HANDBOOK ON GST FOR CA STUDENTS BOARD OF STUDIES THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

Transcription

1 HANDBOOK ON GST FOR CA STUDENTS BOARD OF STUDIES THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

2 Disclaimer: This Handbook has been prepared by the faculty of the Board of Studies. The objective of the Handbook is to provide material to the students to enable them to obtain knowledge in GST. All care has been taken to provide interpretations and discussions in a manner useful for the students. However, the Handbook has not been specifically discussed by the Council of the Institute or any of its Committees and the views expressed herein may not be taken to necessarily represent the views of the Council or any of its Committees. Permission of the Institute is essential for reproduction of any portion of this material. The Institute of Chartered Accountants of India All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form, or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior permission, in writing, from the publisher. Edition : June, 2017 Website : bosnoida@icai.org Committee/ : Board of Studies Department ISBN No. : Published by : The Publication Department on behalf of The Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha Marg, New Delhi , India. Printed by : For private circulation only ii

3 A WORD ABOUT THE HANDBOOK July 1, 2017 is going to be etched in the annals of the fiscal history of our country as the date of birth of Goods and Services Tax, the most pathbreaking and radical tax reform in the Indian economy. A more than decade long wait for GST has finally culminated on July 1, There is euphoria everywhere-amongst the policy makers and Government officials who have burnt midnight oil to usher in this new tax on the promised date, industry and businesses who will eventually deal with this new tax; and the consumers who will ultimately bear the incidence of GST. Everyone is upbeat about this new tax which is expected to bring many positive changes in the country s economy. GST brings with it multifarious advantages for the trade and industry; it amalgamates a large number of Central and State taxes into a single tax, it would mitigate cascading of taxes, it would break the artificial trade barriers to create a common national market. The consumers would also benefit from GST in terms of a reduction in the overall tax burden on goods, which was estimated to be around 25%-30% under the earlier indirect taxation regime. GST would also make Indian products competitive in the domestic and international markets and would give a fillip to the economic growth. GST also has something for the tax administrators in its kitty; because of its transparent and selfpolicing character, tax administrators would find GST easier to administer. You being the future Chartered Accountants have the onerous responsibility to keep yourself abreast with such a tectonic shift in the fiscal space. We, at Board of Studies, always endeavour to facilitate our students in remaining updated and au courant with the economic developments. With GST sharing its birthday with the birth of Institute of Chartered Accountants of India, no other day could have been so apt than July 1, 2017 to come out with a Handbook on GST for CA Students. This Handbook has been developed by the Board of Studies to disseminate knowledge on GST amongst students and build their capacities in this new tax regime. The Handbook is divided into four chapters covering the backdrop of GST in India, the broad principles of Indian GST, supply and charge of GST and impact of GST on various stakeholders. The content of this Handbook is based on position of GST laws as existing on 22 nd June, 2017 and takes into account the decisions taken by the GST Council till its 17 th meeting as available in the public domain. We are sure that you will make full use of this Handbook and continue increasing your knowledge base in the area of GST. Happy Reading and Best Wishes! iii

4 iv

5 CONTENTS CHAPTER 1: BACKDROP OF GST IN INDIA 1. Concept of GST Need for GST in India Framework of GST as introduced in India Benefits of GST Constitutional amendment CHAPTER 2: BROAD PRINCIPLES OF GST 1. Meaning and scope of supply (Section 7) Levy & collection of CGST [Section 9 of the CGST Act] Composition Levy (Section 10) Registration [sections 22 to 30] Meaning of inter-state and intra-state supply [Section 7 and 8 of the IGST Act] Classification under GST Exemptions under GST (Section 11 of the CGST Act) Place of Supply (Sections read with sections 7 & 8 of the IGST Act) Time of Supply (Sections 12 & 13 of the CGST Act) Rates of GST Valuation (Section 15) Input Tax Credit (Section of CGST Act) Set off of Input Tax Credit (ITC) (Section 49(5) of CGST Act) Whether branch transfer taxable? v

6 15. Supply in the course of import (Section 7 of IGST Act read with Section 11 of IGST Act) Supply in course of export (Section 11 of IGST Act read with Section 16 of IGST Act) Transitional Provisions (Sections of CGST Act) Other key concepts CHAPTER 3: SUPPLY AND CHARGE OF GST 1. Some relevant definitions Concept of supply [Section 7 of CGST Act] Composite and Mixed Supplies [Section 8] Extent & commencement of CGST Act/ SGST Act/ UTGST Act Levy and Collection of CGST [Section 9 of CGST] Levy & Collection of IGST [Section 5 of the IGST Act] CHAPTER 4: IMPACT OF GST 1. Impact on Traders Impact on Manufacturers Impact on Service Providers Impact on the Consumers Central Government & State Governments Overall Impact Impact on specific sectors Challenges for the Government after the implementation of GST GST - Way Forward for Industry vi

7 1 BACKDROP OF GST IN INDIA It has now been more than a decade since the idea of national Goods and Services Tax (GST) was mooted by Kelkar Task Force in The Task Force strongly recommended fully integrated GST on national basis. Subsequently, the then Union Finance Minister, Shri P. Chidambaram, while presenting the Central Budget ( ), announced that GST would be introduced from April 1, Since then, GST missed several deadlines and continued to be shrouded by the clouds of uncertainty. The talks of ushering in GST, however, gained momentum in the year 2014 when the NDA Government tabled the Constitution (122 nd Amendment) Bill, 2014 on GST in the Parliament on 19 th December, The Lok Sabha passed the Bill on 6 th May, 2015 and Rajya Sabha on 3 rd August, Subsequent to ratification of the Bill by more than 50% of the States, Constitution (122 nd Amendment) Bill, 2014 received the assent of the President on 8 th September, 2016 and became Constitution (101 st Amendment) Act, 2016, which paved the way for introduction of GST in India. In the following year, on 27 th March, 2017, the Central GST legislations - Central Goods and Services Tax Bill, 2017, Integrated Goods and Services Tax Bill, 2017, Union Territory Goods and Services Tax Bill, 2017 and Goods and Services Tax (Compensation to States) Bill, 2017 were introduced in Lok Sabha. Lok Sabha passed these bills on 29 th March, 2017 and with the receipt of the President s assent on 12 th April, 2017, the Bills were enacted. The enactment of the Central Acts was followed by the enactment of the State GST laws by various State Legislatures. Telangana, Rajasthan, Chhattisgarh, Punjab, Goa and Bihar were among the first ones to pass their respective State GST laws. GST is a path breaking indirect tax reform which will create a common national market. GST has subsumed multiple indirect taxes like excise duty, service tax, VAT, CST, luxury tax, entertainment tax, entry tax, etc. `

8 1.2 Handbook on GST France was the first country to implement GST in the year Within 62 years of its advent, about 160 countries across the world have adopted GST because this tax has the capacity to raise revenue in the most transparent and neutral manner. 1. CONCEPT OF GST What is 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 upto 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 by the 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.

9 Backdrop of GST in India NEED FOR GST IN INDIA Deficiencies in the existing value added taxation has led to GST A cure for ills of existing indirect tax regime In the earlier tax regime, a manufacturer of excisable goods charged excise duty and value added tax (VAT) on intra-state sale of goods. However, the VAT dealer on his subsequent intra-state sale of goods charged VAT (as per prevalent VAT rate as applicable in the respective State) on value comprising of (basic value + excise duty charged by manufacturer + profit by dealer). Further, in respect of tax on services, service tax was payable on all services other than the Negative list of services or otherwise exempted. 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:

10 1.4 Handbook on GST Non-inclusion of several local levies in State VAT such as luxury tax, entertainment tax, etc. Cascading of taxes on account of (i) levy of Non- VATable CST and (ii) inclusion of CENVAT in the value for imposing VAT No CENVAT after manufacturing stage Non-integration VAT & service tax of Double taxation of a transaction as both goods and services A comprehensive tax structure covering both goods and services viz. Goods and Service Tax (GST) addresses these problems. Simultaneous introduction of GST at both Centre and State levels has integrated taxes on goods and services for the purpose of setoff relief and ensures that both the 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 upto 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. 3. FRAMEWORK OF GST AS INTRODUCED IN INDIA 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 except the State of Jammu and Kashmir. GST is a destination based tax applicable on all transactions involving supply of goods and services for a consideration subject to exceptions

11 Backdrop of GST in India 1.5 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. There is single legislation CGST Act, for levying CGST. Similarly, Union Territories without State legislatures [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. 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. 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-vatable 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

12 1.6 Handbook on GST 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. Resultantly, Common GST Electronic Portal - managed by Goods and Services Network (GSTN) [a Special Purpose Vehicle], 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. Primarily, GSTN provides three front end services to the taxpayers namely registration, payment and return through GST Common Portal. The functions of the GSTN include: 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 the taxpayer return information; providing analysis of taxpayers' profile; and running the matching engine for matching, reversal and reclaim of input tax credit. GSTN has selected certain IT, ITeS and financial technology companies, to be called GST Suvidha Providers (GSPs). GSPs develop applications to be used by taxpayers for interacting with the GSTN. They facilitate the tax payers in uploading invoices as well as filing of returns and act as a single stop shop for GST related services. They customize products that address the needs of different segment of users. GSPs may take the help of Application Service Providers (ASPs) who act as a link between taxpayers and GSPs.

13 Backdrop of GST in India 1.7 Intra-State Supply In case of local supply of goods/ services, the supplier would charge dual GST i.e., CGST and SGST at specified rates on the supply. I. Supply of goods/ services by A to B Amount (in ` ) Value charged for supply of goods/ services 10,000 Add: 9% 900 Add: 9% 900 Total price charged by A from B for local supply of goods/ services 11,800 The CGST & SGST charged on B for supply of goods/services will be remitted by A to the appropriate account of the Central and State Government respectively. A is the first stage supplier of goods/services and hence, does not have credit of CGST, SGST or IGST.

14 1.8 Handbook on GST II. Supply of goods/services by B to C Value 20% B will avail credit of CGST and SGST paid by him on the purchase of goods/ services and will utilise such credit for being set off against the CGST and SGST payable on the supply of goods/services made by him to C. Amount (in ` ) Value charged for supply of goods/ services(` 10,000 x 120%) 12,000 Add: 9% 1080 Add: 9% 1080 Total price charged by B from C for local supply of goods/ services Computation of CGST, SGST payable by B to Government Amount (in ` ) CGST payable 1080 Less: Credit of CGST 900 CGST payable to Central Government 180 SGST payable 1080 Less: Credit of SGST 900 SGST payable to State Government 180 Note: Rates of CGST and SGST have been assumed to be 9% each for the sake of simplicity. Statement of revenue earned by Central and State Government Transaction Revenue to Central Government (` ) Revenue to State Government (` ) Supply of goods/services by A to B Supply of goods/services by B to C Total Inter-State Supply In case of inter-state supply of goods/ services, the supplier would charge IGST at specified rates on the supply.

15 Backdrop of GST in India 1.9 I. Supply of goods/services by X of State 1 to A of State 1 Amount (in ` ) Value charged for supply of goods/services 10,000 Add: 9% 900 Add: 9% 900 Total price charged by X from A for intra-state supply of goods/services 11,800 X is the first stage supplier of goods/services and hence, does not have any credit of CGST, SGST or IGST. II. Supply of goods/services by A of State 1 to B of State 2 Value 20% Amount (in ` ) Value charged for supply of goods/services (` 10,000 x 120%) 12,000 Add: 18% 2,160 Total price charged by A from B for inter-state supply of goods/services Computation of IGST payable to Government 14,160 Amount (in ` ) IGST payable 2,160 Less: Credit of CGST 900 Less: Credit of SGST 900 IGST payable to Central Government 360 The IGST charged on B of State 2 for supply of goods/services will be remitted by A of State 1 to the appropriate account of the Central Government. State 1 (Exporting State) will transfer SGST credit of ` 900 utilised in the payment of IGST to the Central Government. III. Supply of goods/services by B of State 2 to C of State 2 Value 20% B will avail credit of IGST paid by him on the purchase of goods/services and will utilise such credit for being set off against the CGST and SGST payable on the local supply of goods/services made by him to C.

16 1.10 Handbook on GST Amount (in ` ) Value charged for supply of goods/ services (` 12,000 x 120%) 14,400 Add: 9% 1,296 Add: 9% 1,296 Total price charged by B from C for local supply of goods/services 16,992 Computation of CGST, SGST payable to Government Amount (in ` ) CGST payable 1,296 Less: Credit of IGST 1,296 CGST payable to Central Government SGST payable 1,296 Less: Credit of IGST (` 2,160 - ` 1,296) 864 SGST payable to State Government 432 Central Government will transfer IGST credit of ` 864 utilised in the payment of SGST to State 2 (Importing State). Note: Rates of CGST, SGST and IGST have been assumed to be 9%, 9% and 18% respectively for the sake of simplicity. Statement of revenue earned by Central and State Governments Transaction Supply of goods/services by X to A Supply of goods/services by A to B Revenue to Central Government (` ) Revenue to Government of State 1 (` ) Transfer by State 1 to Centre 900 (900) Supply of goods/services by B to C Nil Revenue to Government of State 2 (` ) Transfer by Centre to State 2 (864) 864 Total 1,296 Nil 1,

17 Backdrop of GST in India BENEFITS OF GST 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. 5. CONSTITUTIONAL AMENDMENT The Constitutional provisions hitherto had delineated separate powers for the Centre and the States to impose various taxes. Whereas the Centre levied excise duty on all goods produced or manufactured in India, the States levied Value Added Tax once the goods entered the stream of trade upon completion of manufacture. Services were exclusively taxed by the Centre together with applicable cesses, if any. Besides, there were State specific levies like entry tax, Octroi, luxury tax, entertainment tax, lottery and betting tax, local taxes levied by Panchayats etc.

18 1.12 Handbook on GST With respect to goods imported from outside the country into India, Centre levied basic customs duty and additional duties of customs together with applicable cesses, if any. Consequently, a Constitutional amendment was needed to enable integration of the central excise duty including additional duties of customs, State VAT and certain State specific taxes and service tax levied by the Centre into a comprehensive goods and service tax. Constitution (101 Amendment Act), 2016 (hereinafter referred to as CAA) has 20 sections. Newly inserted Article 279A empowering President to constitute GST Council was notified on Remaining provisions were notified with effect from Significant provisions of CAA are discussed below: I. Article 246A: Power to make laws with respect to Goods and Services Tax: Newly inserted Article 246A (1) Notwithstanding anything contained in Articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State. (2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-state trade or commerce. Explanation. The provisions of this article, shall, in respect of goods and services tax referred to in clause (5) of article 279A, take effect from the date recommended by the Goods and Services Tax Council. This article grants power to Centre and State Governments to make laws with respect to GST imposed by Centre or such State. Centre has the exclusive power to make laws with respect to GST in case of inter-state supply of goods and/or services. However, in respect to the following goods, the aforesaid provisions shall apply from the date recommended by the GST Council:

19 Backdrop of GST in India 1.13 II. The provisions of Article 246A are notwithstanding anything contained in Articles 246 and 254. Article 254 deals with the supremacy of the laws made by Parliament. Definitions of Goods and Services Tax, Services and State incorporated under Article 366 The terms Goods and Services Tax, services and State have been defined under respective clauses of Article 366 as follows: Goods and services tax means any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption. Consequently, GST can be levied on all supply of goods and services except alcoholic liquor for human consumption. Services means anything other than goods. State, with reference to articles 246A, 268, 269, 269A and article 279A, includes a Union territory with Legislature. Definition of goods : The term goods has already been defined under clause (12) of Article 366 in an inclusive manner to provide that goods includes all materials, commodities, and articles. III. GST Council: Article 279A Article 279A of the Constitution empowers the President to constitute a joint forum of the Centre and States namely, Goods & Services Tax Council (GST Council). GST COUNCIL The provisions relating to GST Council came into force on 12 th September, President constituted the GST Council on 15 th September, The Union Finance Minister is the Chairman of this Council and Ministers in charge of Finance/Taxation or any other Minister nominated by each of the States & UTs with Legislatures are its members. Besides, the Union Minister of State in charge of

20 1.14 Handbook on GST Revenue or Finance is also its member. The function of the Council is to make recommendations to the Union and the States on important issues like tax rates, exemptions, threshold limits, dispute resolution etc. It shall also recommend the date on which GST be levied on petroleum crude, high speed diesel, motor spirit, natural gas and aviation turbine fuel. Every decision of the GST Council is taken by a majority of not less than three-fourths of the weighted votes of the members present and voting. Vote of the Centre has a weightage of one-third of total votes cast and votes of all the State Governments taken together has a weightage of two-thirds of the total votes cast, in that meeting. Other Significant provisions of CAA have been summarized as under: Integrated Goods and Services Tax (IGST) on inter-state transactions of goods and services to be levied and collected by the Central Government and apportioned between the Union and the States in the manner provided by Parliament by Law as per the recommendation of the GST Council. Principles for determining the place of supply and when a supply takes place in the course of inter-state trade or commerce shall be formulated by the Parliament, by law. The Union Government has retained the power to levy duties of excise on tobacco and tobacco products manufactured or produced in India. Thus, tobacco is subject to GST as well as central excise duty.

21 2 BROAD PRINCIPLES OF GST Goods and Services Tax is based on the principle of destination based consumption taxation as against the earlier principle of origin based taxation in case of sale of goods. It is applicable on "supply" of goods or services. In this chapter, certain key principles of GST have been touched upon like, supply, levy of GST, time and place of supply, input tax credit, value on which GST would be levied, registration requirements under GST. 1. MEANING AND SCOPE OF SUPPLY (SECTION 7) 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. As per section 7 of the CGST Act, supply includes: (a) (b) (c) all forms of supply of goods and/or services 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, importation of service, for a consideration whether or not in the course or furtherance of business, and The Government may, upon recommendation of the Council, specify, by notification, the transactions that are to be treated as (i) (ii) a supply of goods and not as a supply of services; or a supply of services and not as a supply of goods; as referred to in Schedule II (d) the activities specified in Schedule I, made or agreed to be made without a consideration.

22 2.2 Handbook on GST SUPPLY All forms of supply of goods and/or services 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. Importation of service for a consideration whether or not in the course or furtherance of business. Activities specified in Schedule I, made or agreed to be made without consideration. Activities to be treated as supply of goods or supply of services as referred to in Schedule II. Transactions mentioned in Schedule III will neither be treated as supply of goods nor supply of services 2. LEVY & COLLECTION OF CGST [SECTION 9 OF THE CGST ACT] Charging section 9 of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017) stipulates that a tax called Central Goods and Services Tax (CGST) shall be levied on all intra-state supplies of goods and/or services on the transaction value determined under section 15 and at the rate notified by the Central/State Government in this behalf on the recommendation of the Council. Maximum rate of CGST will be 20%. Further, the CGST shall be collected in the prescribed manner.

23 Broad Principles of GST 2.3 The Central Government may, on the recommendation of the Council, by notification, specify categories of supply of goods and/or services the tax on which is payable on reverse charge basis and the tax thereon shall be paid by the recipient of such goods and/or services. All the provisions of the CGST Act shall apply to such person as if he is the person liable for paying the tax in relation to the supply of such goods and/or services. Some of the services notified by the GST council are services provided by a goods transport agency (GTA) in respect of transportation of goods by road, sponsorship services, services provided by an arbitral tribunal, services provided by a director of a company to a body corporate, etc. CGST in respect of the supply of taxable goods or services or both by an unregistered supplier to a registered person shall be paid by the registered person on reverse charge basis as the recipient of such goods or services or both. This is a significant change which would force even small tax payers to go for the regular scheme of full tax with credit if they want to deal with any registered businesses. The Central Government may specify categories of services on which the tax shall be paid by the Electronic Commerce Operator if such services are supplied through it. All the provisions of the CGST Act shall apply to such Electronic Commerce Operator as if he is the person liable for paying the tax in relation to supply of such services. Radio taxi or passenger transport services provided by taxi driver/rent a cab operator to any person, through electronic commerce operator have been notified for this purpose 1. The concept of supply and levy of GST have been discussed in detail in Chapter COMPOSITION LEVY (SECTION 10) Section 10 stipulates that a registered person, whose aggregate turnover in the preceding FY does not exceed ` 50 lakh, may opt to pay an amount calculated at the prescribed rates [mentioned in table below] during the current FY, in lieu of the tax payable by him. However, the Government may, by notification, increase the said limit of ` 50 lakh to such higher amount, not exceeding ` 1 crore, as may be recommended by the Council. The GST Council, in its meeting held on 11th June, 2017, had recommended increase in the turnover limit for Composition Levy for CGST and SGST purposes from ` 50 lakh to ` 75 lakh for all eligible registered persons. Further, in 18 th June, 2017 meeting, the GST Council has recommended that the turnover limit for composition levy shall be ` 50 lakh in respect of 9 of the Special Category States namely: 1 as notified by the GST Council during its 14 th meeting on 19 th May, 2017

24 2.4 Handbook on GST 1. Arunachal Pradesh, 2. Assam, 3. Manipur, 4. Meghalaya, 5. Mizoram, 6. Nagaland, 7. Sikkim, 8. Tripura, and 9. Himachal Pradesh. In case of Uttarakhand, the turnover limit will be ` 75 lakh. The composition rates prescribed are as follows S No. Category of registered persons Rate of tax* 1 Manufacturers, other than manufacturers of such goods as may be notified by the Government 2 Suppliers making supplies referred to in clause (b) of paragraph 6 of Schedule II [i.e. supply by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink] 3 Any other supplier eligible for composition levy under section 10 of CGST Act and Composition Rules, % 2½ % ½ % *These are composition rates for CGST. An equivalent amount of SGST also has to be paid. The above-mentioned composition levy shall not be granted to following - Supplier of services other than supplier of food articles. Supplier of goods which are not taxable under the CGST Act/SGST Act/UTGST Act. Supplier of inter-state outward supplies of goods Person supplying goods through an electronic commerce operator Manufacturer of certain goods as may be notified by the GST Council. A registered person shall not be eligible to opt for the composition levy unless all registered person under same PAN opt for the scheme. Resultantly, where a registered taxable person, having the same PAN has obtained more than one registration, whether in the same State or in two different States as Head Office and Branch, the Head Office or Branch cannot opt for Composition Levy Scheme in isolation. Both have to opt for composition levy.

25 Broad Principles of GST 2.5 Provisions relating to composition levy have been depicted in summarized form in the following diagram: tax 4. REGISTRATION [SECTIONS 22 TO 30] Taxable Person means a person who is registered or required to be registered under sections 22 or 24 of this Act. One who is required to obtain multiple registrations in different States or within one State would be considered as distinct person in each State.

26 2.6 Handbook on GST Persons not liable to be registered in terms of sections 22 to 24: (a) (b) (c) (d) (e) (f) Person engaged exclusively in supplying goods/services/both that are not liable to tax Person engaged exclusively in supplying goods/services/both that are wholly exempt from tax Agriculturist limited to supply of produce out of cultivation of land Specified category of persons notified by the Government - Central Government has notified the persons who are only engaged in making supplies of taxable goods or services or both, the total tax on which is liable to be paid on reverse charge basis by the recipient of such goods or services or both under section 9(3) as the category of persons exempted from obtaining registration under the CGST Act. Any supplier if his aggregate turnover in a financial year does not exceed ` 20 lakh. Any supplier if his aggregate turnover in a financial year does not exceed ` 10 lakh in Special Category States. Following is the list of Special Category States S. No. Special Category States S. No. Special Category States 1. Arunachal Pradesh 7. Nagaland 2. Assam 8. Sikkim 3. Jammu & Kashmir 9. Tripura 4. Manipur 10. Himachal Pradesh 5. Meghalaya 11. Uttarakhand 6. Mizoram Persons liable to be registered in terms of sections 22 to 24: As per section 22 of the CGST Act, every supplier shall be liable to be registered under the CGST Act in the State from where he makes a taxable supply of goods and/or services if his aggregate turnover in a financial year exceeds ` 20 lakh. However, in respect of Special Category States, the aforesaid threshold registration limit is ` 10 lakh.

27 Broad Principles of GST 2.7 However, as per section 24, following persons are required to be registered under CGST Act without any threshold limit: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) Person making any inter-state taxable supply Causal Taxable Persons Persons liable to pay GST under reverse charge Electronic Commerce Operator in respect of specified categories of services if such services are supplied through it. Non-Resident Taxable Persons. Persons who are required to deduct tax at source Persons who are required to collect tax at source Persons who supply goods and/or services on behalf of other taxable persons whether as an agent or otherwise Input Service Distributor Persons who supply goods and/or services through Electronic Commerce Operator who is required to collect tax at source Every Electronic Commerce Operator (No threshold limit). Every person supplying Online Information and Database Access or Retrieval Services (OIDAR Services) from a place outside India to a person in India, other than a registered taxable person. Such other person or class of persons as may be notified by the Government on the recommendation of the Council. The time-limit for applying for application for registration, amendments and cancellation of registration alongwith forms thereof are depicted in the following diagram:

28 2.8 Handbook on GST Casual or Nonresident taxable persons 5 days prior to commencement of business along with advance deposit of estimated tax liability Validity Earlier of: Period specified in application or, 90 days from registration Persons liable to registration Application for registration Application for Amendment Application for Cancellation Application for Revocation of Cancellation Within 30 days of becoming liable Within 15 days of such change Within 30 days of occurence of event warranting cancellation Within 30 days from date of service of order of cancellation REG-01 REG-07-TDS/TCS REG-09-NRI REG-10 OIDAR REG-14 REG-16 REG MEANING OF INTER-STATE AND INTRA-STATE SUPPLY [SECTION 7 AND 8 OF THE IGST ACT] In terms of Section 7(1) & (3) of the IGST Act, supply of goods or services in the course of inter-state trade or commerce means any supply where the location of the supplier and the place of supply are in I. Two different states II. Two different union territories III. A State and a Union territory

29 Broad Principles of GST 2.9 On the other hand, in terms of Section 8(1) and (2) of the IGST Act, intra-state supply of goods or services means supply of goods or services where the location of the supplier and place of supply are in the same State or same Union territory. However, the intra-state supply of goods shall not include: (i) Supply of goods or services to or by a SEZ developer or to or by an SEZ unit; (ii) Supply of goods brought into India in the course of import till they cross the customs frontiers of India. (iii) Supply of goods made to a tourist leaving India on any supply of goods taken out of India by him 6. CLASSIFICATION UNDER GST The classification of goods is to be done with reference to the broad category as per the Traiff under GST. In case of any doubt, the specific coverage within the alternative entries is to be chosen. The Harmonized System of Nomenclature (HSN), issued by the World Customs Organization, Brussels, could be adopted for classification of goods and with respect to services it would be in line with WTO classification. This would integrate Indian trade and industry with global trade even at each State level. Further, it would ensure that there is uniformity amongst Union and the States in the matter of classification of goods. Where the entry is not clear or more than one classification appears to be relevant, then reference could be made to the rules of interpretation contained in the HSN to resolve such a conflict. 7. EXEMPTIONS UNDER GST (SECTION 11 OF THE CGST ACT) 1. Exemption in Public Interest by Notification Section 11(1) The Central Government may exempt goods and/or services of any specified description from the tax leviable thereon by issuing exemption notification. However, following cumulative conditions need to be satisfied: (a) Exemption is to be granted in public interest only; (b) Exemption is to be granted on the recommendation of the GST Council; (c) Exemption is to be granted by a Notification in the Official Gazette;

30 2.10 Handbook on GST (d) Exemption to be granted either absolutely [i.e. without any condition] or subject to specified conditions; (e) Exemption can be from the whole or any part of the tax leviable thereon; and (f) The effective date of exemption may either be from the date of issue of notification or any date subsequent thereto as may be specified in the relevant Notification Further, in terms of Explanation to Section 11, where an exemption in respect of any goods and /or services from the whole of the tax leviable thereon has been granted absolutely, the taxable person providing such goods and/or services is not required to pay the tax on such goods and/or services. 2. Exemption in Public Interest by Special Order under Circumstances of an Exceptional Nature Section 11(2) The Central Government may exempt from payment of tax any goods and/or services on which tax is leviable by issuing special order. However, following cumulative conditions need to be satisfied: (a) Exemption is to be granted in public interest only; (b) Exemption is to be granted on the recommendation of the GST Council; (c) Exemption is to be granted by a special order in each case; and (d) Exemption is to be granted under circumstances of an exceptional nature to be specified in the aforesaid special order. 3. Insertion of an Explanation in the Notification or Order Section 11(3) The Central Government may insert an explanation in the Notification or Order issued under Section 11(1) or Section 11(2) respectively. However, following conditions need to be satisfied cumulatively: (a) Explanation is to be inserted only if the Central Government considers it necessary or expedient to do so; (b) Explanation is to be inserted with a view to clarify the scope or applicability of any Notification or Order; and (c) Explanation is to be issued within one year of issue of the Notification or Order. Further, such Explanation shall have the effect as if it had always been the part of the original/first relevant Notification or Order.

31 Broad Principles of GST PLACE OF SUPPLY (SECTIONS READ WITH SECTIONS 7 & 8 OF THE IGST ACT) Place of supply is a very important concept in GST, in so far as it will be instrumental in determination of not only levy (in case of cross-border transactions), but also in determining whether CGST and SGST are payable or IGST is payable in a particular transaction and the State to which the concerned revenue shall accrue. In case a transaction which was supposed to be treated as inter-state, but has wrongly been treated as intra-state, or vice-versa, the repercussion would be that the tax which was supposed to be paid will have to be paid and refund will be taken of the tax wrongly paid. Though no interest would be levied in such case, it would result in increased procedural requirement, and also in blockage of working capital where the amount involved is huge. Section 7 of the IGST Act provides that place of supply of goods shall, depend on the location of the supplier and place of supply. In terms of Section 7(1) of the IGST Act, inter-state supply of goods means any supply of goods where the location of the supplier and the place of supply are in different States. On the other hand, in Section 8(1), intra-state supply of goods means any supply of goods where the location of the supplier and the place of supply are in the same State. Place of supply of goods is to be determined as per the provisions contained in sections 10 and 11 and the place of supply of services is to be determined as under sections 12 to 14 of the IGST Act. Place of supply shall be decided by way of location of immovable property, place of performance of services, place of event, location of supplier of service, location of recipient of service etc. The provisions relating to determination of place of supply of goods and place of supply of services are depicted in the diagrams below:

32 2.12 Handbook on GST

33 PART A Broad Principles of GST 2.13

34 2.14 Handbook on GST PART B 9. TIME OF SUPPLY (SECTIONS 12 & 13 OF THE CGST ACT) The liability to pay CGST/SGST on the goods shall arise at the time of supply. The time of supply of goods would be earlier of the following dates, namely: (a) (b) the date of issue of invoice by the supplier or the last date on which he is required to issue the invoice with respect to the supply; or the date of receipt of payment by the supplier However, in case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earliest of the following dates, namely: -

35 Broad Principles of GST 2.15 (a) (b) (c) the date of receipt of goods, or the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or the date immediately following 30 days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier: If it is not possible to determine the time of supply by using these parameters, then the time of supply will be the date of entry in the books of account of the recipient of supply. In case of service on which the supplier is liable to pay tax [Forward charge], the time of supply shall be: - (a) (b) (c) the date of issue of invoice by the supplier if the invoice is issued within the prescribed period (i.e. 30 days or 45 days in case of banking/insurance cos.) or date of receipt of payment, whichever is earlier. the date of provision of service, if invoice is not issued within the prescribed period or date of receipt of payment, whichever is earlier. the date on which the recipient shows the receipt of services in his books of account, in the case (a) and (b) do not apply. The time of supply of service on which GST is payable on reverse charge basis (except from associated enterprises outside India) will be the earlier of the following: (a) date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier. (b) date immediately following 60 days since issue of invoice (or any other document in lieu of invoice) by the supplier. If it is not possible to determine the time of supply by using these parameters, then the time of supply will be the date of entry in the books of account of the recipient of supply. The provisions relating to time of supply have been summarised in the diagram given below:

36 2.16 Handbook on GST

37 Broad Principles of GST RATES OF GST The rates would be as under: (a) Essential items 0% (b) Commonly used Goods/services 5% (c) Products/ service which are basic necessities 12% (d) Standard goods, Revenue Neutral Rate (RNR) 18% (e) Demerit goods/services including luxury 28% + some cesses The States have sought a small band of flexibility in the rates. 11. VALUATION (SECTION 15) GST would normally be payable on the transaction value. Transaction value is the price actually paid or payable for the said supply of goods and/or services between un-related parties and price is the sole consideration. The transaction value is also said to include: Taxes other than GST Expenses incurred by recipient in relation to supply Incidental expenses charged at the time or before the supply Interest etc. for late payment Subsides directly linked to the price excluding subsidies provided by the Central and State Governments As regards discounts, the value of supply shall not include any discount which is given- (a) before or at the time of supply and shown in the invoice; (b) after the supply, in terms of an agreement that existed at or before the time of supply and are worked out invoice-wise and the proportionate input tax credit is reversed by the recipient. In situations where supply is made to a related person, or there is an additional consideration or consideration is not wholly in terms of money, value will have to be determined in terms of Valuation Rules. The provisions of section 15 relating to value of goods & services are depicted in the diagram given below:

38 2.18 Handbook on GST VALUE OF SUPPLY Supply made to unrelated person where price is the sole consideration Supply made to related person Supply where price is not the sole consideration Supply is a notified supply u/s 15(4) Assessable Value = Transaction value u/s 15 + Value to be determined under GST Valuation Rules Taxes other than GST Third party payments made by customer in relation to supply, which supplier was liable to pay and were not already included in the price Incidental expenses till delivery of goods/ for supply of services, if charged to recipient Subsidies linked to price of supply other than the ones given by Central/State Governments Interest/late fee/penalty for delay in payment of consideration Post supply discount/incentive, if not known in advance invoicewise. Such elements to be added only if They are related to the specific supply being valued AND If they are not already included in the price

39 Broad Principles of GST 2.19 The provisions relating to Valuation Rules have been summarised in the diagram given below: 12 INPUT TAX CREDIT (SECTION OF CGST ACT) In earlier indirect tax regime, the credit mechanism for indirect taxes levied by the Union Government was governed by the CENVAT Credit Rules, 2004(CCR), and the credit mechanism for state-level VAT on sale of goods was governed by the States under their respective VAT Acts and Rules. The VAT legislations allowed input tax credit (ITC) of VAT on inputs and capital goods in transactions within the state, but not on inputs and capital goods coming in the State from outside the state, on which central sales tax is paid. The CCR

40 2.20 Handbook on GST allowed availing and utilization of credit of duty/tax paid on both goods (capital goods and inputs) and services by the manufacturers and the service providers across the country. The credit across goods and services was integrated vide the CCR in the year 2004 to mitigate the cascading effects of central levies namely, central excise and service tax. However, the credit chain remained fragmented on account of State-Level VAT as the credit of central taxes could not be set off against a State levy. The chain further got distorted as ITC was not available in inter-state purchases. This resulted in cascading of taxes leading to increase in costs of goods and services. The GST regime promises seamless credit on goods and services across the entire supply chain with some exceptions like supplies charged to tax under special composition schemes and supply of exempted goods and/or services. ITC is considered to be the backbone of the GST regime. In fact, it is the provisions of ITC which essentially make GST a value added tax i.e., collection of tax at all points of supply chain after allowing credit of tax paid at earlier points. The provisions relating to Input Tax Credit have been summarised in the diagram given below:

41 Broad Principles of GST SET OFF OF INPUT TAX CREDIT (ITC) (SECTION 49(5) OF CGST ACT) ITC is credited to a registered person s electronic credit ledger. The person may use this to pay his output tax liability. The use of ITC for payment of tax on inter-state supplies is the point in which GST differs sharply from the previous system of central and state taxation. In GST, inter-state supplies are levied to IGST (integrated goods and services tax), which is the sum of the applicable CGST and SGST / UTGST. In terms of section 49(5), ITC of IGST can be used to pay IGST, CGST and SGST/UTGST in that order. ITC of CGST can be used to pay CGST and IGST in that order. ITC of SGST/UTGST can be used to pay SGST/UTGST and IGST in that order. ITC of CGST cannot be utilized towards payment of SGST/UTGST and vice versa. Hence cross-utilization of credit is available only between CGST and IGST and SGST and IGST. The main restriction is that the CGST credit cannot be utilized for payment of SGST and SGST credit cannot be utilized for payment of CGST. 14. WHETHER BRANCH TRANSFER TAXABLE? In earlier indirect tax regime, the transfer of goods without payment of CST is permissible when one transfers it to self or agent under Form F. Many States have input tax reversal to be made in such cases on value of goods purchased locally. For Example - 2% in Karnataka, 5 % in Tamil Nadu etc. Under GST, the movement of goods or services from one State to another on transfer basis would be subject to IGST [total of CGST+SGST]. Therefore, tax would not cascade to the extent of restriction. However, it will have issues of increased working capital, storage and logistics. The transfer of goods or services within a State between business verticals having separate registration would be liable to SGST and CGST. In case there is only one registration in the State, then there would be no GST [CGST+SGST] on the stock transfer.

42 2.22 Handbook on GST 15. SUPPLY IN THE COURSE OF IMPORT (SECTION 7 OF IGST ACT READ WITH SECTION 11 OF IGST ACT) In earlier indirect tax regime, import of goods was liable to Customs Duties comprising of Basic Customs duty [BCD], Additional duty of customs equal to Excise duty on like goods manufactured in India [CVD], Special Additional duty (SAD). Service tax was leviable on services which are provided from outside India and received in India and payable by the service receiver under reverse charge mechanism. The import of goods or services would be deemed as inter-state supply of goods or services and be subjected to the levy of Integrated GST (IGST). The import of goods would continue to attract Basic Customs Duty (BCD) and also IGST. 16. SUPPLY IN COURSE OF EXPORT (SECTION 11 OF IGST ACT READ WITH SECTION 16 OF IGST ACT) GST would not be charged on goods or services exported from India. In case, the supply of goods or supply of services qualifies as export out of India, as per the place of supply provisions, the transaction would be zero rated. The supplier would be allowed to export the goods or services without charging any tax, but can avail the CGST/SGST and IGST credits. If they are unable to utilise the credit, then they can go for refund of CGST/ SGST/ IGST paid on procurement of such goods and/or services. 17. TRANSITIONAL PROVISIONS (SECTIONS OF CGST ACT) The key to the success of GST would be when all present tax payers comfortably migrate to GST so that they can continue their businesses without any difficulty. The transition should also enable all to start on a level playing field. Some transitional provisions are briefly explained hereunder: (a) Every person registered under VAT, Central Excise or Service tax etc. having a valid PAN would be provisionally registered. Further particulars to be provided (online) to enable final registration. (Section 139)

43 Broad Principles of GST 2.23 (b) The CENVAT Credit (manufacturer/ service provider) or the VAT credit (manufacturer/ Trader) or Entry Tax credit (where allowed to be adjusted few States enable this) can be carried forward if credit is admissible as input tax credit under GST. It must be ensured that the last return before switching over to GST is made very carefully after proper reconciliation with books of account. [Section 140(1)] (c) Capital goods credit is available to a manufacturer/ service provider normally upto 50% in the year of acquisition and balance 50% in the subsequent year/s. Where one has either not availed though eligible or availed 50% pre-gst, the balance can be availed in the subsequent year subject to certain conditions. [Section 140(2)] (d) All manufacturers/ traders and to a lesser extent service providers would have stock of goods which may be in the form of raw material/ components, semi-finished goods and finished goods. Those not liable to be registered under the earlier law, claiming exemption, providing works contract service or claiming abatement or 1 st and 2 nd stage dealer would be eligible to avail the credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods subject to prescribed conditions. The proof of existence of stock may also be retained such as stock taking, entries in the running stock registers. The claim for credit of taxes paid on stock can be made for all the above situations along with duty paying documents to maximize the credit. [Sections 140(3)] (e) The credit for duty/ tax paid for goods in transit can be claimed within a period of 30 days with the condition that the same has been recorded in the books. A statement as prescribed should be submitted. [Section 140(5)] (f) (g) Many dealers and works contractors who are under the composition scheme in the local VAT laws as well as the service tax law are ineligible or may not find it economically viable especially if, they are into Business to Business (B2B) transactions. However, if such dealers opt for regular scheme under GST, the credit on inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day is allowed subject to certain conditions. [Section 140(6)] The common input services for services received before GST by an Input Service Distributor would be available for distribution as credit under GST Act even if invoice(s) relating to such services is received on or after implementation of GST. [Section 140(7)].

44 2.24 Handbook on GST (h) (i) (j) (k) (l) (m) Where a taxable person having Centralized Registration under the earlier law has obtained a registration under CGST Act, such person shall be allowed to take in his Electronic Credit Ledger, credit of the amount of CENVAT Credit carried forward in a return, furnished under the earlier law by him in respect of the period ending with the day immediately preceding the appointed day. However, the taxable person shall not be allowed to take credit unless the said amount is admissible as input tax credit under the GST Law. Further, such credit may be transferred to any of the registered persons having the same PAN for which the Centralized Registration was obtained under the earlier law. [Section 140(8)] Under the service tax law, when one had not paid for services within 3 months, the credit was to be reversed. If payment is made within 3 months of appointed date of GST such credit can be re-claimed. [Section 140(9)] When inputs/ Semi Finished/ finished Goods sent for job work on payment of duty are returned after appointed date within months of appointed date, no GST will be payable. If not returned, then the input tax credit would have to be reversed. This provision would apply where the credit on the stock in hand of job worker is claimed by the principal (sender). (Sections 141) Where any duty paid goods under the earlier law are sent 6 months prior to the appointed day i.e. introduction of GST date and are returned to any place of business on or after the aforesaid appointed day, the Registered Person(RP) shall be eligible for refund of the duty paid under the earlier law where such goods are returned by a person, other than a RP, to the said place of business within a period of six months from the appointed day and such goods are identifiable to the satisfaction of the proper officer. However, if the said goods are returned by a Registered Person, the return of goods shall be deemed to be a supply. [Section 142(1)] The issue of supplementary invoices, debit/ credit note can be done within 30 days of the date of price revision. In case of credit note, the reversal of the input tax credit by the receiver needs to be confirmed. [Section 142(2)] The claims for refund of any amount of CENVAT credit, duty, tax or interest made and pending as well as claims made after appointed date but pertaining to a prior period, required to be disposed of as per the earlier law and any amount eventually accruing to him shall be paid in cash. In case of a claim being rejected (subject to appeal in the old law) the amount so rejected would lapse. [Section 142(3)]

45 Broad Principles of GST 2.25 (n) (o) (p) (q) (r) (s) The claim for CENVAT credit or ITC or output duty or tax liability or dispute on Reverse charge mechanism made under the earlier law which is in adjudication etc. would be disposed of under the old law and any amount found to be admissible to the claimant shall be refunded to him in cash. [Sections 142 (6) & (7)] Under earlier indirect tax regime, returns could be revised within prescribed time limit. If aforesaid revision of returns after the appointed day, results in any amount recoverable from the assessee, the same shall be recovered as an arrear of tax under GST Act and the amount so recovered shall not be admissible as input tax credit under GST Act. On the other hand, if pursuant to aforesaid revision of return, any amount is found to be refundable or CENVAT Credit is found to be admissible to any taxable person, the same shall be refunded to him in cash. [Section 142(9)] The goods and/or services supplied on or after the appointed day in pursuance of a contract which has been entered into prior to the appointed day shall be liable to tax under GST. [Section142(10)] If tax in respect of the taxable services /taxable goods has been paid under earlier law, no tax shall be levied under this Act, and the taxable person shall be entitled to take credit of taxes paid under the earlier law to the extent of supplies made after the appointed day and such credit shall be calculated in such manner as may be prescribed. [Section 142(11)] Where goods are sent on approval basis and are returned within months, then no liability to pay exist under GST. Beyond that, tax is payable by the person returning the goods. If not returned, then the sender has to pay the GST of such earlier supplies. [Section 142(12)] Where a supplier has made any sale of goods in respect of which tax was required to be deducted at source under the earlier law and the supplier has also issued an invoice for the same before the appointed day, no tax is to be deducted at source under Section 51 of the CGST Act where payment to the said supplier is made on or after the appointed day. [Section 142(13)]

46 2.26 Handbook on GST The transitional provisions have been summarised in the following diagram:

47 Broad Principles of GST 2.27

48 2.28 Handbook on GST 18. OTHER KEY CONCEPTS Some other key concepts have been depicted in the diagrams as follows: RETURNS

49 Broad Principles of GST 2.29 OFFENCES AND PENALTIES

50 2.30 Handbook on GST

51 ASSESSMENT Broad Principles of GST 2.31

52 2.32 Handbook on GST AUDIT

53 Broad Principles of GST 2.33 INSPECTION SEARCH AND SEIZURE

54

55 3 SUPPLY AND CHARGE OF GST For the sake of brevity, the Central Goods and Services Act, 2017, Integrated Goods and Services Act, 2017 and Union Territory Goods and Services Act, 2017 has been referred to as CGST Act, IGST Act and UTGST Act respectively in this Chapter. 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. Taxble event under old laws Taxable event under GST GST Law, by levying tax on the supply of goods and/or services, departs from the historically understood concepts of taxable event under the State VAT Laws, Excise Laws and Service Tax Laws i.e. sale, manufacture and service respectively.

56 3.2 Handbook on GST In the GST regime, the entire value of supply of goods and / or services is taxed in an integrated manner, unlike the earlier indirect taxes, which were charged independently either on the manufacture or sale of goods, or on the provisions of services. Supply with consideration in course/ furtherance of business Import of services with consideration whether or not in course/ furtherance of business Taxable Event (Supply) Supply without consideration Activities treated as Supply of goods or Supply of services Activities neither the supply of goods nor the supply of services Composite and Mixed Supplies

57 Supply and Charge of GST SOME RELEVANT DEFINITIONS Goods: means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply. [Sec. 2(52) of CGST Act]. Business: includes (a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit; (b) any activity or transaction in connection with or incidental or ancillary to (a) above; (c) any activity or transaction in the nature of (a) above, whether or not there is volume, frequency, continuity or regularity of such transaction; (d) supply or acquisition of goods including capital assets and services in connection with commencement or closure of business; (e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members, as the case may be; (f) admission, for a consideration, of persons to any premises; and (g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation; (h) services provided by a race club by way of totalisator or a licence to book maker in such club (i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities [Section 2(17) of CGST Act].

58 3.4 Handbook on GST 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, 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. However, 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. [Section 2(31) of CGST Act]. Recipient: of supply of goods and/or services means- (a) (b) (c) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration, where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available, and where no consideration is payable for the supply of a service, the person to whom the service is rendered, and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied. [Section 2(93) of CGST Act] 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. [Section 2(102) of CGST Act]

59 Supply and Charge of GST 3.5 Person: includes [Section 2(84) of CGST Act]- An individual A Hindu undivided family A company A Limited Liability Partnership any corporation established by/under any Central, State or Provincial Act or Government company as defined in section 2(45) of Companies Act, 2013 A co-operative society registered under any law relating to cooperative societies Central Government or a State Government Trust A firm An association of persons or a body of individuals, whether incorporated or not, in India or outside India Any body corporate incorporated by or under the laws of a country outside India A local authority Society as defined under the Societies Registration Act, 1860 Every artificial juridicial person, not falling within any of the above Supplier: in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied. [Section 2(105) of CGST Act]. Reverse charge: means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under section 9(3)/9(4), or under section 5(3)/5(4) of the IGST Act [Section 2(98) of CGST Act].

60 3.6 Handbook on GST Taxable supply: means a supply of goods and/or services which is chargeable to tax under CGST Act. [Section 2(108) of CGST Act] Non-taxable supply: means a supply of goods or services or both which is not leviable to tax under CGST Act or under IGST Act. [Section 2(78) of CGST Act] Taxable person: means a person who is registered or liable to be registered under section 22 or section 24. [Section 2(107) of CGST Act] Section 22 enumerates the persons liable to be registered under CGST law and section 24 lists the persons liable to be registered compulsorily under the said laws. 2. CONCEPT OF SUPPLY [SECTION 7 OF CGST ACT] 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 herein: Section 7 Section 8 Schedule I Schedule II Schedule III Meaning and scope of supply Taxability of composite and mixed supplies Matters to be treated as supply even if made without consideration Matters to be treated as supply of goods or as supply of services Matters or transactions which shall be treated neither as supply of goods nor as supply of services. STATUTORY PROVISIONS Section 7 Sub Section Meaning and Scope of Supply Clause Particulars 1 Supply includes - (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business

61 Supply and Charge of GST 3.7 (b) (c) (d) importation of services, for a consideration whether or not in the course or furtherance of business, the activities specified in Schedule I, made or agreed to be made without a consideration, the activities to be treated as supply of goods or supply of services as referred to in Schedule II. 2 Notwithstanding anything contained in sub-section (1), (a) activities or transactions specified in Schedule III; or (b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services. 3 Subject to sub-sections (1) & (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as (a) (b) a supply of goods and not as a supply of services; or a supply of services and not as a supply of goods. ANALYSIS Section 7 of the CGST Act defines the scope of supply in an inclusive manner. The modes of supply mentioned in Section 7 are only in the forms of examples and the list is not exhaustive. This is substantiated by the use of words such as in the definition. Provisions of scope of supply under CGST Act have also been made applicable to IGST Act vide section 20 of the IGST Act. Discussion with regard to scope of supply has been categorized into following broad headings:

62 3.8 Handbook on GST Supply for consideration in course or furtherance of business. includes Importation of services for consideration whether or not in course or furtherance of business. Supply without consideration Supply Activities to be treated as supply of goods or supply of services excludes Negative list of services Each of the aforesaid categories have been discussed in detail below: The definition of supply begins with the term Supply includes, thus making it clear that CGST Act intends to give an extensive meaning to the term supply. The first part of section 7 includes 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 consideration in the course or furtherance of business.

63 Supply and Charge of GST 3.9 in the course or furtherance of business for consideration Supply includes sale, transfer, barter, exchange, licence, rental, lease, disposal Thus, the forms of supply as contemplated in this first part appear to have two pre-requisites the supply should be for a consideration; and in the course or furtherance of business. Consideration Supply in course or furtherance of business

64 3.10 Handbook on GST Now, we will analyse the various modes of supply mentioned herein: Sale and Transfer: Earlier, VAT was levied by the State on the sale of goods which was defined under most State VAT laws as transfer of property for consideration. Under the CGST Act, although sale has been treated as a form of supply leviable to GST, the definition of sale has not been provided. Further, the term transfer which has also been included as a form of supply is also not defined. Barter and Exchange: While barter may deal with a transaction which only includes an exchange of goods/services, exchange may cover a situation where the goods are partly paid for in goods and partly in money. By making a specific inclusion in the definition of supply, all barters and exchanges would be leviable to GST. Buying a new car in exchange of old car. Licence, Lease, Rental etc. : Licenses, leases and rentals of goods were earlier treated as services where the goods were transferred without effective possession and control and treated as sales where the goods were transferred with effective possession and control. Under the GST regime, such licenses, leases and rentals of goods with or without transfer of right to use are covered under the supply of service as per Schedule II to the CGST Act. Consideration : It includes any sum paid or payable for supply of goods and/or services. Advances paid, payments made by third person, amounts paid as contractual, deposits etc. Any transaction involving supply of goods and/or services without consideration is not a supply unless it is deemed to be a supply under law [as deemed in Schedule I of the CGST Act]. The connotation of supply gets expanded significantly through the second part of section 7 i.e. 7(1)(b) which brings within the ambit of supply, the importation of services for a consideration whether or not in the course or furtherance of business.

65 Supply and Charge of GST 3.11 Importation of services Supply Consideration in course or furtherance of business Supplies made without consideration as specifically mentioned in Schedule I appended to the CGST Act are deemed as Supply under section 7(1)(c) of the Act. The same has been discussed in the subsequent paras: In the past regime, in every tax statute, consideration played the most important role for levying taxes. For eg, if any service was provided for free to a person, such service was not subject to service tax. However, in the CGST Act, the importance of consideration has been diluted in certain cases this is an important departure from the earlier indirect tax regime. As per Schedule I, in the following four cases, supplies made without consideration will be treated as supply under section 7 of the CGST Act: I. Permanent Transfer/Disposal of Business Assets: Any kind of disposal or transfer of business assets made by an entity on permanent basis even though without consideration qualifies as supply. This clause is wide enough to cover transfer of business assets from holding to subsidiary company for nil consideration. However, it is important to note that this provision would apply only if input tax credit has been availed on such assets. XYZ & Co. donates old laptops to Charitable Schools when new laptops are purchased by business will qualify as supply provided input tax credit has been availed by XYZ & Co. on such laptops.

66 3.12 Handbook on GST A cloth retailer gives clothes from his business stock to his friend free of cost. In this case, transfer of business stock would amount to supply if he had claimed input tax credit on his purchase of the business asset. II. (i) Supply between related person or distinct persons: Supply of goods or services or both between related persons or between distinct persons as specified in section 25, will qualify as supply provided it is made in the course or furtherance of business. Related persons Persons shall be deemed to be related if such persons are officers or directors of one another s businesses such persons are employer and employee one of them directly or indirectly controls the other together they directly or indirectly control a third person; or they are members of the same family such persons are legally recognised partners in business any person directly or indirectly owns, controls or holds 25% or more of the outstanding voting stock or shares of both of them both of them are directly or indirectly controlled by a third person Persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related (ii) Distinct Persons specified under section 25 A person who has obtained/is required to obtain more than one registration, whether in one State/Union territory or more than one State/Union territory shall, in respect of each such registration, be treated as distinct persons. Further, where a person who has obtained or is required to obtain registration in a State or Union territory in respect of an establishment, has an establishment in another State or Union territory, then such establishments shall be treated as establishments of distinct persons.

67 Supply and Charge of GST 3.13 Mohan, a Chartered Accountant, has a registered head office in Delhi. He has also obtained registration in the State of West Bengal in respect of his newly opened branch office. Mohan shall be treated as distinct persons in respect of registrations in West Bengal and Delhi. Stock transfers or branch transfers: In view of the aforesaid discussion, transactions between different locations (with separate GST registrations) of same legal entity (eg., stock transfers or branch transfers) will qualify as supply under GST which is in contrast to the earlier regime. Supply of goods or services or both between an employer and employee: By virtue of the definition of related person given above, employer and employee are related persons. However, services provided by an employee to the employer in the course of or in relation to his employment are not treated as supply of services [Schedule III of CGST Act (discussed in subsequent paras)]. Further, Schedule I provides that gifts not exceeding ` 50,000 in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both. An employer gives Diwali gifts to employees worth ` 55,000/-. Since an employee and employer are considered to be related persons and the value of gifts exceeds ` 50,000, such supply would be leviable to GST. III. Principal Agent: Supply of goods by a principal to his agent, without consideration, where the agent undertakes to supply such goods on behalf of the principal is considered as supply. Similarly, supply of goods by an agent to his principal, without consideration, where the agent undertakes to receive such goods on behalf of the principal is considered as supply. Points which merit consideration, in this regard, are as follows: Only supply of goods is covered here Supply of goods between principal and agent without consideration is also supply. ABC Manufacturers Ltd. engages Raghav & Sons as an agent to sell goods on its behalf. For the purpose, ABC Manufacturers Ltd. has supplied the goods to Raghav & Sons located in Haryana. Supply of goods by ABC Manufacturers Ltd. to Raghav & Sons will qualify as supply even though Raghav & Sons has not paid any consideration yet.

68 3.14 Handbook on GST IV. Importation of services: Import of services by a taxable person from a related person or from his establishments located outside India, without consideration, in the course or furtherance of business shall be treated as supply. ABC Associates received legal consultancy services from its head office located in Malaysia. The head office has rendered such services free of cost to its branch office. Since ABC Associates and the branch office are related persons, services received by ABC Associates will qualify as supply even though the head office has not charged anything from it. Taxability of import of services Import of services with consideration without consideration in course or futherance of business not in course or futherance of business related person/distinct person + in course or futherance of business Other cases Taxable Non-taxable Section 7(1)(d) of the Act refers to Schedule II for determining whether a particular transaction is a supply of goods or supply of service. This helps in mitigating the ambiguities which existed in earlier laws. Under earlier laws, the restaurants used to charge both service tax and VAT on the value of food served. This so because both sale of goods and provision of service were involved and therefore taxable event under both the Statutes i.e. respective VAT law and service tax law got triggered.

69 Supply and Charge of GST 3.15 Under GST, the supply by a restaurant is treated as composite supply [discussed in detail in subsequent paras] as food and service is naturally bundled in ordinary course of business. However, Entry 6(b) of Schedule II to the CGST Act specifically provides that such composite supply shall be treated as supply of service. Hence, the entire value of invoice shall be treated as value of service and leviable to GST accordingly. This can be explained by way of the example in the following table: Position under earlier Laws Food Value = `100 Service Charges = `10 14% on food value = `14 Service 6% on food value = ` 6 Service 15% on service charges =` 1.5 Total Taxes paid VAT = `14 Service Tax = `7.5 Total = `21.5 VAT was charged on full value of food Service tax at abated rate was charged on food value. In nutshell, food was taxed twice under VAT laws and service tax laws and service tax was levied on service charges. Food Value = `100 Position under GST Service Charges = `10 18% = `19.8 The entire supply would be treated as a single composite supply under GST. The same is taxable as per supply of 18% on the entire value of supply. Schedule II appended to the CGST Act enlists the matters/transactions to be treated as Supply of either goods or services. The matters listed out are primarily those which had been entangled in litigation in the earlier regime owing to their complex nature and susceptibility to double taxation.

70 3.16 Handbook on GST These are as follows :- S.No. Transaction Type Nature of Supply 1. Transfer Title in goods Supply of Goods 2. Land and Building 3. Treatment or Process 4. Transfer of Business Assets Right in goods/ undivided share in goods without transfer of title in goods Title in goods under an agreement which stipulates that property shall pass at a future date. An agreement to sell ascertained goods at a future date. Lease, tenancy, easement, licence to occupy land Lease or letting out of building including a commercial, industrial or residential complex for business or commerce, wholly or partly Lease rentals collected shall be taxable as supply of services under GST. Applied to another person s goods Job Work performed by a job worker like dyeing of fabric in various colours. Goods forming part of business assets are transferred or disposed off by/under directions of person carrying on the business so as no longer to form part of those assets, whether or not for consideration Goods held/used for business are put to private use or are made available to any person for use for any purpose other than business, by/under directions of person carrying on the business, whether or not for consideration Supply of Services Supply of Goods Supply of Services Supply of Services Supply of Services Supply of Goods Supply of Services

71 Supply and Charge of GST 3.17 A director using car provided by the company for personal travels. Goods forming part of assets of any business carried on by a person who ceases to be a taxable person, shall be deemed to be supplied by him, in the course or furtherance of his business, immediately before he ceases to be a taxable person. Exceptions: A, a trader, is winding up his business. Any goods left in stock shall be deemed to be supplied by him and GST shall be payable. Business is transferred as a going concern to another person. Business is carried on by a personal representative who is deemed to be a taxable person. Supply of Goods 5. Renting of immovable property Construction of complex, building, civil structure, etc. The term construction includes additions, alterations, replacements, or remodeling of any existing civil structure. Temporary transfer or permitting use or enjoyment of any intellectual property right Development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of IT software Supply of GST related software to businesses for smooth processing of returns and accounts is supply of service. Supply of Services

72 3.18 Handbook on GST Agreeing to obligation to refrain from an act, or to tolerate an act or situation, or to do an act. Payment of liquidated damages under a contract for non performance/ short performance of obligation under a contract is supply of service. Transfer of right to use any goods for any purpose 6. Following composite supplies :- Works contract services. 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 transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract [Section 2(119) of CGST Act]. Supply by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink. 7. Supply of goods by an unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration. A local club supplies snacks etc. to its members during its monthly meeting for a nominal payment. Supply of Services Supply of Goods Schedule III in the CGST Act is akin to the negative list under the service tax regime. This schedule specifies transactions/ activities which shall be neither treated as supply of goods nor a supply of services. S.No. Activities or transactions which shall be treated neither as a supply of goods nor a supply of services 1. Services by an employee to the employer in the course of or in relation to his employment.

73 Supply and Charge of GST Services by any court or Tribunal established under any law for the time being in force. Explanation The term "Court" includes District Court, High Court and Supreme Court. 3. (a) Functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities; (b) (c) Duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or Duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause. 4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased. 5. Sale of land and, subject to paragraph 5(b) of Schedule II, sale of building. 6. Actionable claims, other than lottery, betting and gambling. Further, such activities/ transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council shall be treated neither as a supply of goods nor a supply of services. 3. COMPOSITE AND MIXED SUPPLIES [SECTION 8] STATUTORY PROVISIONS Section 8 Clauses Tax liability on composite and mixed supplies Particulars The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:-

74 3.20 Handbook on GST (a) (b) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and a mixed supply comprising of two or more supplies shall be treated as supply of that particular supply that attracts highest rate of tax. ANALYSIS In many cases, the transactions that fall within the scope of GST may consist of more than one element. These elements may be a mix of goods, or services, or both. Sometimes these elements, if supplied separately, may have different GST liabilities depending upon the rates, applicability of time of supply and place of supply provisions. To avoid disputes about whether the supplier is making a single supply with one liability, or multiple supplies with different liabilities, it has to be determined whether the supply is one of goods, or of services, or it is a supply constituted of both goods and services (composite supplies/ mixed supplies). In order to determine whether the supplies are composite supplies or mixed supplies, one needs to determine whether the supplies are naturally bundled or not naturally bundled in ordinary course of business. Composite supply means a supply made by a taxable person to a recipient and: comprises two or more taxable supplies of goods or services or both, or any combination thereof. are naturally bundled and supplied in conjunction with each other, in the ordinary course of business one of which is a principal supply [Section 2(30) of the CGST Act]. This means that in a composite supply, goods or services or both are bundled owing to natural necessities. The elements in a composite supply are dependent on the principal supply. Principal supply means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary. [Section 2(90) of CGST Act]

75 Supply and Charge of GST 3.21 How to determine the tax liability on composite supplies?: A composite supply comprising of two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply. Suvarna Manufacturers entered into a contract with XYZ Ltd. for supply of readymade shirts packed in designer boxes at XYZ Ltd. s outlet. Further, Suvarna Manufacturers would also get them insured during transit. In this case, supply of goods, packing materials, transport & insurance is a composite supply wherein supply of goods is principal supply. When a consumer buys a television set and he also gets warranty and a maintenance contract with the TV, this supply is a composite supply. In this example, supply of TV is the principal supply, warranty and maintenance services are ancillary. 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 [Section 2(74) of the CGST Act]. The individual supplies are independent of each other and are not naturally bundled How to determine the tax liability on mixed supplies?: A mixed supply comprising of two or more supplies shall be treated as supply of that particular supply that attracts highest rate of tax. A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink 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. A shopkeeper selling storage water bottles along with refrigerator. Bottles and the refrigerator can easily be priced and sold separately. So, such supplies are mixed supplies.

76 3.22 Handbook on GST Composite Supply Consist of two or more supplies Naturally bundled In conjunction with each other One of which is principal supply Tax liability shall be rate of principal supply Example: Charger supplied alongwith mobile phones. Mixed Supply Consist of two or more supply Not naturally bundled Though can be supplied independently, still supplied together Tax liability shall be the rate applicable to the supply that attracts highest rate of tax Example: A gift pack comprising of choclates and sweets. 4. Extent & Commencement of CGST Act/ SGST Act/ UTGST Act (i) Central Goods and Services Tax Act, 2017 extends to the whole of India except the State of Jammu and Kashmir [Section 1 of the CGST Act]. India: India means-

77 Supply and Charge of GST 3.23 territory of India as referred to in article 1 of the Constitution its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 the air space above its territory and territorial waters [Section 2(56) of CGST Act]. Territorial Waters (upto 12 NM from baseline) Exclusive Economic Zone (upto 200 NM from baseline) Contiguous Zone (upto 12 NM) High Sea Baseline Continental Shelf (upto 200 NM from TWI) (ii) State GST law of the respective State/Union Territory with State Legislature [Delhi and Puducherry]** extend to whole of that State/Union Territory. Maharashtra SGST Act, 2017 extends to whole of the State of the Maharashtra. **State: includes a Union territory with Legislature [Section 2(103) of the CGST Act]. (iii) Union Territory Goods and Services Tax Act, 2017 extends to the Union territories** of the Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli, Daman and Diu, Chandigarh and other territory, i.e. the Union Territories without State Legislature [Section 1 of the UTGST Act].

78 3.24 Handbook on GST **Union territory: means the territory of (a) (b) (c) (d) (e) (f) the Andaman and Nicobar Islands; Lakshadweep; Dadra and Nagar Haveli; Daman and Diu; Chandigarh; and other territory. Explanation For the purposes of this Act, each of the territories specified in sub-clauses (a) to (f) shall be considered to be a separate Union territory. 5. LEVY AND COLLECTION OF CGST [SECTION 9 OF CGST] The legality of any tax is established largely by some key aspects like the power to levy tax, the incidence of tax, the liability of being taxed, exemptions from being taxed and if there are any special provisions made in consonance with the socio- economic milieu of the country in which the tax is to be introduced. These provisions are covered under Chapter III of the CGST Act/IGST Act. Power to levy tax is drawn from the Constitution of India. Introduction of GST necessitated the Constitutional amendment to enable integration of the central excise duty including additional duties of customs, State VAT and certain State specific taxes and service tax levied by the Centre into a comprehensive goods and service tax [Discussed in detail in Chapter-1: Backdrop of GST in India]. The very basis for the charge of tax in any taxing statute is the taxable event i.e the point on which the levy of tax gets attracted. As discussed earlier, the taxable event under GST is SUPPLY. CGST and SGST/UTGST are levied on all intra-state supplies of goods and/or services while IGST is levied on all inter-state supplies of goods and/ or services.

79 Supply and Charge of GST 3.25 Where the location of the supplier and the place of supply of goods or services are in the same State/Union territory, it is treated as intra-state supply of goods or services respectively. Where the location of the supplier and the place of supply of goods or services are in (i) two different States or (ii) two different Union Territories or (iii) a State and a Union territory, it is treated as inter-state supply of goods or services respectively. STATUTORY PROVISIONS Section 9 Levy and collection Subsection Particulars 1 Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-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. 2 The central tax 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. 3 The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. 4 The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this

80 3.26 Handbook on GST Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both 5 The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra-state supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services. Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax: Provided further that where an electronic commerce operator does not have a physical presence in the taxable territory and also he does not have a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax. ANALYSIS A tax called the Central Goods and Services Tax (CGST) shall be levied on all intra-state supplies of goods or services or both. The tax shall be collected in such manner as may be prescribed and shall be paid by the taxable person. However, intra-state supply of alcoholic liquor for human consumption is outside the purview of CGST. Value for levy: Transaction value under section 15 of the CGST Act Rates of CGST: Rates for CGST are rates as may be notified by the Government on the recommendations of the GST Council [Rates notified are 5%, 12%, 18% and 28%]. Maximum rate of CGST will be 20%. However, CGST on supply of the following items has not been levied immediately. It shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council:

81 Supply and Charge of GST 3.27 petroleum crude high speed diesel motor spirit (commonly known as petrol) natural gas and aviation turbine fuel Reverse charge - Tax payable by recipient of supply of goods or services or both CGST shall be paid by the recipient of goods or services or both, on reverse charge basis, in the following cases: Supply of goods or services or both, notified by the Government on the recommendations of the GST Council. Supply of taxable goods or services or both by an unregistered supplier to a registered person All the provisions of the CGST Act shall apply to the recipient in the aforesaid cases as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. It is important to note that GST being an indirect tax, burden of the tax has to be passed on to the recipient. Under reverse charge also, the burden to pay GST is on the recipient, but the compliance requirements, i.e. to obtain registration under GST, deposit tax, filing returns with the Government, etc. has been shifted from supplier to recipient. List of services taxable under reverse charge 1, i.e. the services where tax is payable by the recipient, is as follows: S. No. Service Provider of service Recipient of Service 1. Taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory other Any person who is located in a nontaxable territory Any person located in the taxable territory other than non- 1 Aforesaid list of services under reverse charge has been as approved by the GST Council during its 14 th meeting on 19 th May, Since the list was uploaded immediately after the GST Council s decision, it was expected that the said list might undergo some changes as the same would be subject to further vetting.

82 3.28 Handbook on GST than non-assessee online recipient (OIDAR) assessee online recipient (Business Recipient) 2. Services provided or agreed to be provided by a goods transport agency (GTA) in respect of transportation of goods by road Goods Transport Agency (GTA) (a) any factory registered under or governed by the Factories Act, 1948; (b) any society registered under the Societies Registration Act, 1860 or under any other law for the time being in force in any part of India; (c) any cooperative society established by or under any law; (d) any person registered under CGST/ SGST/ UTGST Act; (e) any body corporate established, by or under any law; or (f) any partnership

83 Supply and Charge of GST Services provided or agreed to be provided by an individual advocate or firm of advocates by way of legal services, directly or indirectly 4. Services provided or agreed to be provided by an arbitral tribunal An individual advocate or firm of advocates firm whether registered or not under any law including association of persons. (g) Casual taxable person Any entity. business An arbitral tribunal Any business entity. 5. Sponsorship services Any person Any body corporate or partnership firm. 6. Services provided or agreed to be provided by Government or local authority excluding,- (1) renting of immovable property, and (2) services specified below- (i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Government; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passenger 8. Services provided or agreed to be provided by a director of a company or a body corporate to the said company or the body corporate; 9. Services provided or agreed to be provided by an insurance agent to any person carrying on insurance business Government local authority or A director of a company or a body corporate An agent insurance Any entity. business A company or a body corporate. Any carrying insurance business. person on

84 3.30 Handbook on GST 10. Services provided or agreed to be provided by a recovery agent to a banking company or a financial institution or a non-banking financial company 11. Services by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India 17. Transfer or permitting the use or enjoyment of a copyright covered under clause (a) of subsection (1) of section 13 of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works A recovery agent A banking company or a financial institution or a non- banking financial company. A person located in non-taxable territory Author or music composer, photographer, artist, etc A person located in the taxable territory [Importer as defined under clause (26) of section 2 of the Customs Act, 1962.] Publisher, company, Producer Music Tax payable by the electronic commerce operator on notified services The Government may notify specific categories of services the tax on intra-state supplies of which shall be paid by the electronic commerce operator (ECO) if such services are supplied through it. Such services shall be notified on the recommendations of the GST Council. Radio taxi or passenger transport services provided by taxi driver/ rent a cab operator to any person, through electronic commerce operator have been notified for this purpose*. *as notified by the GST Council during its 14 th meeting on 19 th May, 2017 All the provisions of the CGST Act shall apply to such ECO as if he is the supplier liable for paying the tax in relation to the supply of such services:

85 Supply and Charge of GST 3.31 If the ECO is located in taxable territory Person liable to pay tax is the ECO If the ECO does not have physical presence in the taxable territory Person liable to pay tax is the person representing the ECO If the ECO has neither the physical presence nor any representative in the taxable territory Person liable to pay tax is the person appointed by the ECOfor the purpose of paying the tax It is important to note here that the above provision shall apply only in case of supply of services. Liability to pay CGST Forward charge Reverse Charge E-Commerce Taxable person making intra-state supply Recipient of supply Electronic Commerce Operator GST Rates prescribed for various services 2 The Council has broadly approved the GST rates for services at Nil, 5%, 12%, 18% and 28% as listed below: Sl. GST RATE DESCRIPTION OF SERVICES No. 1. Transport of goods by rail 5% with ITC of input services 2 Aforesaid list of GST rates for services has been as approved by the GST Council during its 14 th meeting on 19 th May, 2017 (with additions and modifications made in 16 th & 17 th Council on 11 th June, 2017 & 18 th June, 2017, also incorporated).

86 3.32 Handbook on GST 2. Transport of passengers by rail (other than sleeper class) 5% with ITC of input services 3. Services of goods transport agency (GTA) in relation to 5% No ITC transportation of goods [other than used household goods for personal use] 4. Services of goods transport agency in relation to transportation of used household goods for personal use. 5% No ITC 5. Transport of goods in a vessel including services provided or agreed to be provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India 6. Renting of motorcab (If fuel cost is borne by the service recipient, then 18% GST will apply) 7. Transport of passengers, by- (i) Air conditioned contract/stage carriage other than motorcab; (ii) a radio taxi. 5% with ITC of input services and ITC of GST paid on ships, vessels including bulk carriers and tankers 5% No ITC 5% No ITC 8. Transport of passengers by air in economy class 5% with ITC of input services 9. Transport of passengers, with or without accompanied belongings, by air, embarking from or terminating in a Regional 5% with ITC of input Connectivity Scheme Airport. 10. Supply of tour operators services 5% No ITC 11. Leasing of aircrafts under Schedule II [5(f)] by a scheduled airlines for scheduled operations 5% with ITC of input services 12. Selling of space for advertisement in print media 5% With Full ITC 13. Services by way of job work in relation to printing of newspapers 13A. Services by way of job work in relation to- (a) Textile yarns (other than manmade fibre or filament) & textile fabrics 5% With Full ITC 5% With Full ITC

87 Supply and Charge of GST 3.33 (b) Cut and polished diamonds; precious and semi-precious stones, or plain and studded jewellery of gold and other precious metals, falling under Chapter 71 of HSN (c) Printing of books (including braille books), journals and periodicals (d) Processing of leather 14. Transport of goods in containers by rail by any person other than Indian Railways 12% With Full ITC 15. Transport of passengers by air in other than economy class 12% With Full ITC 16. Supply of Food/drinks in restaurant not having facility of airconditioning or central heating at any time during the year and not having licence to serve liquor. 17. Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having room tariff ` 1000 and above but less than ` 2500 per room per day 12% With Full ITC 12% With Full ITC 18. Services provided by foreman of chit fund in relation to chit 12% with ITC of input services 19. Construction of a complex, building, civil structure or a part thereof, intended for sale to a buyer, wholly or partly. [The value of land is included in the amount charged from the service recipient] 20. Temporary transfer or permitting the use or enjoyment of any Intellectual Property (IP) to attract the same rate as in respect of permanent transfer of IP; 21. Supply of Food/drinks in restaurant having licence to serve liquor 22. Supply of Food/drinks in restaurant having facility of airconditioning or central heating at any time during the year 12% With Full ITC but no refund of overflow of ITC 12% with full ITC 18% With Full ITC 18% With Full ITC 23. Supply of Food/drinks in outdoor catering 18% With Full ITC 24. Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes where room tariff of ` 2500/ and above but less than ` 7500/- per room per day 18% With Full ITC

88 3.34 Handbook on GST 25. Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises (including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises 26. Services by way of admission or access to circus, Indian classical dance including folk dance, theatrical performance, drama 27. Composite supply of Works contract as defined in clause 119 of section 2 of CGST Act 27A. Services by way of right to admission to exhibition of cinematographic films where consideration for admission is ` 100 or less 28. Services by way of admission to entertainment events or access to amusement facilities including exhibition of cinematograph films, theme parks, water parks, joy rides, merry-go rounds, go-carting, casinos, race-course, ballet, any sporting event such as IPL and the like. 29. Services provided by a race club by way of totalisator or a licensed bookmaker in such club; 18% With Full ITC 18% With Full ITC 18% With Full ITC 18% With Full ITC 28% With Full ITC 28% With Full ITC 30. Gambling; 28% With Full ITC 31. Supply of Food/drinks in air-conditioned restaurant in 5-star or above rated Hotel 32. Accommodation in hotels including 5 star and above rated hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes, where room rent is ` 7,500/- and above per room per day 33. Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration (supply of service) to attract the same GST rate and compensation cess as applicable on supply of similar goods which involves any transfer of title in goods (supply of goods) 34. Any transfer of right in goods or of undivided share in goods without the transfer of title thereof (supply of services) to attract the same GST rate and compensation cess as 18% With Full ITC 28% With Full ITC Same rate of GST and compensation cess as on supply of similar goods Same rate of GST and compensation cess as on supply of

89 Supply and Charge of GST 3.35 applicable on supply of similar goods which involves any transfer of title in goods (supply of goods). 35. Supply consisting of transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of full consideration as agreed (supply of goods): value of leasing services shall be included in the value of goods supplied. similar goods GST and compensation cess as on supply of similar goods 36. All other services not specified elsewhere 18% With Full ITC 6. LEVY & COLLECTION OF IGST [SECTION 5 OF THE IGST ACT] STATUTORY PROVISIONS Section 5 Levy and Collection of Tax Subsection Particulars (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all 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 of the Central Goods and Services Tax Act and at such rates, not exceeding forty 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. Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, (2) The integrated tax 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.

90 3.36 Handbook on GST (3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. (4) The integrated tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. (5) The Government may, on the recommendations of the Council, by notification, specify categories of services, the tax on inter-state supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax. Provided further that where an electronic commerce operator does not have a physical presence in the taxable territory and also does not have a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax. ANALYSIS A tax called the Integrated Goods and Services Tax (IGST) shall be levied on all inter-state supplies of goods or services or both. The tax shall be collected in such manner as may be prescribed and shall be paid by the taxable person. However, inter-state supply of alcoholic liquor for human consumption is outside the purview of IGST. Value for levy: Transaction value under section 15 of the CGST Act Rates of IGST: IGST is approximately the sum total of CGST and SGST/UTGST. Maximum rate of IGST will be 40%.

91 Supply and Charge of GST 3.37 However, IGST on supply of the following items has not been levied immediately. It shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council: petroleum crude high speed diesel motor spirit (commonly known as petrol) natural gas and aviation turbine fuel Goods imported into India: For the goods imported into India, the IGST shall be levied and collected as per the section 3 of the Custom Tariff Act, 1975 i.e. the additional duty shall be as per the Custom Tariff Act, 1975 and the value shall also be determined as per the said Act. However, the credit of such levy be allowed under GST law and thus, it is inherently embedded in the GST mechanism. Reverse charge - Tax payable by recipient of supply of goods or services or both: IGST shall be paid by the recipient of goods or services or both, on reverse charge basis, in the following cases: Supply of goods or services or both, notified by the Government on the recommendations of the GST Council. Supply of taxable goods or services or both by an unregistered supplier to a registered person All the provisions of the IGST Act shall apply to the recipient in the aforesaid cases as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. Tax payable by the electronic commerce operator on notified services The Government may notify specific categories of services the tax on inter-state supplies of which shall be paid by the electronic commerce operator (ECO) if such services are supplied through it. Such services shall be notified on the recommendations of the GST Council.