. 1,76,300
Compute the value of the taxable services, on which 18% GST is payable