MODULE 3

CHAPTER - 1

INTRODUCTION TO GST

GST came into force from July 1st 2017 replacing number of other taxes.
GST is the biggest and significant indirect tax reform in India. It is a destination-based tax. The concept of
GST subsumed Central Excise Law, service tax, VAT, entry tax, Octroi etc ...
"One Nation One tax"
MILESTONE IN THE HISTORY OF GST
1. 2000- The prime minister introduced the concept of GST [ Atal Bihari Vajpayee]
2. 2003- The Central Govt formed a task force under / Vijay Khelkar
3. 2004- Task force recommended GST to replace the existing tax
4. 2006- First announcement of GST was made by the union minister during 2006-07 budge [P.
Chidambaram]
5. 2009 – Empowered Committee released the first discussion paper.
6. 2011- 115th amendment bill was introduced and subsequently lapsed.
7. 2014- 122nd amendment bill was introduced in Lok Sabha
8. 2016 August -101 Amendment act was introduced
9. 2016 September - 1st GST council meeting was conducted
10. 2017 March - CGST, SGST, IGST, UTGST and Compensation Cess act was recommended by GST Council
11. 2017 April - CGST, SGST, IGST, UTGST and Compensation Cess act were passed.
12. 1st July 2017- GST was launched all over India.

FEATURES OF GST
[Link] on commodities and services
2. Destination based principle: GST is based on the principle of destination-based consumption taxation.
3. Dual GST: It would be a dual GST with the Centre and the state simultaneously levying it on a common
base.
4. Important source of revenue: Indirect taxes are the important source of revenue for government
5. Interstate supply: An integrated GST (IGST) would be levied on Interstate supply of goods or services.
This would be collected by the central government
6. Items kept out of GST: GST applies to all goods and services except Alcohol for human consumption.
GST on five specified petroleum products (Crude, Petrol, Diesel, ATE and Natural Gas) would be
applicable from a date recommended by the GST council.
7. Taxation on Tobacco: Tobacco and tobacco products would be subject to GST In addition; the centre
would continue to levy Central Excise duty.
8. Multiple tax rate :0% ,5% ,18% and 40%. In addition, Cess is applicative on some items.
9. Threshold exemption: A common threshold exemption applies to both CGST and SGST. Tax payers
with an annual turnover of Rs 40 lakh (Rs- 20 lakh for special category states) would be exempt from GST.

SCOPE OF GST
 Easy compliance: GST makes it easy for taxpayers to compliance with required rules and
regulations timely. They can avail all services relating to GST via online portal such as registration,
tax payment, return filling, response to notices, etc. It has accelerated the whole process.
 Removes cascading effect: Cascading effect means implying tax on tax which raises the cost of
the product. Here the tax is not levied on the full value of the product but only on the net value
added to it. Removal of cascading effect will make goods cheaper for consumers.
 Simplification of taxation: This tax has simplified the whole taxation procedure by eliminating
around 17 indirect taxes.
 Provides transparency: The introduction of GST has provided better transparency in the
collection of taxes to the government.
 Bring uniformity in tax structure: GST has unified the whole tax structure of the nation. It has
introduced the same tax rates for products and services across the country.
 Improve profitability: GST has reduced the transaction costs for business which facilitates
them in doing operations efficiently.

Goods Outside the Scope of GST

1. Alcoholic liquor
2. Specified petroleum products
3. Tobacco and tobacco products

Objectives/ Needs of GST

1. One Country-One tax system
2. Consumption based tax instead of manufacturing
3. Uniform registration & payment
4. Eliminate cascading effect of old indirect taxes (Tax on tax)
5. Subsume all central and state governments indirect tax
6. Reduce tax evasion and corruption
7. Increase productivity
8. Increase tax to GDP ratio and revenue surplus
9. Increase tax regulation compliance
10. Reduce economic distortions
 DIFFERENCES BETWEEN GST AND PREVIOUS TAX STRUCTURE

Parameter Old Direct Tax System GST

Many taxes like Excise duty, VAT, Most of the previous taxes are
Structure Sales Tax etc merged in GST

Under VAT, tax will be levied at the

place where goods are manufactured Under GST, tax will be levied at the place
Basis of Levy or sold, or the place at which services of consumption, like a destination-based
are rendered. tax.

Under VAT, the registration is Under GST, there will be uniform e-

Registration decentralized under state and central registration depending upon the PAN of
authorities. the entity.

Filing of Returns and Under the old scenario, service tax and Under GST, the process is uniform and
Collection of Tax central excise were uniform, but VAT the dates for collecting or depositing tax
varied from state to state. and filing returns are common.

Under VAT, the centre charges service

tax on a list of services under the Under GST, the State GST subsumes
service tax depending upon rules
Service Tax Finance Act on provision/payment
relating to Place of Supply.
basis.

Under VAT, all commodities apart from

those exempt are taxed. Under GST, the State GST
State VAT subsumes this tax.

Under VAT, excise duty will be levied

up to the point of manufacturing. Under GST, the excise duty will be
replaced by Central GST and tax will be
Excise Duty levied up to retail level.

Special Additional Duty Under Vat, the centre charges tax on

imports separately. Under GST, this duty is subsumed by
State GST.
Under VAT, entry tax is charged by certain Under GST, entry tax is not applicable, but
states for inter-state transfers, detained an additional 1% will be levied as tax on
Entry Tax as import in local area. inter-state supply of certain commodities.

Under VAT, CST is charged at a

concessional rate of 2% so far as inter-
Central Sales Tax
state transfers are concerned against C- Under GST, the Integrated GST
Forms. The full rate applicable subsumes CST.
otherwise ranges from 5% to 14.5%.

Cross Set-Off of Levy Under VAT, set-off of service tax and Under GST, set-off between State GST and
excise duty is permitted. Central GST is not allowed.

Under VAT, there are a few non-

Under GST, there will be no such
Disallowance of credit on creditable commodities and services
under VAT as well as CENVAT rules. disallowance unless the GST Council
certain items specifically allows it.
 Under VAT, credit between service tax
and excise duty is available, but there is Under GST, credit available on the whole
Cascading Effect no set-off against VAT on excise duty. amount of taxes up to retailer.

Under VAT, the threshold for central

excise is Rs.1.5 crore, and the threshold
Under GST, the State GST will range is Rs.20
Threshold limits for levy for VAT ranges between Rs.5 lakh to to Rs.40 lakh based on recommendations
Rs.20 lakh depending upon the state.
of tax The threshold for service tax is Rs.10 of the GST Council. Rs.20 Lakh for
lakh. services

Under GST, there will be no such

Under VAT, certain areas such as the exemptions, and the GST Council may
North-East will be able to enjoy introduce an Investment Refund Scheme
Exemptions for certain zones.
exemptions.

Advantages & Disadvantages of GST

Advantages Disadvantages
1. Eliminating cascading effect (Tax on 1. Dual tax system (CGST, SGST, IGST)
tax) 2. Increased operational cost (Training etc.)
2. Decrease in price of the product 3. Online taxation system
3. Easy compliance 4. Multiple registration for branches in different
4. One-point single tax states.
5. Reduces the corruption 5. Complexities for the businessman
6. Uniformity of tax rates 6. Short term business challenges (ITC block)

Basic Definitions:

1. Aggregate Turnover: - Aggregate value of all taxable supplies, exempt supplies, and exports.

2. Business: - Any trade, commerce, manufacture, profession, vocation, adventure and

any other similar activity.

3. Capital Goods: - The value of which is capitalized in the books of account which are
used in the course of business.

4. Casual Taxable Person :- Person who occasionally undertakes transactions involving

supply where he has no fixed place of business.

5. Composite Supply :- Supply consisting of two or more taxable supplies which are naturally
bundled, one of which is a principal supply. The item cannot be supplied separately.
Eg: Booking train ticket with meals.

6. Mixed Supply :- Combination of two or more goods or services made together for a single
price. (Eg: Diwali Gift Box consisting of sweets, dry fruits etc.)

7. Exempted Supply:- Supply which attracts nil rate or tax or which may be wholly exempt
from tax. (Eg: Fresh Fruits & Vegetables, Agricultural implements, Fish & Meat [Not
frozen]).
 8. E-Commerce:- Supply over digital or electronic network. E-commerce operator means any
person who owns platform for e-commerce.
9. Goods :- All types of movable property and things attached to the land . Excludes
securities and money.

10. Service :- Anything other than goods, money and securities.

11. Input Tax :- GST charged on any input supply.

12. Job work :- Treatment or process undertaken by a person on goods belonging to another
registered person. (Welding, Painting etc.)

13. Works Contract :- A contract for building, construction, fabrication, repair etc. of any
immovable property.

14. Zero rated supply :- Supply including export or supply to a SEZ (Special Economic Zone).

15. CGST (Central Goods and Service Tax) :- It is a tax levied on intra state supplies by the
central government. The CGST tax rate shall not exceed 14%.

16. SGST (State Goods and Service Tax) :- It is a tax levied on intra state supplies by
the state government. The SGST tax rate shall not exceed 14%.

17. IGST (integrated Goods and Service Tax) :- It is a tax levied on interstate supplies and will
be governed by the IGST act. It will be applicable in both import and export. Tax will be
shared between the central and state government.

Need of split into SGST, CGST and IGST

The central and the states have been assigned the powers to levy and collect taxes. Both the
government have distinct responsibilities to perform. So, they need to raise tax revenue.

QUESTION ANSWERS
I. Short Questions
1. Define GST.
Goods and Services Tax (GST) is a comprehensive, multi-stage, destination-based tax which is levied
on every value addition. It is a single tax on the supply of goods and services, and it subsumed
multiple previous indirect taxes. Its core ideology is 'One nation, one tax'.

2. What is Cascading Effect of Tax?

The Cascading Effect of Tax, or the "tax on tax" effect, is the practice of double taxation that occurs
when a tax is levied on a transaction, and a subsequent tax is levied on the transaction's value,
which already includes the first tax. The main objective of GST is to eliminate this effect by providing
Input Tax Credit (ITC).
3. What is SGST?
State Goods and Services Tax (SGST) is the component of GST levied by the concerned State
Government on intra-state supply of goods and services.

4. What is CGST?
Central Goods and Services Tax (CGST) is the component of GST levied by the Central Government
on intra-state supply of goods and services.

5. What is IGST?
Integrated Goods and Services Tax (IGST) is the tax levied by the Central Government on inter-state
supply of goods and services (including stock transfers) and on the import of goods or services.

6. What is Zero-rated supply?

Zero-rated supply is a category of supply that includes:
1. Export of goods or services or both.
2. Supply of goods or services or both to a Special Economic Zone (SEZ) developer or a Special
Economic Zone Unit.

7. List out the goods outside the scope of GST.

The following goods are currently outside the purview of the GST framework:
1. Alcoholic liquor for human consumption.
2. Specified Petroleum Products (Petroleum crude, high speed diesel, motor spirit, Natural Gas,
Aviation turbine fuel).

8. What is Input Tax?

Input Tax means the Central Tax, State Tax, Integrated Tax, or Union Territory Tax charged on any
supply of goods or services or both made to a registered person. It also includes IGST charged on
the import of goods.

9. What is Input Tax Credit (ITC)?

Input Tax Credit (ITC) is the mechanism that allows a business to offset the taxes already paid on
inputs (purchases of goods and services) against the tax liability on its final output (sales). ITC is the
tool used to eliminate the cascading effect of taxes.

10. Define the term 'Agent' under GST Act.

An Agent means a person who carries on the business of supply or receipt of goods or services or
both on behalf of another person, such as a factor, broker, commission agent, etc.

11. Define the term 'Agriculturist'.

An Agriculturist is an individual or a Hindu Undivided Family (HUF) who undertakes the cultivation
of land either by their own labour, or by the labour of family, or by servants/hired labour.
12. What is Aggregate Turnover?
Aggregate Turnover means the aggregate value of all taxable supplies, exempt supplies, exports of
goods/services, and inter-State supplies of persons having the same Permanent Account Number
(PAN), computed on an all-India basis.

II. Short Essay Questions

1. Trace out the history of GST in India.
Year Milestone
PM Atal Bihari Vajpayee introduced the concept of GST and set up a committee to
2000
design a model.
The task force under Vijay Kelkar recommended GST to replace the existing tax
2004
regime.
The Union Finance Minister made the first official announcement, proposing an
2006
introduction from April 1, 2010.
The Empowered Committee (EC) released its First Discussion Paper (FDP) on the
2009
GST.
Aug 2016 The One Hundred and First Amendment Act was enacted.
July 1,
GST laws were launched all over India.
2017

2. Explain the need of GST in India.

The need for GST arose primarily to address the shortcomings of the earlier indirect tax regime and
for economic growth:
1. Elimination of Cascading Effect: To remove the double taxation inherent in the old system,
which increased the cost of products.
2. Developing a Common National Market: To bring uniformity of taxes across all states and
integrate state economies under a single market structure.
3. Simplification: To rationalize the complex, multiple-tax structure, simplifying the system for
taxpayers and reducing compliance requirements.
4. International Competitiveness: To make Indian goods and services more competitive in the
international market by making exports zero-rated supplies.

3. Bring out the Scope of GST in India.

The GST Act extends to the whole of India, including Jammu & Kashmir. The scope is defined by the
Dual GST structure:
 Intra-State Supply (Within a State/UT): Both CGST (collected by the Central Government)
and SGST (collected by the State Government) are levied simultaneously on a common base.
 Inter-State Supply (Between States/UTs): IGST (Integrated GST) is levied and collected by the
Central Government on the destination-based principle.
 Imports: Imports of goods or services are treated as inter-state supply and are subject to IGST
 in addition to customs duties.
 Exclusions: Alcoholic liquor for human consumption and five specified petroleum products
are kept outside the scope of GST currently.

4. What are the objectives of GST in India?

The main objectives of incorporating GST are:
1. Elimination of Tax on Tax (Cascading Effect): Achieved through the comprehensive provision
of Input Tax Credit (ITC).
2. 'One nation, one tax': To create a common, unified national market with uniformity of taxes
across the country.
3. Ease of Compliance: To simplify the tax system and reduce compliance requirements through
online-oriented transactions.
4. Broadening the Tax Base: To enlarge the tax base by including every justified taxpayer.

5. What are the pitfalls of present GST in India?

The limitations of the present GST system are:
1. Dual Tax System: Despite the 'One nation, one tax' slogan, it is a dual tax system (CGST, SGST,
IGST, UTGST), adding complexity.
2. Increased Operational Cost: Businesses must train employees and adapt technology for GST
compliance.
3. Multiple Registrations: Businesses with branches in more than one state must register
separately in every state.
4. Reduced Exemption Limit: The exemption limit for the manufacturing sector was reduced
from ₹1.5 crores to ₹20 lakhs (or ₹40 lakhs), which is seen as a disincentive for small
businesses.
5. Online System: The compulsory online taxation system is difficult for smaller businesses to
adopt.
6. Explain the concept of: a)CGST, b)SGST, c) IGST, d)UTGST.
This is the framework of the Dual GST model:
 a) CGST (Central GST): The tax component levied by the Central Government on intra-state
supply of goods and services.
 b) SGST (State GST): The tax component levied by the concerned State Government on intra-
state supply of goods and services.
 c) IGST (Integrated GST): The tax component levied by the Central Government on inter-
state supply of goods and services (including imports).
 d) UTGST (Union Territory GST): The tax component levied by the Central Government on
intra-state supply of goods and services in the Union Territories without a legislature.

III. Essay Questions

1. Briefly describe the GST legislations in India.
The implementation of GST involved key legislative milestones:
 1. Constitutional Amendment: The One Hundred and First Amendment Act (2016) was
enacted in August 2016, which enabled the concurrent power of the Centre and States to
levy tax on goods and services.
2. GST Council Recommendation: In March 2017, the GST Council recommended the passing of
the four main acts.
3. Key Acts Passed (April 2017): The Central and State/UT governments passed the following
crucial Acts which govern the GST system:
o CGST Act
o SGST Act (Each state passed its own version)
o IGST Act
o UTGST Act
o Compensation Cess Act (for compensating states for revenue loss)

2. 'GST facilitates price reduction of goods and services'- illustrate with a suitable example.
GST facilitates price reduction due to the elimination of the tax-on-tax effect and the subsequent
reduction in production cost.
 Example: Under the old system, a manufacturer paid excise duty, and then a state paid VAT
on the value including that excise duty (cascading). Under GST, a manufacturer pays tax, and
the full credit (ITC) is passed on to the wholesaler, who passes it to the retailer. The final
consumer only pays tax on the value added at each stage, and the total tax paid is lower,
leading to a decrease in the price of the product.

Levy and collection as per CGST Act, 2017

U/s 9(1) of CGST Act, 2017 there shall be levied a tax –
 Called the Central Goods and Services Tax(CGST);
 On all the intra-state supplies of goods or services or both, except on supply of
alcoholic liquor for human consumption;
 On the value determined u/s 15; and
 At such a rate as notified by the Central Government on recommendation of GST
Council; and
 Collected in such a manner as may be prescribed; and
 Shall be paid by the taxable person.

Levy and collection as per IGST Act, 2017

U/s 5(1) of IGST Act, 2017 there shall be levied a tax –
 Called the Integrated Goods and Services Tax (IGST);
 On all the inter-state supplies of goods or services or both, except on
 supply of alcoholic liquor for human consumption;
 On the value determined u/s 15 of CGST Act, 2017; and
 At such a rate (maximum 40%,) as notified by the Central Government on
 recommendation of GST Council; and
 Collected in such a manner as may be prescribed; and
 Shall be paid by the taxable person.

Value of Supply under GST

The Value of Supply is a critical concept in GST as it determines the tax payable on a transaction.

1. Transaction Value (General Rule)

Generally, the value of a supply of goods or services is the transaction value.

 Definition: The price actually paid or payable for the supply of goods or services.

 Conditions: This is applicable when the supplier and the recipient are not related, and price is the sole
consideration for the supply.

2. Inclusions in Value of Supply

The value of supply shall include the following:

 Any taxes, duties, cess, fees, and charges levied under any act, except GST.

o Note: GST Compensation Cess is excluded if charged separately by the supplier.

 Any amount that the supplier is liable to pay but has been incurred by the recipient and is not included in
the price.

 All incidental expenses in relation to sale, such as packing and commission.

 Subsidies linked to supply, except Government subsidies.

 Interest/late fee/penalty for delayed payment of consideration.

 Extra charges like shipping and handling (in the simple definition).

3. Exclusions from Value of Supply

 GST is generally not included in the value of supply.

 Trade discounts mentioned on the invoice are deductible.

⚖️ Determination of Value of Supply (Specific Cases)

When the general rule (Transaction Value) cannot be applied, specific rules are followed for the determination of the
Value of Supply.
4. Consideration Not Wholly in Money (Barter/Exchange)

Where the consideration for the supply is not wholly in money, the value shall be determined in the following order:

1. The open market value of such supply.

o Illustration: If a new TV is supplied for ₹30,000 plus an old TV, and the new TV's price without
exchange is ₹34,000, the open market value is ₹34,000.

2. If the open market value is not available, it is the sum total of consideration in money and the monetary
equivalent of the non-monetary consideration (if known at the time of supply).

o Illustration: A laptop is supplied for ₹40,000 along with a printer (bartered) valued at ₹5,000. If the
open market value of the laptop is unknown, the value of supply is ₹45,000 (₹40,000 + ₹5,000).

3. If not determinable by (a) or (b), it is the value of supply of goods or services of like kind and quality.

4. If still not determinable, it is the sum total of monetary and non-monetary consideration equivalent as
determined by applying Rule 4 or Rule 5.

5. Supply Between Distinct or Related Persons

For supplies between distinct or related persons (other than through an agent), the value is determined in this order:

1. Open market value of such supply.

2. If open market value is not available, it is the value of supply of goods or services of like kind and quality.

3. If not determinable by (a) or (b), the value is determined by applying Rule 4 or Rule 5.

 Proviso for Goods for Further Supply: If goods are intended for further supply as such by the recipient, the
supplier has the option to value the supply at 90% of the price charged for the supply of goods of like kind
and quality by the recipient to a customer (who is not a related person).

 Proviso for Full ITC: If the recipient is eligible for full Input Tax Credit (ITC), the value declared in the invoice
is deemed to be the open market value.

6. Supply Made or Received Through an Agent

For supply between the principal and his agent, the value shall be:

 The open market value of the goods.

 OR, at the option of the supplier, 90% of the price charged by the recipient (agent) to his customer (not a
related person), where the goods are for further supply by the agent.

 If the value is not determinable under the above options, it is determined by applying Rule 4 or Rule 5.

7. Value Based on Cost (Rule 4)

If the value is not determinable by any preceding rules, it is set at 110% of the cost of production or manufacture, or
cost of acquisition of such goods, or cost of provision of services.

8. Residual Method (Rule 5)

If the value cannot be determined under Rules 1 to 4, it is determined using reasonable means consistent with the
principles of Section 15 and the rules. For supply of services, the supplier may opt for this rule, disregarding Rule 4.

9. Value of Supply Inclusive of Taxes

If the value of supply is inclusive of integrated tax (IGST) or central tax (CGST) and State tax (SGST)/Union territory tax
(UTGST), the tax amount is determined using the formula:

10. Imported Goods and Services

  Imported Goods: Value is calculated based on Custom Act rules, which is the Custom Value plus the Import
Duty paid.

 Imported Services: The value of taxable supply is the Total Consideration times the Taxable Percentage.

🧮 GST Calculation in Different Situations

Intra-State Supply (Local Supply)

Dual GST is charged: CGST (Central GST) and SGST (State GST).

 Scenario (Ajith Biju Chandra):

o Ajith Biju: Ajith charges and remits CGST and SGST to the government. Being the first supplier, Ajith
has no prior credit.

o Biju Chandra: Biju adds value (e.g., 20%) to the price. Biju uses the Input Tax Credit (ITC) of CGST and
SGST paid on the purchase from Ajith to set off against the Output CGST and SGST payable on the
sale to Chandra.

o Net GST Payable: The net GST paid by Biju to the government is only on the value addition.

Inter-State Supply

IGST (Integrated GST) is charged by the supplier.

 Scenario (Raju Salim Manoj Krishnappa):

o Raju (Kerala) Salim (Kerala) (Intra-State): Raju charges CGST and SGST. Raju has no credit.

o Salim (Kerala) Manoj (Karnataka) (Inter-State): Salim charges IGST (CGST + SGST rate). Salim uses the
CGST and SGST credit from the purchase (Raju) to set off against the IGST payable. Kerala (Exporting
State) transfers the SGST credit utilized to the Central Government.

o Manoj (Karnataka) Krishnappa (Karnataka) (Intra-State): Manoj adds value and charges CGST and
SGST. Manoj uses the IGST credit from the purchase (Salim) to set off against the CGST and SGST
payable. The Central Government transfers the IGST credit utilized for SGST payment to Karnataka
State.

 IGST Rate: IGST Rate = CGST Rate + SGST Rate.

Input Tax Credit (ITC)

 GST Payable: If Output GST is greater than Input GST, the difference is the GST Payable (remitted to the
government).

 GST Credit: If Input GST is more than Output GST, the difference is called GST Credit. This credit is calculated
separately for each type of GST (CGST, SGST, IGST).

🔄 Reverse Charge Mechanism (RCM)

Under the RCM, the importer of services is liable to pay IGST on imported services. This GST paid under RCM is
payable first in cash, and the same amount then becomes eligible as ITC in the subsequent return period.

 Accounting Treatment: RCM liability is debited to "GST Payable (RCM)" and credited to "Cash/Bank". ITC on
RCM and inputs are credited to "Input Tax Credit – IGST/CGST/SGST" accounts.

 Net GST Liability: If there is no outward supply (sales), the firm has no output GST liability. The ITC on RCM
and local purchases can be offset, resulting in a net GST liability of ₹0 after set-off (if total ITC equals or
exceeds the RCM payment).
 CHAPTER - 2

LEVY AND COLLECTION OF TAX UNDER GST

2.1 Introduction to GST Levy

The central and unified taxable event under the Goods and Services Tax (GST) regime is supply,
replacing the multiplicity of taxable events (like manufacture, provision of service, or sale) found in
the old tax regime.

 Basis of Levy: GST is levied on the supply of all goods and services or both.

 Key Exclusions: Supply of alcoholic liquor for human consumption is outside the purview of
GST.

 Petroleum Products: Selected petroleum products (like petroleum crude, high speed diesel,
motor spirit, natural gas, and aviation turbine fuel) are temporarily kept out of GST and will
be included from a date to be decided by the GST Council.

 Dual Structure: The GST structure is dual in nature, where the Central and State
governments simultaneously levy tax on a common base.

 Tax Paradigm Shift: GST marks a paradigm shift from an Origin-Based Tax (like the old
regime's manufacture, sale, or provision of service) to a Destination-Based Tax, where the
term 'supply' linked to the destination is the key.

2.2 Levy and Collection of Cess

Cess is levied for the purpose of providing compensation to the States for loss of revenue arising
from the implementation of GST.

 Legal Basis: Section 8 of the GST (Compensation to States) Act, 2017.

 Applicable Supplies: Cess is levied on both:

o Intra-state supplies of goods or services or both.

o Inter-State supplies of goods or services or both.

2.3 Levy and Collection of CGST, SGST, IGST, UTGST

Section 9 of the CGST Act is the charging section for the supply of goods and services under GST.

A. Central Goods and Services Tax (CGST) / State Goods and Services Tax (SGST) / Union Territory
Goods and Services Tax (UTGST)

These taxes are levied on all intra-State supplies of goods or services or both.

 Mechanism: Collected in a prescribed manner and paid by the taxable person.

 Exclusion: Intra-State supply of alcoholic liquor for human consumption is outside the
purview.
B. Integrated Goods and Services Tax (IGST)

IGST is levied on all inter-State supplies of goods or services or both.

 Exclusion: Supply of alcoholic liquor for human consumption.

 Import of Goods: IGST on goods imported into India is levied and collected in accordance
with the provisions of Section 3 of the Customs Tariff Act, 1975, on the value determined
under the said Act, at the point when customs duties are levied.

2.4 Levy of Tax and Applicable Rates

A. Conditions for Inter-State Levy

Every inter-State supply will be liable to tax if the following conditions are met:

1. There is a Supply of either goods or services or both.

2. The supply is an inter-State supply (location of the supplier and the place of supply are in
different States).

3. The tax shall be payable by a 'taxable person'.

B. Tax Rates

 Notified Rates: CGST/UTGST/SGST rates are notified by the Government on the

recommendations of the GST Council, with notified rates of 5%, 18% and 40%.

 IGST Rate: IGST will be approximately the sum total of CGST and SGST/UTGST.

 Maximum Rates: Maximum rate of CGST is 20%, while the maximum rate for IGST is 40%.

 Cess: An additional cess of 15% or other rates (on top of 40% GST) applies to items like
aerated drinks, luxury cars, and tobacco products.

 Special Rates: Rough precious and semi-precious stones are taxed at 0.25%, and gold is
taxed at 3%.

THE LEVY OF TAX ON SUPPLY OF GOODS AND SERVICES IS IN 3 PARTS

1. IN THE HANDS OF SUPPLIERS

Normal Payment: Normally, the supplier of goods or services is liable to pay GST to the
Government.
 2. Tax Payable by Electronic Commerce Operator (ECO) on Notified Services

In the case of specific notified services supplied through an Electronic Commerce Operator (ECO), the
ECO is liable to pay the tax on those supplies. All provisions of the relevant GST law apply to the ECO
as if they were the supplier.

ECO Location / Status Person Liable to Pay Tax

Located in taxable territory The ECO

Does not have physical presence in the taxable

The person representing the ECO
territory

Has neither physical presence nor any The person appointed by the ECO for the
representative in taxable territory purpose of paying tax

3. Tax on Reverse Charge Basis (RCM)

Reverse Charge is a mechanism where the liability to pay tax is on the recipient of the supply of
goods or services, instead of the supplier.

 Normal Payment: Normally, the supplier of goods or services is liable to pay GST to the
Government.

 Reverse Charge: Under RCM, the recipient becomes liable to pay the tax to the Government.

 Legal Basis: Section 9(3) of the CGST Act allows the Government to notify categories of
supply where the tax shall be paid on a reverse charge basis by the recipient.

Cases Where Reverse Charge is Applicable

 Supply from an unregistered dealer to a registered dealer.

 Services through an e-commerce operator.

 Supplier of the goods or services or both located in a non-taxable territory (Imports).

 Tax levied under RCM on an unorganized sector.

 Supply of certain goods and services specified by the Government.

2.7 Composition Levy Under GST

The Composition Scheme is an alternative, convenient, and simplified method of tax levy designed
for small taxpayers to reduce compliance costs and formalities.

A. Eligibility and Turnover Limits

 General Limit: Aggregate turnover in the preceding financial year did not cross Rs. 1.5 crore.

 North-Eastern States Limit: Turnover limit is Rs. 75 lakhs in Arunachal Pradesh, Assam,
Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Himachal Pradesh.
  Supplier of Services/Mixed Suppliers: An alternative scheme for suppliers of services or
mixed suppliers (not eligible for the earlier scheme) with an annual turnover up to Rs. 50
lakhs in the preceding financial year.

B. Key Features

 Tax Rate: Fixed tax rate on the total sales turnover.

 Returns: Taxpayer files summarized returns on a quarterly basis instead of three monthly
returns.

 Billing: Issues Bill of Supply and not a tax invoice.

 Records: Not required to maintain detailed records.

C. Specified Rate of Composition Levy

Category of Registered Persons CGST SGST Total

Manufacturers (other than notified goods) 0.5% 0.5% 1.00%

Restaurant services and Outdoor catering services (not serving alcohol) 2.5% 2.5% 5%

Any other supplier eligible for composition levy (Section 10) 0.5% 0.5% 1.00%

D. Limitations

 Input Tax Credit: Not eligible for Input Tax Credit (ITC)

 Inter-State Business: Cannot engage in Inter-state business.

 Charging Tax: Cannot charge tax from their customers; must pay tax from their own pocket.

 E-commerce: E-commerce transactions are outside the scope of the scheme.

 Penal Provisions: Strict penal provisions for delay in filing GSTR 4 (Rs. 100 for CGST + Rs. 100
for SGST per day, up to Rs. 5000 each).

2.8 GST Tax Structure / Tax Rates

The GST Council has rationalized the tax structure under the 'GST 2.0' framework, effective
September 22, 2025, by moving towards two common rates (5% and 18%) and a special 40% rate.
The old multi-slab regime (0%, 5%, 12%, 18%, and 28%) is being rationalized, with the 12% and 28%
slabs effectively removed/merged.

Updated GST Slab Rates (w.e.f. September 22, 2025)

Revised
Slab Description Examples of Items Moved to this Slab
GST Rate

UHT Milk (from 5%), Life-saving/cancer drugs (from 12%),

0% Exempt / Nil 0%
Health & Life Insurance (individual) (from 18%)
 Revised
Slab Description Examples of Items Moved to this Slab
GST Rate

Merit / Basic Dairy items like butter/ghee/cheese (from 12-18%), Processed

5% Goods & 5% foods (from 12-18%), Soaps/shampoo/toothpaste (from 18%),
Services Gyms/fitness centres (from 18%)

Cement (from 28%), Small/affordable vehicles, Consumer

18% Standard Rate 18% durables like fridge/AC (from 28%), Restaurant dining
(premium/AC) (from 18-28%)

Pan masala, tobacco products (from 28% + cess), Carbonated

Sin / Luxury /
40% 40% drinks (from 18-28% + cess), Luxury cars/SUVs, Two-wheelers >
Demerit Goods
$350cc$ (from 28% + cess)

 Precious Metals: Precious metals and stones retain special concessional rates: base metals at
1.5%, gold/silver/jewellery at 3%, and some uncut stones at 0.25%.

2.9 Revenue Neutral Rate (RNR)

The Revenue Neutral Rate (RNR) is the GST rate fixed by the government with the aim of keeping the
gross revenue of the government the same even after replacing multiple taxes with a single GST.

 Definition: The taxing procedure that allows the government to still receive the same
amount of money despite changes in tax laws.

 Rates: The RNR at the time of GST introduction was 15.5%, which has now been brought
down to 11.4%.

2.10 GST Council (GSTC)

The GST Council is a Constitutional Body established under Article 279A of the Constitution to take
policy decisions about the introduction and implementation of GST. It is the key decision-making
body on GST matters.

A. Composition of GST Council

 Chairperson: The Union Finance Minister.

 Member: The Union Minister of State in charge of Revenue or Finance.

 Members: The Minister in charge of Finance or Taxation or any other Minister nominated by
each State Government.

 Vice-Chairperson: Chosen by the State Government members from amongst themselves.

B. Nature of GST Council

It is a quasi-legislative-cum-administrative body because it performs both legislative and

administrative duties assigned by the Parliament.
C. Decisions of GST Council

Every decision must be taken at a meeting by a majority of not less than 3/4th of the weighted
votes of the members present and voting.

 Weighted Votes:

o Vote of the Central Government has a weightage of 1/3rd of the total votes.

o Votes of all the State Governments together have a weightage of 2/3rd of the total
votes.

 Quorum: One half of the total number of members of the GST Council.

D. Functions and Powers

The GSTC makes recommendations to the Union and the States on key aspects of GST, including:

1. Taxes, cesses, and surcharges levied by the Union, States, and local bodies that may be
subsumed in the GST.

2. The goods and services that may be subjected to, or exempted from, the GST.
3. Model GST Laws, principles of levy, apportionment of IGST, and principles governing the
place of supply.

4. The threshold limit of turnover below which goods and services may be exempted from GST.

5. The rates including floor rates with bands of GST.

6. Special rates for a specified period, to raise additional resources during any natural calamity
or disaster.

7. Special provision with respect to certain States (Arunachal Pradesh, Assam, J&K, Manipur,
Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand).

2.11 HSN and SAC under GST

A. Harmonized System of Nomenclature (HSN)

HSN stands for Harmonized System of Nomenclature, a 6-digit code developed by the World
Customs Organization (WCO) to classify over 5,000 products globally.

 Purpose: HSN is used to classify goods, identify the rate of tax applicable, and determine the
quantity of an item traded through a nation.

 Structure: The HSN structure contains 21 sections, 99 chapters, about 1,244 headings, and
5,224 subheadings.
HSN Digits in India (Based on Aggregate Turnover)

The number of digits in the HSN code depends on the aggregate turnover in the preceding financial
year:

Aggregate Turnover in the preceding Financial Year Number of Digits of HSN Code

Up to Rs. 5 crores 4 Digits

More than Rs. 5 crores 6 Digits

For import and export trade (international trade) 8 Digits

 Mandatory Use: The 4-digit HSN Code is mandatory for taxpayers whose aggregate turnover
is up to Rs. 5 crores in the previous Financial Year for B2B Tax invoices.

 Above 5 Crores: The 6-digit HSN Code is mandatory on the supplies of Goods and Services in
both B2B and B2C tax invoices for taxpayers with an aggregate turnover of more than Rs. 5
crores in the previous Financial Year.
 Penalty: Penalty for non-mentioning or wrong HSN code is Rs. 50,000 (Rs. 25,000 for CGST
and Rs. 25,000 for SGST each).

B. Services Accounting Code (SAC)

Like goods, services are also classified uniformly for recognition, measurement, and taxation using
codes called Services Accounting Code or SAC.

 Structure Example: For legal documentation and certification services (code 998213):

o First two digits (99) are same for all services.

o Next two digits (82) represent the major nature of the service (e.g., legal services).

o Last two digits (13) represent the detailed nature of service (e.g., legal
documentation for patents)

--------------------------------------------------------------------------------------------------------------------------------------
QUESTIONS AND ANSWERS

I - Short Answer Questions

1. Define GST Council.

The Goods and Services Tax Council (GSTC) is a Constitutional Body created under Article 279A of the
Constitution for taking policy decisions about the introduction and implementation of GST, including
exemptions, tax rates, and tax credits. It is the key decision-making body with representation from
the central government and all state governments.

2. Define Reverse Charge Mechanism.

Reverse charge means the liability to pay tax is shifted to the recipient of supply of goods or services
instead of the supplier, in respect of notified categories of supply. It is a mechanism where the
receiver becomes liable to pay the tax to the Government
 3. What is Revenue Neutral Rate?

The Revenue Neutral Rate (RNR) is the GST rate fixed by the government with the aim of keeping the
gross revenue of the government the same even after it levies the GST. This rate ensures that the
revenue remains unchanged (neutral) despite the changes in tax laws.

4. What is input tax credit?

Input Tax Credit refers to the credit a business can claim for the Goods and Services Tax (GST) paid
on inputs (goods or services) used to produce taxable supplies. This mechanism helps avoid the
cascading effect of taxes, where tax is charged on top of tax

5. What is Compensation Cess?

Compensation Cess is levied for the purposes of providing compensation to the States for loss of
revenue arising on account of implementation of the goods and services tax. It is levied on both
intra-State and inter-State supplies.

6. What do you understand levy and collection of tax?

o The single and unified taxable event under GST is supply of goods or services or
both.

o The GST structure is dual in nature, where the Central and State governments
simultaneously levy tax on a common base.

o Tax is collected and payable primarily by the taxable person (supplier).

o The levy of tax is in three parts: in the hands of the supplier, in the hands of the
recipient under reverse charge mechanism, and in the hands of the electronic
commerce operator for specified services.

7. What is HSN Code?

HSN stands for Harmonized System of Nomenclature. It is a six-digit uniform code used to classify
over 5,000 products globally. This code is used for identifying the rate of tax applicable to goods.

8. What are the minimum and maximum rates of GST at present?

The notified rates for CGST/UTGST/SGST are 0%,5%, 18% and 40%. Maximum rate is 40% and
minimum rate is 5%.

9. Mention GST rates.

The updated structure of GST as on 22nd September 2025 is 0%, 5%, 18%, and 40%.

10. What is Composition Scheme under GST?

The Composition Scheme is an alternative method of levy of tax designed for small taxpayers whose
aggregate turnover in the preceding financial year did not cross Rs. 1.5 crore (or Rs. 75 lakhs in
North-Eastern States). It allows them to pay tax at a fixed rate based on turnover to escape complex
GST formalities.
 11. What is 'SAC' under GST?

SAC stands for Services Accounting Code. These codes are used to classify services uniformly for
recognition, measurement, and taxation under the GST regime.

12. Expand: a) HSN b) SAC c) GSTC

o HSN: Harmonized System of Nomenclature.

o SAC: Services Accounting Code.

o GSTC: Goods and Services Tax Council.

II - Short Essay Questions

1. Briefly explain the levy and Collection of tax under GST regime.

The basis of tax levy under GST is the single, unified event called supply of goods or services or both.
It is a shift from an Origin-Based Tax to a Destination based Tax. The tax structure is dual in nature,
with the Central and State governments simultaneously levying tax.

Tax is levied in three ways:

o Normal Charge: Tax is primarily paid by the supplier (the taxable person).

o Reverse Charge Mechanism (RCM): The liability to pay tax is shifted to the recipient
of the supply for notified categories.

o E-commerce Operator (ECO): For specific notified services supplied through an ECO,
the ECO is liable to pay the tax.

2. Describe the concept of Reverse Charges Mechanism.

Reverse Charge Mechanism (RCM) is an exception where the liability to pay GST is cast on the
recipient of supply instead of the supplier.

o Statutory Provision: Section 9(3) of the CGST Act empowers the Government to
notify specific categories of supply of goods or services where the recipient shall pay
the tax.

o Applicable Cases:

 Supply from an unregistered dealer to a registered dealer.

 Services through an e-commerce operator.

 Supplier of goods or services located in non-taxable territory (e.g., Imports).

 Tax levied on an unorganized sector.

 Supply of certain specified goods and services.

o All provisions of the GST Act apply to the recipient as if they were the person liable
for paying the tax.

3. Explain the eligibility and charging of Compensation Cess.

 o Eligibility & Basis: The cess is levied under Section 8 of the GST (Compensation to
States) Act, 2017.

o Purpose: To provide compensation to the States for the loss of revenue resulting
from the implementation of GST.

o Charging: The cess is levied on:

 Intra-State supplies of goods or services or both (under CGST Act).

 Inter-State supplies of goods or services or both (under IGST Act).

o Rate: A cess of 15% or other rates is applied on top of the 40% GST on items like
aerated drinks, luxury cars, and tobacco products.

4. Explain the GST tax structure.

The GST tax structure in India is moving towards a rationalized regime (GST 2.0, w.e.f. 22nd
September 2025).

o GST Slabs: The system is being rationalized to focus on two common rates: 5% and
18%, along with a special 40% rate.

o Special Rates: Special concessional rates of 0.25% (for rough precious/semi-precious

stones) and 3% (for gold, silver, jewellery) are retained.

o Cess: A Cess of 15% or other rates is levied on few items like luxury cars and tobacco
products.

o Exclusions: Supply of alcoholic liquor for human consumption and specified

petroleum products (petroleum crude, motor spirit, etc.) are outside the current levy
of GST.

5. Describe the present GST Slabs.

The updated GST Slab rates in India, effective 22nd September 2025 (GST 2.0), are categorized as
follows:

Revised
Slab Description Examples of Applicability (w.e.f. 22/09/2025)
GST Rate

UHT Milk (moved from 5%), Life-saving/cancer drugs

0% Exempt / Nil 0% (moved from 12%), Health & Life Insurance (individual)
(moved from 18%)

Dairy items (butter, ghee), Processed foods, Soaps,

Merit / Basic
5% 5% shampoo, toothpaste (moved from 18%), Gyms/fitness
Goods & Services
centres (moved from 18%)

Cement (moved from 28%), Small/affordable vehicles,

18% Standard Rate 18% Consumer durables (fridge, AC), Restaurant dining
(premium/AC)
 Revised
Slab Description Examples of Applicability (w.e.f. 22/09/2025)
GST Rate

Sin / Luxury / Pan masala, tobacco products, Carbonated drinks,

40% 40%
Demerit Goods Luxury cars, SUVs, Two-wheelers above 350cc

6. What are the functions of GST Council?

A GST Council has been constituted under Article 279A of the Constitution to make
recommendations to the Union and the States on:

o The taxes, cesses, and surcharges to be subsumed in the GST.

o The goods and services that may be subjected to, or exempted from the GST.

o Model GST Laws, principles of levy, and principles governing the place of supply.

o The threshold limit of turnover for exemption from GST.

o The rates including floor rates with bands of GST.

o Special rates to raise resources during any natural calamity or disaster.

o Special provisions for certain States (like J&K, Himachal Pradesh, and North-Eastern
States).

o Any other matter relating to the GST.

7. Discuss the concept of Composition levy.

The Composition Scheme is a simplified and convenient method for small taxpayers to reduce
compliance costs by paying tax at a fixed rate on their turnover.

o Eligibility: Aggregate turnover must generally be below Rs. 1.5 crore (Rs. 75 lakhs for
9 North-Eastern States). A separate scheme exists for suppliers of services or mixed
suppliers with a turnover up to Rs. 50 lakhs.

o Key Features:

 Fixed tax rate on total sales turnover.

 Summarized returns filed on a quarterly basis.

 Issues Bill of Supply instead of a tax invoice.

 Not required to maintain detailed records.

o Specified Rates:

 Manufacturers: 1.00% (0.5% CGST + 0.5% SGST).

 Restaurant services: 5% (2.5% CGST + 2.5% SGST).

 Other eligible suppliers: 1.00% (0.5% CGST + 0.5% SGST).

o Limitations:

 Not eligible for Input Tax Credit.

  Cannot engage in Inter-state business.

 Cannot charge tax from customers; must pay tax from own pocket.

 E-commerce transaction is outside the scope of the scheme.

8. Describe HSN and SAC under GST in India.

o Harmonized System of Nomenclature (HSN):

 Purpose: HSN is a six-digit uniform code used globally to classify goods,

identify the applicable tax rate, and determine trade quantity. Its structure
includes 21 sections, 99 chapters, about 1,244 headings, and 5,224
subheadings.

 Mandatory Digits in India:

 Up to Rs. 5 crores turnover: 4 Digits (mandatory for B2B Tax

invoices).

 More than Rs. 5 crores turnover: 6 Digits (mandatory for B2B and
B2C tax invoices).

 For import and export trade: 8 Digits.

o Services Accounting Code (SAC):

 Purpose: SAC is the uniform code used to classify services for recognition,
measurement, and taxation under GST.

 Structure: The first two digits (99) are the same for all services, followed by
two digits for the major nature of the service, and the final two digits for the
detailed nature of the service.

III - Essay Questions

1. Explain the mechanism of levy and collection of Cess, SGST, CGST, IGST and UTGST.

The levy and collection mechanism is built on the singular taxable event of supply.

Tax Basis of Levy Taxable Event Collection Mechanism

Intra-State Collected by the Government and

Section 9(1) of supplies of paid by the taxable person
CGST/SGST/UTGST
CGST Act goods or (supplier). Excludes alcoholic
services liquor for human consumption.

Levied on inter-State supplies,

Inter-State
excluding alcoholic liquor. IGST on
Section 5 of IGST supplies of
IGST imported goods is levied and
Act goods or
collected under Section 3 of the
services
Customs Tariff Act, 1975.
 Tax Basis of Levy Taxable Event Collection Mechanism

Both Intra-
State and
Section 8 of GST Levied to provide compensation
Inter-State
Cess (Compensation to to the States for revenue loss due
supplies of
States) Act, 2017 to GST implementation.
goods or
services

The levy can also be reversed to the recipient under the Reverse Charge Mechanism or applied to
the Electronic Commerce Operator for notified services.

2. Define GST Council. Describe the composition, power and functions GST Council.

o Definition: The GST Council is a Constitutional Body established under Article 279A.
It is a quasi-legislative-cum-administrative body that acts as the key decision-
making authority for the implementation of GST.

o Composition:

 Chairperson: The Union Finance Minister.

 Member: The Union Minister of State in charge of Revenue or Finance.

 Members: The Minister in charge of Finance or Taxation (or other nominated

Minister) from each State Government.

o Decision-Making Power:

 Every decision must be taken by a majority of not less than 3/4th of the
weighted votes of the members present and voting.

 The Central Government’s vote has a weightage of 1/3rd of the total votes.

 The votes of all State Governments together have a weightage of 2/3rd of

the total votes.

 The Council also devises a mechanism for dispute resolution between the
Centre and States.

o Functions/Recommendations:

 Recommending the taxes, cesses, and surcharges to be subsumed in GST.

 Recommending goods and services to be subjected to, or exempted from,

GST.

 Recommending Model GST Laws and principles governing the place of

supply.

 Determining the threshold limit of turnover for exemption.

 Determining the rates (including floor rates and bands of GST).

 Recommending special rates to raise additional resources during a natural
calamity or disaster.
 3. Write Notes on: a) Reverse Charge b) Composition Levy c) Revenue Neutral Rate

o a) Reverse Charge (RCM): A mechanism where the liability to pay GST is placed on
the recipient of the supply instead of the supplier, for specific notified categories of
goods or services. This is done by notification under Section 9(3) of the CGST Act.
Cases include supplies from unregistered dealers to registered dealers, services via
an e-commerce operator, and imports.

o b) Composition Levy: An alternative and simplified scheme for small taxpayers with
an aggregate turnover limit of Rs. 1.5 crore (or Rs. 75 lakhs/Rs. 50 lakhs for specific
categories/states) . Tax is paid at a fixed, concessional rate (e.g., 1% for
manufacturers, 5% for restaurants). Key limitations are: the dealer is not eligible for
Input Tax Credit, cannot engage in inter-State business, and cannot charge tax from
the customer.

o c) Revenue Neutral Rate (RNR): The GST rate fixed by the government to ensure that
the gross revenue of the government remains the same after replacing multiple old
taxes with the unified GST. It ensures revenue stability despite changes in the tax law.
The RNR was 15.5% at the time of GST introduction, but has since been brought
down to 11.4%.

4. Explain the important provisions relating to GST council.

Important Provisions Relating to the GST Council

The GST Council is the apex policy-making body for the Goods and Services Tax in India. It is
constituted under Article 279A of the Constitution. The key provisions are:

1. Composition of the GST Council (Article 279A(2))

The Council consists of:

 Union Finance Minister – Chairperson

 Union Minister of State (Finance/Revenue) – Member

 State Finance Ministers (or any other nominated minister of each state) – Members

This structure ensures both Union and State representation.

2. Objectives of the GST Council

The main aim is to establish a harmonized national tax structure by:

 Making recommendations on GST-related matters

 Ensuring uniformity in tax rates and procedures across the country

3. Powers and Functions (Article 279A(4))

The GST Council recommends:

a. Taxes to be subsumed into GST

Which central/state taxes should be included or excluded.

b. GST Rates

 Rate structure

 Floor rates with bands

 Special rates for raising additional resources during natural calamities (e.g., GST
compensation cess)

c. Exemptions and Threshold Limits

 Exemption lists

 Threshold turnover for GST registration

d. Model GST laws

Including:

 Rules

 Procedures

 Place of supply rules

 Apportionment of IGST

e. Special provisions for certain states

Such as the North-Eastern states, J&K (earlier), and hill states.

4. Decision-Making Process (Article 279A(9))

Decisions of the Council require:

 75% majority of the weighted votes

 Voting Weightage:

o Centre: 1/3rd of total votes

o States: 2/3rd of total votes

Thus, neither the Centre nor the States can unilaterally impose decisions, ensuring cooperative
federalism.

5. Creation of a Dispute Resolution Mechanism (Article 279A(11))

The Council is empowered to establish a mechanism to resolve disputes:

 Between Centre and one or more states

 Between two or more states

  Between the Council and Centre/States

6. Meetings and Procedures

 The GST Council must meet at least once every quarter.

 It can regulate its own procedure.

 CHAPTER 3

TIME AND PLACE OF SUPPLY UNDER GST

Introduction to GST Supply

Under the previous indirect tax regime, taxes were fragmented: states-imposed VAT on intra-state
sales and CST on inter-state sales, while the Central Government levied Excise Duty on manufacturing
and Service Tax on services. Local authorities also imposed various taxes like Octroi. In the GST
regime, these distinct taxable events (manufacture, sale, etc.) are replaced by a single event:
"Supply".

2. Meaning and Expression of "Supply"

The term "supply" is defined inclusively under Section 7 of the CGST Act, 2017. It includes:

 All forms of supply of goods or services (sale, transfer, barter, exchange, license, rental, lease,
or disposal) made for a consideration in the course or furtherance of business.

 Import of services for a consideration, regardless of whether it is for business furtherance.

 Activities specified in Schedule I (made without consideration).

 Activities treated as supply of goods or services under Schedule II.

 Activities listed in Schedule III, which are treated as neither a supply of goods nor services.

3. Elements of Supply

A transaction is generally considered a supply if it meets two essential elements:

1. Consideration: The supply must be done for a payment (money or kind).

2. Furtherance of Business: The supply must be part of a commercial activity.

o Example: Selling a personal steel table to a dealer is not a supply because it is not for
business furtherance.

o Example: Providing free coaching as a hobby is not a supply as there is no

consideration.

4. Types of Supply

Supplies are categorized based on four different criteria:

A. Based on Location

 Intra-State Supply: Occurs when the location of the supplier and the place of supply are in
the same State or Union Territory.

 Inter-State Supply: Occurs when the supplier and the place of supply are in two different
States, two different Union Territories, or a State and a Union Territory. This includes imports
and supplies to/by SEZ developers.

 Territorial Waters: If a supply occurs in territorial waters, the place of supply is the nearest
coastal State or Union Territory.

B. Based on Combination
  Composite Supply: Consists of two or more taxable supplies which are naturally bundled
and supplied together (e.g., goods with insurance). One is the "principal supply," and its tax
rate applies to the entire bundle.

 Mixed Supply: Two or more individual supplies made for a single price that do not constitute
a composite supply. The tax rate of the item with the highest rate is applied to the whole
supply.

 Continuous Supply: Supplies provided on a recurrent basis under a contract (e.g., via
pipelines or for a period exceeding three months with periodic payment obligations).

C. Based on Recipient

 Inward Supply: Receipt of goods or services via purchase or acquisition.

 Outward Supply: Provision of goods or services via sale, transfer, barter, etc..

D. Based on Tax Treatment

 Exempt Supply: Attracts a nil rate of tax or is wholly exempt.

 Zero-Rated Supply: Includes exports or supplies to SEZ units/developers.

 Non-Taxable Supply: Sale of goods/services that attract a nil rate and are similar to exempt
supplies.

 Taxable Supply: A supply on which GST must be paid.

5. Scope of Supply and Parameters

A transaction is characterized as a supply based on six parameters: it must involve goods/services, be

for consideration, be for business furtherance, be made by a taxable person, be a taxable supply, and
occur within a taxable territory.

 Exclusions: Securities and money are excluded from the definition of both goods and
services. However, activities relating to the use of money (like currency conversion for a fee)
are considered services.

Deemed Supplies (Schedule II)

This schedule clarifies whether an activity is a supply of goods or services to avoid ambiguity.

 Supply of Goods: Includes transfer of title, hire-purchase agreements, and permanent

disposal of business assets.

 Supply of Services: Includes transfer of right to use goods, renting immovable property,
construction, and software development.

Supply Without Consideration (Schedule I)

Includes permanent transfer of business assets (if ITC was availed), transactions between related or
distinct persons, and transactions between a principal and an agent.

Negative List (Schedule III)

Activities treated as neither supply of goods nor services:

 Services by an employee to an employer during employment.

  Services by courts or tribunals.

 Functions of MPs, MLAs, and local authority members.

 Funeral, burial, or mortuary services.

 Sale of land or completed buildings.

 Actionable claims (except lottery, betting, and gambling).

6. Taxable Person

A "taxable person" carries on business in India and is registered or required to be registered under
the GST Act. This includes individuals, HUFs, companies, partnership firms, LLPs, local authorities,
and governments.

 Liability to pay GST falls on registered persons making taxable supplies, those liable under
the Reverse Charge Mechanism (RCM), and e-commerce operators.

7. Time of Supply

The Time of Supply is the "point of taxation" that determines when the liability to pay tax arises.

 Time of Supply for Goods - Earliest of the following:

a) Date of invoice
b) Date of Receipt of payment
c) Date of delivery

Eg: Mumin sold goods to Fazil worth ₹ 100,000. Invoice was issued on 10th February
2022. The payment was received on 20th February. The goods were supplied on
15th February.
Here the time of supply is 10th February (Date of invoice)

 Time of Supply for Services - Earliest of the following:

a) Date of Invoice
b) Date of receipt of payment
c) Date of supply (If the invoice is not issued before 30 days from the date of
supply)

Eg: Fuad provides service worth ₹ 150,000 to Habil on 1st Mar 2022. The invoice
was issued on 12th March and the payment was received on 15th March.

Here the time of supply is 12th March. (Date of invoice)

 Time of Supply under Reverse Charge - Earliest of the following:

a) Date of payment
b) 30th day from the date of invoice (60th day in case of service)
Eg: Isla Commerce Pvt. Ltd. undertook service of a director Mr. Mumin worth ₹
60,000 on 10th March. The invoice was raised on 1st April. Isla Commerce Pvt. Ltd.
Made the payment on 1st July.
 Date of payment = 15th June.
60 days from date of
invoice = 31st May Here
time of supply is 31st May
Place of Supply
 It defines whether the transaction will be counted as intrastate or interstate.
1. Place of Supply of Goods:
a) If there is movement of goods : Place where the goods are delivered.
b) If there is no movement of goods: Location of goods at the time of delivery. (Eg:
Supermarket)
c) Goods that are assembled : Installed location
(Eg: Supplier from Delhi supplies machinery to Trivandrum, but installed in the
factory in
Bangalore. Here place of supply is Bangalore.)

2. Place of Supply of Services:

a) Received by a registered person : Location of the recipient
b) Received by an unregistered person : Location of service provider

c) Related to immovable property : Location of the property.

(Eg: Anfas from Calicut provides interior designing service to
Khaliq(Bangalore). The property is in Ooty.
Here place of supply is Ooty.

Activities not to be Treated as Supply:

1. Service by an employee to employer. (Gift exceeding ₹ 50,000 shall be treated as supply)

2. Services by any court.
3. Services of MP, MLA, Panchayat and other local authorities.
4. Services of funeral or mortuary.
------------------------------------------------------------------------------------------------------------------------------------

Illustrations:

1. A registered taxpayer offers passenger transport services from Trivandrum

to Calicut. The passengers do not have GST registration. What will be the
place of supply in this case?

Ans: The place of supply is the place from where the departure takes place. ie. Trivandrum in
this case.

2. Anand in Lucknow buys goods from Mr Rajin Mumbai (Maharashtra). The buyer
requests the seller to send the goods to Nagpur (Maharashtra).

Ans: In this case, it will be assumed that the buyer in Lucknow has received the goods
 & IGST will be charged.
Place of supply: Lucknow (UP), GST: IGST

3. Mr. Raj of Mumbai, Maharashtra gets an order of 100 TV sets from Sales Heaven
Ltd. of Chennai Tamil Nadu Sales Heaven mentions that it will arrange its own
transportation and take TV sets from Mr. Raj ex-factory.

Ans: The goods are received ex-factory, ie. in Maharashtra.

Place of supply Maharashtra, GST: CGST & SGST

4. Mr. Raj of Mumbai, Maharashtra orders a mobile from Amazon to be delivered to

his mother in Lucknow (UP) as a gift. M/s ABC (online seller registered in Gujarat)
processes the order and sends the mobile accordingly and Mr. Raj is billed by
Amazon.

Ans: it will be assumed that the buyer in Mumbai has received the goods and IGST will be
charged.
Place of supply Maharashtra, GST: IGST

5. Selling star Ltd. (Chennai) opens a new show room in Bangalore. It

purchases a building for showroom from Skyline Builders (Bangalore) along
with pre-installed work stations.

Ans: There is no movement of goods (work stations), so the place of supply will be the
location of such goods at the time of delivery (handing over) to the receiver.
Place of supply: Bangalore, GST: CGST & SGST

6. Bharath Iron & Steel Ltd. (Kerala) asks M/s Hi-lite Constructions (Maharashtra)
to build a blast furnace in their Kerala steel plant.
Ans: Although M/s Hi-lite is in Maharashtra, the goods (blast furnace) are being
installed, at site in Kerala which will be the place of supply.
Place of supply
Kerala, GST: IGST
7. Mr. Akhilesh is travelling from Mumbai to Delhi by air. He purchases coffee and
snacks while on the plane. The airline is registered in both Mumbai and Delhi.
Ans: The food items were loaded in to the plane t Mumbai. So place of supply
becomes Mumbai Place of supply: Mumbai, GST : CGST& SGST

8. Ms. Aiswarya imports school bags from China for her shop (registered in Kerala)
Ans: Place of supply Kerala, GST: IGST
 CHAPTER 4

VALUE OF SUPPLY UNDER GST

The Value of Supply is a critical concept in GST as it determines the tax payable on a transaction.

1. Transaction Value (General Rule)

Generally, the value of a supply of goods or services is the transaction value.

 Definition: The price actually paid or payable for the supply of goods or services.

 Conditions: This is applicable when the supplier and the recipient are not related, and price
is the sole consideration for the supply.

2. Inclusions in Value of Supply

The value of supply shall include the following:

 Any taxes, duties, cess, fees, and charges levied under any act, except GST.

o Note: GST Compensation Cess is excluded if charged separately by the supplier.

 Any amount that the supplier is liable to pay but has been incurred by the recipient and is
not included in the price.

 All incidental expenses in relation to sale, such as packing and commission.

 Subsidies linked to supply, except Government subsidies.

 Interest/late fee/penalty for delayed payment of consideration.

 Extra charges like shipping and handling (in the simple definition).

3. Exclusions from Value of Supply

 GST is generally not included in the value of supply.

 Trade discounts mentioned on the invoice are deductible.

Determination of Value of Supply (Specific Cases)

When the general rule (Transaction Value) cannot be applied, specific rules are followed for the
determination of the Value of Supply.

4. Consideration Not Wholly in Money (Barter/Exchange)

Where the consideration for the supply is not wholly in money, the value shall be determined in the
following order:

1. The open market value of such supply.

o Illustration: If a new TV is supplied for ₹30,000 plus an old TV, and the new TV's price
without exchange is ₹34,000, the open market value is ₹34,000.
 2. If the open market value is not available, it is the sum total of consideration in money and
the monetary equivalent of the non-monetary consideration (if known at the time of
supply).

o Illustration: A laptop is supplied for ₹40,000 along with a printer (bartered) valued at
₹5,000. If the open market value of the laptop is unknown, the value of supply is
₹45,000 (₹40,000 + ₹5,000).

3. If not determinable by (a) or (b), it is the value of supply of goods or services of like kind
and quality.

4. If still not determinable, it is the sum total of monetary and non-monetary consideration
equivalent as determined by applying Rule 4 or Rule 5.

5. Supply Between Distinct or Related Persons

For supplies between distinct or related persons (other than through an agent), the value is
determined in this order:

1. Open market value of such supply.

2. If open market value is not available, it is the value of supply of goods or services of like
kind and quality.

3. If not determinable by (a) or (b), the value is determined by applying Rule 4 or Rule 5.

 Provision for Goods for Further Supply: If goods are intended for further supply as such by
the recipient, the supplier has the option to value the supply at 90% of the price charged for
the supply of goods of like kind and quality by the recipient to a customer (who is not a
related person).

 Provision for Full ITC: If the recipient is eligible for full Input Tax Credit (ITC), the value
declared in the invoice is deemed to be the open market value.

6. Supply Made or Received Through an Agent

For supply between the principal and his agent, the value shall be:

 The open market value of the goods.

 OR, at the option of the supplier, 90% of the price charged by the recipient (agent) to his
customer (not a related person), where the goods are for further supply by the agent.

 If the value is not determinable under the above options, it is determined by applying Rule 4
or Rule 5.

7. Value Based on Cost (Rule 4)

If the value is not determinable by any preceding rules, it is set at 110% of the cost of production or
manufacture, or cost of acquisition of such goods, or cost of provision of services.

8. Residual Method (Rule 5)

If the value cannot be determined under Rules 1 to 4, it is determined using reasonable means
consistent with the principles of Section 15 and the rules. For supply of services, the supplier may
opt for this rule, disregarding Rule 4.
9. Value of Supply Inclusive of Taxes

If the value of supply is inclusive of integrated tax (IGST) or central tax (CGST) and State tax
(SGST)/Union territory tax (UTGST), the tax amount is determined using the formula:

10. Imported Goods and Services

 Imported Goods: Value is calculated based on Custom Act rules, which is the Custom Value
plus the Import Duty paid.

 Imported Services: The value of taxable supply is the Total Consideration times the Taxable
Percentage.

GST Calculation in Different Situations

Intra-State Supply (Local Supply)

Dual GST is charged: CGST (Central GST) and SGST (State GST).

 Scenario (Ajith  Biju  Chandra):

o Ajith Biju: Ajith charges and remits CGST and SGST to the government. Being the
first supplier, Ajith has no prior credit.

o Biju Chandra: Biju adds value (e.g., 20%) to the price. Biju uses the Input Tax
Credit (ITC) of CGST and SGST paid on the purchase from Ajith to set off against the
Output CGST and SGST payable on the sale to Chandra.

o Net GST Payable: The net GST paid by Biju to the government is only on the value
addition.

Inter-State Supply

IGST (Integrated GST) is charged by the supplier.

 Scenario (Raju  Salim  Manoj  Krishnappa):

o Raju (Kerala)  Salim (Kerala) (Intra-State): Raju charges CGST and SGST. Raju has
no credit.
 o Salim (Kerala)  Manoj (Karnataka) (Inter-State): Salim charges IGST (CGST + SGST
rate). Salim uses the CGST and SGST credit from the purchase (Raju) to set off against
the IGST payable. Kerala (Exporting State) transfers the SGST credit utilized to the
Central Government.

o Manoj (Karnataka)  Krishnappa (Karnataka) (Intra-State): Manoj adds value and

charges CGST and SGST. Manoj uses the IGST credit from the purchase (Salim) to set
off against the CGST and SGST payable. The Central Government transfers the IGST
credit utilized for SGST payment to Karnataka State.

 IGST Rate: IGST Rate = CGST Rate + SGST Rate.

Input Tax Credit (ITC)

 GST Payable: If Output GST is greater than Input GST, the difference is the GST Payable
(remitted to the government).

 GST Credit: If Input GST is more than Output GST, the difference is called GST Credit. This
credit is calculated separately for each type of GST (CGST, SGST, IGST).

🔄 Reverse Charge Mechanism (RCM)

Under the RCM, the importer of services is liable to pay IGST on imported services. This GST paid
under RCM is payable first in cash, and the same amount then becomes eligible as ITC in the
subsequent return period.

 Accounting Treatment: RCM liability is debited to "GST Payable (RCM)" and credited to
"Cash/Bank". ITC on RCM and inputs are credited to "Input Tax Credit – IGST/CGST/SGST"
accounts.

 Net GST Liability: If there is no outward supply (sales), the firm has no output GST liability.
The ITC on RCM and local purchases can be offset, resulting in a net GST liability of ₹0 after
set-off (if total ITC equals or exceeds the RCM payment).