GST LAWS — SEMESTER VI

[Link] / BMS — Complete Study Guide

Modules 1, 2 & 3 — With All Topics, Examples & Solved Problems

MODULE 1: Introduction to GST and GST Act

1.1 Introduction & History of Taxation in India
Taxation is as old as civilization itself. The earliest known systems existed in Ancient Egypt (~3000
BC). In India, references appear in Manu Smriti and Kautilya's Artha Shastra. Before GST, India had a
dual-taxation model — both the Centre and States levied separate taxes, creating a complex web.

Pre-GST Tax Structure

Tax Levied On Collected By
State VAT Sales/purchases within state State Government
Central Sales Tax (CST) Interstate trade State (origin)
Central Excise Duty Manufacture of goods Union Government
Service Tax Provision of services Union Government
Additional Customs Duty Imported goods Union Government
Entry Tax / Octroi Goods entering a state/city State/Local body

Problems of the Pre-GST System

• Cascading effect (tax on tax) — a product taxed at manufacturer level was taxed again at retail
level
• No cross-credit between goods and services
• Multiple registrations required across states
• Check-post delays causing logistics inefficiency
• Complex and non-uniform compliance across states

Timeline: History and Evolution of GST

Year Event
1986 MODVAT introduced by Finance Minister V.P. Singh
2003 Kelkar Task Force recommended comprehensive GST based on VAT principle
2009 First Discussion Paper on GST released by Empowered Committee
2011 115th Constitutional Amendment Bill introduced (lapsed with 15th Lok Sabha
dissolution)
2014 122nd Constitutional Amendment Bill introduced in Lok Sabha
2016 101st Constitutional Amendment Act passed (8th September 2016)
 Year Event
2017 GST implemented from 1st July 2017 — replaced 17+ central & state taxes

1.2 Constitutional Amendments — 101st Amendment Act, 2016

To implement GST, the Constitution had to be amended to grant concurrent powers to both Centre and
States for taxing supply of goods and services. This was done via the 101st Constitutional Amendment
Act, which received Presidential assent on 8th September 2016 and was notified on 16th September
2016.

Key Articles Amended:

Article Provision
Article 246A Special provision granting Parliament and State Legislatures concurrent
power to levy GST
Article 269A Levy and collection of IGST on inter-state supplies; apportionment between
Centre and States
Article 279A Constitution of the GST Council
Article 366 Added definition clause 12A — defines 'goods and services tax'
GST Compensation Compensation to States for revenue losses for 5 years
Act, 2017
📌 Note: This amendment shifted India from origin-based taxation to destination-based taxation.

1.3 GST Council — Structure, Powers and Functions

The GST Council is a constitutional body constituted under Article 279A, set up on 12.09.2016. It is the
apex body for making recommendations on GST-related matters.

Composition
• Union Finance Minister — Chairperson
• Union Minister of State (Revenue) — Member
• State Finance Ministers / other State representatives — 33 members total

Voting Pattern
• Centre has 1/3 weightage
• States together have 2/3 weightage
• A 3/4th majority is required to pass any resolution

Functions of the GST Council

1. Recommend tax rates, rate slabs, and exemptions
2. Determine threshold limits for registration
3. Finalize model CGST, SGST and IGST laws
4. Recommend special rates for North-Eastern states and disaster-affected regions
 5. Decide on compensation mechanism for states losing revenue
6. Recommend date for inclusion of petroleum products under GST

18 Sectoral Groups under GST Council

The Council has formed 18 Sectoral Groups to handle specific industries: Banking & Insurance, Exports
& SEZs, Transport & Logistics, MSMEs, Food Processing, Media & Entertainment, Pharma, Oil & Gas,
Government Services, Telecom, IT/ITeS, Textiles, Gems & Jewellery, e-Commerce, Travel & Tourism,
Handicrafts, Mining, Big Infrastructure (Airports, Ports, Power, Construction).

1.4 GST Network (GSTN)

The Goods and Services Tax Network (GSTN) is a non-government private limited company
incorporated on 28 March 2013. It serves as the IT backbone for the entire GST system.

Equity Structure
Stakeholder Equity %
Government of India 24.5%
All States + Empowered Committee 24.5%
Non-Government Financial Institutions 51%

Key Functions of GSTN

• Operates the GST portal: [Link]
• Processing of registration applications
• Return filing (GSTR-1, GSTR-3B, GSTR-9, etc.)
• Tax payment processing
• Matching of Input Tax Credit (ITC) between buyers and sellers
• Analytics and fraud detection
₹Note: Authorized capital of GSTN is ₹10 Crores. GSTN enables completely paperless, digital GST compliance.

1.5 Objectives of GST

7. Achieve 'One Nation, One Tax, One Market'
8. Shift from manufacturing-based to consumption-based tax
9. Uniform GST registration, payment and ITC across India
10. Eliminate cascading effect of indirect taxes
11. Subsume all central and state indirect taxes
12. Reduce tax evasion and corruption
13. Increase productivity and economic efficiency
14. Increase Tax-to-GDP ratio and revenue surplus
15. Improve compliance through online mechanisms
16. Reduce economic distortions caused by fragmented tax systems
1.6 Meaning and Definition of GST
GST (Goods and Services Tax) is a comprehensive, destination-based indirect tax levied on the supply
and consumption of goods and services across India (including J&K).

Constitutional Definition — Article 366(12A):

GST means any tax on supply of goods or services or both, except taxes on the supply of alcoholic
liquor for human consumption.

Goods — Section 2(52), CGST Act:

Every kind of movable property other than money and securities, but includes actionable claims,
growing crops, grass and things attached to or forming part of the land which are agreed to be severed
before supply.

Services — Section 2(102), CGST Act:

Anything other than goods, money and securities, but includes activities relating to the use of money or
its conversion from one form/currency to another for which a separate consideration is charged.
📌 Note: GST is a value-added tax — tax is collected at every stage, but credit of the tax paid at the previous
stage is available. Ultimately, only the final consumer bears the tax.

1.7 Salient Features of GST

• Destination-based tax — tax accrues to the state of consumption, not production
• Dual model — CGST + SGST (intra-state) or IGST (inter-state)
• Seamless Input Tax Credit (ITC) across the supply chain
• Zero-rating of exports and inter-state sales of goods
• Single tax rate on both goods and services (no distinction)
• No scope for levy of cess, resale tax, turnover tax, etc.
• Online compliance via HSN (Harmonized System of Nomenclature) classification
• Reverse Charge Mechanism (RCM) in specified situations
• Composition scheme for small taxpayers
• Anti-profiteering provisions to protect consumers

1.7 Subsuming of Taxes

Subsuming means merging multiple taxes into a single unified tax — GST.

Central Taxes Subsumed State Taxes Subsumed

Central Excise Duty VAT (Value Added Tax)
Service Tax Entry Tax / Octroi
Additional Customs Duty (CVD & SAD) Luxury Tax
Central Sales Tax (CST) Entertainment Tax
Purchase Tax
Principles Governing Subsuming
17. Indirect Nature — only indirect taxes are subsumed
18. Supply Chain Inclusion — taxes at all stages of production to consumption
19. Seamless ITC Flow — allows cross-state credit flows
20. Fair Revenue Sharing — equitable sharing between Centre and States

1.8 Benefits of GST

21. Abolishes multiple types of taxes — simplifies indirect tax structure
22. Eliminates cascading effect — no tax on tax
23. Reduces effective tax rates by merging to 1-2 floor rates
24. Minimizes compliance cost and increases voluntary compliance
25. Enhances manufacturing efficiency — lowers cost of production
26. Neutral to geography, business model and organization structure
27. Reduces litigation, corruption and widens the tax base
28. Decreases administrative cost for the Government
29. Promotes 'Make in India' and boosts exports through zero-rating
30. Encourages cooperative federalism between Centre and States

1.9 Types of GST — CGST, SGST, IGST, UTGST

Type Full Form Levied By When Applicable
CGST Central GST Central Government Intra-state supply of goods/services
SGST State GST State Government Intra-state supply of goods/services
IGST Integrated GST Central Government Inter-state supply + imports
UTGST Union Territory GST UT Administration Intra-UT supply (UTs without
legislature)

Important Rule — UTs with Legislature:

Delhi, Jammu & Kashmir, and Puducherry have their own legislatures, so they fall under SGST law (not
UTGST). UTGST applies only to Ladakh, Andaman & Nicobar, Chandigarh, Dadra & Nagar Haveli,
Daman & Diu, and Lakshadweep.

Numerical Example
Rajesh (Karnataka) sells goods worth ₹10,000 to Ravi (Karnataka). GST rate = 18%.
Component Rate Amount Goes To
CGST 9% ₹900 Central Government
SGST 9% ₹900 Karnataka State Government
Total GST 18% ₹1,800 —
GST Composition Scheme
A simplified tax scheme for small taxpayers. Instead of full GST compliance, they pay a flat % on
turnover. Reduces paperwork but comes with restrictions.

Category Turnover Limit GST Rate CGST SGST

Manufacturers & Traders Up to ₹1.5 Crore (₹75L in 1% 0.5% 0.5%
special states)
Restaurants (no alcohol) Up to ₹1.5 Crore 5% 2.5% 2.5%
Service Providers Up to ₹50 Lakh 6% 3% 3%

Key Features of Composition Scheme:

• File only quarterly return (GSTR-4) instead of monthly returns
• No ITC is available
• Cannot collect tax separately from customers
• Cannot supply goods between states (only intra-state)
• Recent amendment: Can include service supply up to 10% of turnover

1.10 Key Amendments — Budget 2026

• Post-sale discount: No need for pre-existing contract; credit note + ITC reversal is sufficient
• Place of Supply for Intermediary Services: Now based on recipient's location
• Refund Enhancements: Provisional refunds on inverted duty claims; no minimum threshold for
export refunds
• Interim Appellate mechanism for Advance Rulings
• E-Invoicing: Mandatory for businesses with turnover above ₹5 crore
• Online Gaming/Casinos/Horse Racing: 28% GST on full face value (2023)
MODULE 2: Time, Place and Value of Supply
2.1 Introduction
Supply is the taxable event under GST. But it is the 'Time of Supply' that determines WHEN GST
liability arises, the 'Place of Supply' that determines WHICH tax (CGST+SGST or IGST) applies, and
the 'Value of Supply' that determines HOW MUCH GST is calculated on. These three elements are the
cornerstone of GST levy.

2.2 Time of Supply of Goods — Section 12, CGST Act

Time of Supply (TOS) is the point in time when goods/services are considered 'supplied' — this is when
the GST liability is created and the due date for payment is determined.

Rule: TOS of Goods = Earlier of:

• (a) Date of issuance of invoice (or the LAST DATE by which invoice should have been issued,
i.e., date of removal if goods move, or date of delivery if no movement)
• (b) Date of receipt of payment (= earlier of: date entered in books OR date credited to bank
account)

📌 Note: GST is NOT applicable on advances for goods (Notification No. 66/2017). GST on advance for goods is
payable only at the time of issue of invoice.

Worked Example — TOS of Goods

Mr. X sold goods to Mr. Y worth ₹1,00,000. Invoice issued: 15th January. Payment received: 31st
January. Goods supplied: 20th January.
Step: Last date for invoice = date of removal = 20th January.
TOS = Earlier of (a) 15th Jan [invoice date] or (b) 31st Jan [payment] → TOS = 15th January

2.3 Time of Supply of Services — Section 13, CGST Act

Services have a slightly different rule because the prescribed time for issuing invoice is 30 days from
date of provision of service.

Case A: Invoice issued WITHIN 30 days

TOS = Earlier of: Invoice date OR Payment receipt date

Case B: Invoice NOT issued within 30 days

TOS = Earlier of: Date of provision of service OR Payment receipt date

Case C: Neither A nor B applies

TOS = Date on which recipient shows receipt of services in his books of account

📌 Note: For Banks, Insurance Companies and NBFCs, the invoice must be issued within 45 days (not 30).

Worked Example — TOS of Services

Mr. A provides services on 1st Jan. Invoice issued: 20th Jan. Payment received: 1st Feb.
Step: Invoice issued on 20th Jan. Prescribed time = 30 days from 1st Jan = 31st Jan. 20th Jan < 31st
Jan, so invoice is within time → Case A.
TOS = Earlier of (Invoice: 20th Jan) OR (Payment: 1st Feb) → TOS = 20th January

Practice Problems — Time of Supply

Problem 2A: Determine TOS of goods (supply involves movement):

Sl. Date of Date of Goods Date of TOS Reason

N Removal Invoice Available to Payment
o Recipient
1 01-07- 02-07- 03-07-2017 15-05- 01-07- Payment (15 May) before
2017 2017 2017 2017 removal. Invoice issued
after removal. TOS = date
of removal.
2 03-07- 01-07- 04-07-2017 25-08- 01-07- Invoice issued BEFORE
2017 2017 2017 2017 removal date. Payment
received AFTER invoice.
TOS = Invoice date.
3 04-08- 04-08- 06-08-2017 01-07- 01-07- Payment (1 Jul) before
2017 2017 2017 2017 invoice/removal. TOS =
Date of payment.

Problem 2B: Determine TOS of services (invoice issued on 30-11-2017, service provided 10-11-2017):

Sl. Service Invoice Date Payment Date TOS Reason

N Date
o
1 10-11- 30-11-2017 15-12-2017 30-11-2017 Invoice within 30 days; invoice
2017 (30 Nov) before payment (15
Dec)
2 10-11- 30-11-2017 15-11-2017 15-11-2017 Invoice within 30 days;
2017 payment (15 Nov) before
invoice (30 Nov)
3 10-11- 30-11-2017 15-11 (part) + 15-11 & 30- Part payment before invoice,
2017 10-10 (rest) 11 rest after — TOS split
respectively accordingly
4 10-11- 30-11-2017 06-11 (part) + 06-11 & 09- Advance received in two
2017 09-11 (rest) 11 instalments before service
respectively completion
2.3 Place of Supply
The place of supply determines whether a transaction is intra-state (CGST + SGST) or inter-state
(IGST). This is critical for correct tax charging.

Supplier Location Place of Supply Nature Tax Applicable

Maharashtra Maharashtra Intra-state CGST + SGST
Maharashtra Kerala Inter-state IGST

Place of Supply — Goods

• General Rule: Place where goods are DELIVERED (where ownership transfers)
• No movement of goods: Place where goods are at time of delivery
• Goods assembled/installed: Location where installation is done

Example: Supplier in Kolkata supplies machinery to Delhi buyer, installed in Kanpur factory → Place of
Supply = Kanpur (installation location)

Place of Supply — Services

• General Rule: Location of the service RECIPIENT
• Immovable property services: Location of the property
• Transportation of passengers: Place of departure
• Restaurant/catering: Where service is actually performed
• Events/admission: Where event is held
• Telecom services: Where subscriber is registered

Example 1: Anil (Delhi) provides interior design for property in Ooty (Tamil Nadu) to Ajay (Mumbai) →
Place of Supply = Ooty, Tamil Nadu (location of property)
Example 2: Registered taxpayer provides passenger transport from Bangalore to Hampi → Place of
Supply = Bangalore (place of departure)

2.4 Transaction Value — Section 15

Transaction value is the price actually paid or payable for a supply when: (a) supplier and recipient are
unrelated, and (b) price is the sole consideration.

Transaction Value INCLUDES:

• Other taxes, duties, cesses charged under any other law (except GST)
• Expenses incurred by recipient on behalf of supplier
• Incidental expenses — packing charges, commission
• Any charges for work done by supplier before/at time of supply
• Interest, late fee, or penalty for delayed payment
 • Subsidies directly linked to price (EXCLUDING govt subsidies)

Transaction Value EXCLUDES:

• Discounts given BEFORE/AT TIME of supply — if recorded in invoice (single condition)

For discounts given AFTER supply — cumulative conditions required:

31. Agreement for discount entered into BEFORE/AT TIME of supply
32. Discount specifically linked to relevant invoice(s)
33. Recipient has reversed ITC attributable to the discount

2.5 Valuation Rules — When Transaction Value Cannot Be Used

Rule 1: Consideration not wholly in money
34. Open Market Value (OMV) of the supply
35. If OMV unavailable: Money consideration + equivalent of non-monetary consideration
36. Value of like kind and quality goods/services
37. As per Rules 4 or 5 (cost + 10% or residual method)

Example 1: New phone supplied for ₹20,000 along with exchange of old phone. Price without
exchange = ₹24,000 → OMV = ₹24,000
Example 2: Laptop for ₹40,000 + barter of printer worth ₹4,000 (OMV of laptop unknown) → Value =
₹40,000 + ₹4,000 = ₹44,000

Rule 2: Supply between Related/Distinct Persons

• OMV of the supply; or
• Value of like kind and quality; or
• 90% of price charged to unrelated customers (if goods for further supply); or
• Invoice value (if recipient has full ITC)

Rule 3: Supply through Agent

• OMV of goods, OR 90% of price charged by agent to his customer (at supplier's option)

Rule 4: Cost-Based
110% of cost of production/manufacture/acquisition

Rule 5: Residual Method

Reasonable means consistent with Section 15 principles

Special Valuation Rules

 Service Type Valuation Rule
Foreign Currency Exchange (to/from Difference between exchange rate and RBI reference rate ×
INR) units
Air Ticket (domestic) 5% of basic fare
Air Ticket (international) 10% of basic fare
Life Insurance (unit-linked) Gross premium minus amount allocated for investment
Life Insurance (single premium 10% of single premium
annuity)
Second-hand goods dealer (no ITC) Selling price minus purchase price
Tokens/Vouchers/Coupons Money value of goods/services redeemable against them
Pure Agent expenses Excluded from value if conditions satisfied

Value Inclusive of Tax — Back-calculation Formula

When the price includes GST: Tax Amount = (Value inclusive of tax × Tax Rate%) ÷ (100 + Tax Rate%)

Example: Goods worth ₹3,000 + CGST 9% + SGST 9% → Total = ₹3,540

2.6 Exempted Goods and Services

Types of GST Exemptions
Type Meaning Example
Supplier-Based Specific suppliers exempt regardless of Charitable organizations
what they supply
Supply-Based Specific goods/services always exempt Healthcare, education services
regardless of supplier
Absolute Unconditional, no terms attached Transmission of electricity
Conditional/ Exempt only if certain conditions met Hospital rooms < ₹5,000/day
Partial

Key Exempt Goods (Nil-Rated)

• Animal products: Live animals, fresh/frozen meat, fresh fish
• Agricultural: Honey, fresh milk, eggs, live plants, all fresh vegetables & fruits
• Grains: Wheat, rice, oats, barley
• Beverages: Tea, coffee beans, turmeric, ginger, mineral water, coconut water
• Processed: Bread, pizza base, puffed rice, sugar, jaggery
• Energy: Electrical energy, fertilizers, organic manure
• Health: Human blood, contraceptives, vaccines, bindi, kajal, kumkum
• Education: Printed books, newspapers, maps
• Textiles: Raw silk, khadi, cotton, handloom fabric
• Handicrafts: Earthen pots, clay lamps, handmade goods
Key Exempt Services
• Agricultural services: Cultivation, harvesting, farm labor, warehouse, fumigation
• Transport: Road/bridge toll, GTA below ₹1,500, agricultural produce transport
• Healthcare: Veterinary, ambulance, paramedic, charitable medical services
• Education: School bus, mid-day meals, admissions, housekeeping for schools
• Government/Diplomatic: RBI services, foreign missions in India
• Judicial: Arbitral tribunals to non-business, legal services by advocates to small entities
• Miscellaneous: Electricity distribution, library services, recognized sports bodies

2.7 GST Rate Structure

GST in India operates under multiple slabs. The rate structure has been rationalized over time:

GST Rate Category Examples

0% (Nil) Essential items Fresh milk, bread, eggs, life-saving medicines, educational &
healthcare services
5% Common goods & Packaged food, soap, toothpaste, clothing ≤₹2,500, hotel <
services ₹7,500/night
12% Standard goods Processed food, medicines, mobile phones, cinema tickets
18% General goods & Consumer durables, most vehicles, most services, restaurants
services with AC
28% / Luxury / Sin goods High-end vehicles, aerated drinks, tobacco, online gaming,
40% casinos

Practice Problems — Module 2

Problem 2.1: Mr. C of Mumbai supplied goods to M/s Spice Jet Airlines of Chennai flying between
Delhi–Mumbai. The goods are located in the aircraft in Delhi. Find the place of supply and levy of tax.
Place of Supply: In case of goods supplied to a conveyance (aircraft), the place of supply is where such goods are
taken onboard — i.e., Delhi (origin of departure).
Since the aircraft is in Delhi (a different state from supplier's location in Mumbai), this is an INTER-STATE supply
→ IGST applies.

Problem 2.2: Mr. Mahesh (Bangalore) provides interior designing services to Mr. Ajay (Delhi). The
property is in Madurai (Tamil Nadu). Determine place of supply.
Special Rule for Immovable Property Services: Place of supply = Location of the immovable property.
Place of Supply = Madurai, Tamil Nadu.
Both Mahesh (Karnataka) and supply (Tamil Nadu) are in different states → IGST applies.

Problem 2.3: Value of services = ₹5,00,000. Invoice issued: 1/3/2023. Amount received: 31/3/2023.
Ascertain TOS.
Invoice issued on 1st March. Service assumed provided by end of Feb (or same day). Prescribed time = 30 days.
Case A applies (invoice within 30 days): TOS = Earlier of Invoice date (1/3) or Payment (31/3)
Time of Supply = 1st March 2023
Problem 2.4: Value of services = ₹6,00,000. Invoice issued: 3/3/2023. Advance received on 13/2/2023:
₹1,50,000. Balance received: 15/3/2023. Ascertain TOS.
Advance ₹1,50,000 received on 13/2/2023 → TOS for advance portion = 13th February 2023
Invoice issued on 3/3/2023. Balance received on 15/3/2023.
For balance portion: TOS = Earlier of Invoice (3/3) or Balance payment (15/3) = 3rd March 2023
FINAL: TOS of ₹1,50,000 = 13th Feb 2023; TOS of ₹4,50,000 = 3rd March 2023

Problem 2.5: Mr. Shekhar (Delhi) buys machinery from Mysore supplier. Price: ₹6,00,000 (excl. GST).
Installation: ₹46,000. Packing: ₹4,000. Design charges: ₹55,000. Pre-delivery inspection: ₹6,000. Rate
on machinery: 18%. Cash discount: ₹25,000 (given as per contract terms, full payment before
dispatch). Optional accessories: ₹10,000 @ 28%.
Step 1: Compute taxable value of machinery:
Particulars Amount (₹)
Price of machinery (exclusive) 6,00,000
Add: Installation & erection 46,000
Add: Packing charges 4,000
Add: Design & engineering 55,000
Add: Pre-delivery inspection 6,000
Sub-total 7,11,000
Less: Cash discount (contract terms + full payment before (25,000)
dispatch)
Taxable Value of Machinery 6,86,000
GST @ 18% on ₹6,86,000 = ₹1,23,480 (IGST since inter-state — Delhi to Mysore)
Accessories ₹10,000 @ 28% → GST = ₹2,800
Total GST Payable = ₹1,23,480 + ₹2,800 = ₹1,26,280
MODULE 3A: Procedure and Levy of GST (CGST,
SGST & IGST)
3.A.1 Overview of Supply under GST Act
'Supply' under Section 7, CGST Act is the core taxable event. It is an inclusive definition covering all
economic activities.

Supply Includes:
• Sale, transfer, barter, exchange, license, rental, lease, disposal — for consideration in course of
business
• Import of services — for consideration, whether or not in course of business
• Activities in Schedule I — even WITHOUT consideration (e.g., gifts to employees > ₹50,000 in
FY)

Transactions NOT treated as Supply:

• Activities by Central/State Government in their capacity as public authorities (as notified)

Schedule II — Supply of Goods vs Services:

Situation Treated As
Transfer of title in goods Supply of GOODS
Transfer of right in goods without title Supply of SERVICES
Lease/tenancy of land Supply of SERVICES
Commercial/industrial/residential building lease Supply of SERVICES
Job work (treatment on another's goods) Supply of SERVICES
Renting of immovable property Supply of SERVICES
Construction of complex for sale (before OC) Supply of SERVICES
IP right temporary transfer Supply of SERVICES
Transfer of right to use goods Supply of SERVICES

3.A.2 Scope of Supply — Features

• Inclusive, not exhaustive definition
• All forms of supply included: sale, transfer, exchange, license, rental, lease, disposal
• Supply must be made by a 'person' in the course or furtherance of business
• Import of services is considered supply even without business purpose
• Without-consideration supplies in Schedule I are also taxable
3.A.3 Tax Liability on Composite and Mixed Supply — Section 8
Composite Supply
Two or more supplies that are NATURALLY BUNDLED in ordinary course of business, with one
PRINCIPAL SUPPLY. The entire composite supply is taxed at the rate of the principal supply.

Example: Sale of air conditioner + installation at buyer's premises → Principal supply = AC → Taxed at
AC's GST rate. Software on CD + license → Principal = software license → Taxed as service.

Mixed Supply
Two or more independent supplies bundled for a SINGLE PRICE where each can be supplied
separately. Taxed at the HIGHEST GST rate among all components.

Example: Gift hamper with cakes (taxable) + fresh fruits (exempt) → Taxed at cake's GST rate
(highest). Coaching class + hostel accommodation → Taxed at coaching class rate (highest).

Feature Composite Supply Mixed Supply

Bundling Naturally bundled — cannot be Artificially bundled — items can be
separated in ordinary business supplied separately
Principal Supply Yes — one principal supply exists No principal supply concept
Tax Rate Rate of principal supply Highest rate among all supplies
Example Warranty + product sale Gift hamper with different items

3.A.5 & 3.A.6 Value of Taxable Supply — Section 15

Already covered in Module 2 (Section 2.4-2.5). The same Section 15 rules apply for CGST, SGST and
IGST.

3.A.7 Procedure for Levy of IGST

Section 5 of IGST Act, 2017 — Charging Section:
• IGST is levied on all inter-state supplies of goods and/or services
• Tax is levied on value determined under Section 15, CGST Act
• Maximum rate ceiling: 40%
• Rates determined on basis of GST Council recommendations
• Import of goods/services treated as inter-state supply → IGST applies
• No specific rate (e.g., per unit/volume) — only ad valorem (% of value)

3.A.8 Apportionment of IGST — Section 17, IGST Act

When IGST is collected on inter-state supplies, it is shared between Centre and States as follows:
• CGST component of IGST → apportioned to Central Government
• Balance → to the State where the supply takes place (destination state)
 • If place of supply undeterminable → distributed to each State proportional to their total supplies
• Refunds of IGST: Amount transferred to States is reduced proportionally

3.A.9 Intra-State vs Inter-State Supply

Type Condition Tax
Intra-State Location of supplier AND place of supply in CGST + SGST
SAME state/UT
Inter-State Location of supplier and place of supply in IGST
DIFFERENT states/UTs
Import of goods Until goods cross customs frontier IGST
Supply to SEZ Even if same state — treated as inter-state IGST (zero-rated)

Zero Rated Supply — Section 16, IGST Act

Exports of goods/services and supplies to SEZ developers/units are 'zero-rated'. Even though no tax is
charged, ITC is available. Exporter can either:
38. Supply under Bond/LUT without paying IGST and claim refund of unutilized ITC
39. Pay IGST and claim refund of tax paid

3.A.10 Comprehensive Numerical Illustrations

Problem 3A.1: Calculate transaction value and GST: Selling price ₹10,000 (excl. GST). GST rate 5%.
Trade discount ₹1,200 (as per practice, before delivery). Freight ₹750 (not in above price).

Particulars ₹ ₹
Gross selling price 10,000
Add: Freight (incidental to supply) 750 750
Sub-total 10,750
Less: Trade discount (per practice, in 1,200
invoice)
Transaction Value 9,550
CGST @ 2.5% 238.75
SGST @ 2.5% 238.75
Total GST Payable 477.50

Problem 3A.2: GST @ 18% (CGST 9% + SGST 9%). Selling price ₹2,95,000 (inclusive of
CGST+SGST). Returnable packing ₹10,000 (in price). Design charges by buyer to 3rd party: ₹12,000.
Warranty charges separately: ₹4,000.

Particulars ₹
Price including GST 2,95,000
 Particulars ₹
Price excluding GST (2,95,000 × 100/118) 2,50,000
Add: Design charges paid by buyer on behalf of seller 12,000
Add: Warranty charges charged separately 4,000
Less: Returnable packing (sent back to supplier) (10,000)
Transaction Value 2,56,000
CGST @ 9% 23,040
SGST @ 9% 23,040
Total GST 46,080

Problem 3A.3: XYZ Ltd (Chennai) supplies motor to ABC Ltd (Bangalore). Price ₹15,000 (ex-factory).
Transport ₹1,250, Transit insurance ₹1,500 (arranged by XYZ at ABC's request, charged separately).
Discount ₹1,000 (on advance payment — deductible). Packing ₹1,300. Free after-sale service ₹500.
Interest ₹800 (excluded). GST rate 5%. Compute IGST.

Particulars ₹
Offered price 15,000
Add: Packing charges 1,300
Add: Free after-sale service (warranty obligation) 500
Add: Transportation charges (charged separately but 1,250
includable)
Add: Transit insurance (charged separately but includable) 1,500
Sub-total 19,550
Less: Discount (advance payment terms — deductible) (1,000)
Transaction Value 18,550
IGST @ 5% 927.50

Problem 3A.4: Ayodhya Hotel Group (Karnataka) — compute GST for July 2025:

Service GST Rate Amount (₹) CGST (₹) SGST (₹)

Restaurant (non-AC, no 5% 20,000 500 500
liquor)
Restaurant (liquor license) 18% 60,000 5,400 5,400
Outdoor catering 18% 1,00,000 9,000 9,000
Hotel room rental 18% 1,50,000 13,500 13,500
5-star AC restaurant 18% 1,00,000 9,000 9,000
TOTAL 4,30,000 37,400 37,400

Problem 3A.5: Rainbow Ltd (Nasik, Maharashtra) — wholesale dealer in piston rings @ 18% GST.
Compute GST for December 2024.
Recipient Qt Rate/ Disco Taxable Nature IGST @ CGST SGST @
y unit unt Value 18% @ 9% 9%
Adarsh Ltd 3 67,000 10% 1,80,900 Inter- 32,562 — —
(Jaipur) state
Banaras Ltd 8 69,000 9% 5,02,320 Inter- 90,418 — —
(Patna) state
Canara Ltd 10 64,000 5% 6,08,000 Intra- — 54,720 54,720
(Mumbai) state
Doorstep Ltd 12 70,000 1% 8,31,600 Intra- — 74,844 74,844
(Pune) state
Eligent Ltd 4 59,000 6% 2,21,840 Inter- 39,931 — —
(Delhi) state
Fastener Ltd 6 58,500 3% 3,40,470 Inter- 61,285 — —
(Andaman) state
TOTAL 2,24,196 1,29,56 1,29,564
4
MODULE 3B: Input Tax Credit (ITC)
3.B.1 What is Input Tax Credit?
Input Tax Credit (ITC) is the backbone of the GST regime. It allows a registered person to reduce their
output tax liability by the tax already paid on inputs, input services, and capital goods used in business.
This eliminates the cascading effect of taxes.

Key Definitions:
• Input Tax (Sec 2(62)): IGST, CGST, SGST, UTGST charged on supply of goods/services TO a
registered person. Also includes: IGST on imports, tax payable under RCM.
• Input Tax Credit (Sec 2(63)): Credit of 'input tax'
• Input (Sec 2(59)): Any goods (other than capital goods) used in course of business
• Input Service (Sec 2(60)): Any service used in course of business
• Capital Goods (Sec 2(19)): Goods whose value is CAPITALIZED in books of accounts and used
in business

3.B.2 Order of Utilizing ITC — Critical for Problems

ITC Available First Use Against Then Against Cannot Use Against
IGST Credit IGST liability CGST or SGST (in any —
order)
CGST Credit CGST liability IGST liability SGST
SGST Credit SGST liability IGST liability CGST
📌 Note: CGST credit CANNOT be used to pay SGST, and SGST credit CANNOT be used to pay CGST. This is a
statutory bar.

3.B.4 Eligibility for ITC — Section 16

Basic Conditions (ALL must be satisfied):
40. Must be a REGISTERED taxable person
41. Must possess a tax invoice or debit note from a registered supplier
42. Must have received the goods or services (actual receipt)
43. Tax must actually have been paid by the supplier to the Government
44. Must have filed returns under Section 39

Special Cases:
• Goods received in lots: ITC can be claimed only on receipt of the LAST lot
• Payment not made within 180 days: ITC must be reversed; can be re-claimed on payment
• No ITC if depreciation claimed on tax component under Income Tax Act (capital goods)
• Time limit: ITC must be claimed before filing return for September of next FY, or annual return,
whichever is EARLIER
3.B.5 Blocked Credits — ITC NOT Available On:
Category ITC Blocked — No Credit On:
Motor vehicles (general Cars, bikes, planes except if used for: resale, transport of passengers,
use) driving training, transport of goods
Food & lifestyle Food & beverages, outdoor catering, beauty treatment, health services,
cosmetic surgery
Membership Club membership, health & fitness center, rent-a-cab, life insurance, health
insurance
Employee benefits Travel benefits to employees on vacation/leave
Construction Works contract for immovable property (not plant & machinery),
construction on own account
Composition scheme Goods/services on which tax paid under composition scheme
Personal use Goods/services for personal consumption
Lost goods Goods lost, stolen, destroyed, written off, or given as gift/free samples

Proportionate Credit — When Goods/Services Used for Both Taxable and Exempt
Supplies:
ITC is restricted proportionally. Only the portion attributable to taxable supplies is eligible.
Formula: Eligible ITC = Total ITC × (Taxable Turnover ÷ Total Turnover)

3.B.7 Input Service Distributor (ISD)

An ISD is an office of the supplier (e.g., Head Office) that receives invoices for input services used
across multiple registered locations. The ISD distributes the ITC to those locations on a pro-rata basis
of their respective turnovers.

ISD Distribution Rules:

• Credit distributed cannot EXCEED total credit available
• ITC attributable to a specific branch → distributed ONLY to that branch
• ITC attributable to multiple branches → distributed PRO-RATA based on turnover of each branch
• ISD distributes CGST as CGST or IGST (if recipient in different state)
• ISD distributes SGST as IGST only (not as SGST of another state)

Example: XYZ Ltd HO in Delhi. Branches in Delhi, Chennai, Mumbai, Kolkata. Software license invoice
received at Delhi HO. Since software used at all 4 locations, HO acts as ISD and distributes credit to all
branches proportional to their turnovers.

3.B.8 ITC Illustrations

Problem 3B.1: S & Co (Karnataka). July 2025 purchases: (i) Raw material A from Mysore ₹1,00,000
@ 5% GST (ii) Raw material B from Kerala ₹5,00,000 @ 18% GST. Sales: (a) ₹3,00,000 intra-state @
18% (b) ₹3,00,000 intra-state @ 5%. Compute ITC and GST payable.
 Particulars CGST (₹) SGST (₹) IGST (₹)
OUTPUT TAX
Sales ₹3,00,000 @ 18% (CGST 9%) 27,000 27,000
Sales ₹3,00,000 @ 5% (CGST 2.5%) 7,500 7,500
Total Output (A) 34,500 34,500 0
INPUT TAX CREDIT
Raw material A — local ₹1,00,000 @ 5% 2,500 2,500
(CGST 2.5%)
Raw material B — Kerala ₹5,00,000 @ — — 90,000
18% (IGST)
Total ITC (B) 2,500 2,500 90,000
Balance (A-B) 32,000 32,000 (90,000)
Set-off IGST credit: IGST surplus used to (32,000) (32,000)
pay CGST
Net Balance: IGST still surplus 0 0 26,000 (in
ECL)
₹Note: IGST credit of ₹90,000 first pays IGST (₹0). Balance ₹90,000 set off: ₹32,000 against CGST, ₹32,000
against SGST. Remaining ₹26,000 stays in Electronic Credit Ledger.

Problem 3B.2 (Vardhaman & Co): Perfume manufacturer in MP. March 2025. Opening ITC: IGST
₹4,00,000, CGST ₹1,90,000, SGST ₹1,87,000. Sales: 1000 units to Delhi @ 18% ₹10,00,000; 6000
units to Bhopal @ 18% ₹63,00,000. Various purchases with ITC. Find GST payable via cash.

Particulars IGST (₹) CGST (₹) SGST (₹)

OUTPUT TAX
Delhi sales (inter-state) 10,00,000 × 1,80,000
18%
Bhopal sales (intra-state MP) 5,67,000 5,67,000
63,00,000 × 18%
Total Output 1,80,000 5,67,000 5,67,000
OPENING ITC (ECL balance) 4,00,000 1,90,000 1,87,000
Purchases: Akash Ltd Kolkata 5,000
₹1,00,000 @ 5% IGST
Purchases: Bhanu Ltd Indore 5,000 5,000
₹2,00,000 @ 5% CGST/SGST
Rent Mumbai (Charan) ₹60,000 @ 5,400
18% IGST
Rent Indore (Dhanush) ₹1,80,000 @ 16,200 16,200
18% CGST/SGST
Packaging (Ekaant Nagpur) ₹20,000 1,800
@ 18% IGST
Consultancy local CA ₹5,000 @ 450 450
18% CGST/SGST
 Particulars IGST (₹) CGST (₹) SGST (₹)
Fridge (Freddy) ₹72,858 @ 18% — —
CGST/SGST (blocked — personal
use)
Total ITC Available 4,12,200 2,11,650 2,08,650
Net (Output - ITC) (2,32,200) 3,55,350 3,58,350
Set-off surplus IGST → CGST then (2,32,200) gone
SGST
Remaining CGST payable in cash 1,23,150 3,58,350
📌 Note: Fridge purchased from Freddy appears to be for personal use → blocked credit, no ITC. IGST surplus
(₹2,32,200) used against CGST first.
MODULE 3C: Reverse Charge Mechanism (RCM)
3.C.1 Overview of RCM
Under the normal (forward) charge mechanism, the SUPPLIER charges GST to the buyer, collects it,
and pays it to the Government. Under the Reverse Charge Mechanism (RCM), this responsibility is
REVERSED — the RECIPIENT (buyer) pays the GST directly to the Government.

Analogy: You hire a plumber. Normally the plumber charges you GST and deposits it with the
Government. Under RCM, you directly deposit the GST yourself — the plumber just gets paid for the
work.

3.C.2 Significance of RCM

• Enhances tax compliance in sectors with unorganized/small suppliers
• Widens tax base by capturing transactions of unregistered suppliers
• Reduces revenue leakage — larger recipient entities are more compliant
• Facilitates ITC flow — recipient pays tax under RCM and claims ITC
• Encourages business formalization
• Addresses sector-specific challenges (e.g., small truck owners in transport)
• Ensures level playing field between organized and unorganized sectors

3.C.3 Forward Charge vs Reverse Charge — Comparison

Feature Forward Charge (FCM) Reverse Charge (RCM)
Who pays GST? Supplier Recipient
Who deposits to Supplier Recipient
Government?
Applicable when? Normal transactions Notified goods/services OR unregistered
supplier
Self-invoice required? No Yes — recipient must issue self-invoice
ITC available? Yes, to recipient Yes, to recipient (on payment)
Payment via ITC? Yes NO — must pay in CASH only
Partial RCM? N/A No — 100% RCM; no partial concept under
GST

3.C.4 Goods Covered Under RCM — Section 9(3)

S Goods Supplier Recipient GST Rate
r.
1 Cashew nuts Agriculturist Any registered person 5%
(unshelled)
2 Bidi wrapper leaves Agriculturist Any registered person 18%
S Goods Supplier Recipient GST Rate
r.
(Tendu)
3 Tobacco leaves Agriculturist Any registered person 5%
4 Silk yarn Silk yarn Any registered person Nil
manufacturer from
cocoons
5 Lottery tickets State Govt/Local Distributor/Selling 28%
Authority Agent
6 Raw Cotton Agriculturist Any registered person 5%
7 Liquorice Root Agriculturist Any registered person Applicable
rate
8 Raw Jute Agriculturist Any registered person Applicable
rate
9 Used/Seized/Waste Central/State Govt or Any registered person Applicable
goods Local Authority rate
1 Priority Sector Any person Any registered person Nil
0 Lending Certificate
(PSLC)

3.C.6 Services Covered Under RCM — Section 9(3)

S Service Supplier Recipient
r.
1 GTA (Goods Transport GTA Any registered person, body corporate,
Agency) — road transport partnership firm, factory, casual taxable
person, co-op society
2 Legal services Individual advocate or Any business entity in taxable territory
firm of advocates
3 Arbitral tribunal services Arbitral tribunal Any business entity
4 Sponsorship services Any person Any body corporate or partnership firm
5 Government/local Central/State Any business entity (excluding renting of
authority services to Govt/UT/Local Authority immovable property & specified postal
business services)
6 Director services Director of a company The company or body corporate
7 Security services Any person other than Registered person
body corporate
8 Insurance agent services Insurance agent Insurance company
9 Recovery agent services Recovery agent Bank/NBFC/financial institution
1 Author/composer/artist Author, music Publisher, music company, producer
0 copyright composer,
photographer, artist
1 Renting of motor vehicles Renting agency Any registered person
4
1 Manpower supply Manpower agency Any registered person
 S Service Supplier Recipient
r.
7
1 Freight forwarding Freight forwarder Any registered person
8

3.C.5 Criteria for RCM Applicability

45. Notified goods/services under Section 9(3) — list above
46. Supply from UNREGISTERED supplier to registered recipient — Section 9(4)
47. Import of goods/services — always RCM, regardless of supplier registration
48. Composition scheme dealers making taxable supply — RCM on recipient
49. E-commerce operators facilitating certain services (Uber, Ola type)
50. Casual/non-resident taxable persons
51. Agriculturists supplying notified goods (raw cotton, tobacco, etc.)

Time of Supply Under RCM

TOS Rule Goods (RCM) Services (RCM)
First option Date of receipt of goods Date of payment
Second option Date of payment 61st day from date of invoice by supplier
(60 days + 1)
Third option (30/60 31st day from date of invoice —
days rule) by supplier
Fallback Date of entry in books of Date of entry in books of recipient
recipient

ITC under RCM

• Recipient CAN claim ITC on the GST paid under RCM
• Condition: Goods/services must be used or will be used for business
• IMPORTANT: ITC under RCM CANNOT be used to pay that RCM tax itself — must be paid in
CASH
• Once paid in cash, the recipient gets ITC which can be used for future output tax

3.C.7 Computation of GST Under RCM — Formula

Step 1: Identify if the service/goods falls under RCM.
Step 2: Identify the applicable GST rate.
Step 3: GST Amount = Value of supply × GST Rate%
Step 4: Recipient pays this amount in CASH to the Government.
Step 5: Recipient can claim ITC of this amount in subsequent periods.
3.C.8 Practical Examples and Case Studies
Problem Example 1: Legal Services: XYZ Pvt. Ltd. receives legal services worth ₹1,50,000 from an
unregistered lawyer. GST rate 18%.
Ste Particulars Amount
p
1 Value of legal services ₹1,50,000
2 GST Rate (18%) —
3 GST under RCM (₹1,50,000 × 18%) ₹27,000
4 XYZ pays ₹27,000 directly to Government in ₹27,000
CASH
5 ITC claimed by XYZ in next period ₹27,000

Problem Example 2: GTA Services: ABC Ltd. hires GTA to transport goods worth ₹2,00,000. GST
rate 5%.
GST = ₹2,00,000 × 5% = ₹10,000
ABC Ltd. pays ₹10,000 directly to Government. XYZ GTA does NOT charge GST on invoice.
ABC Ltd. can claim ₹10,000 as ITC.

Problem Example 3: Import of IT Consulting Services: Tech Solutions Ltd. receives services from
foreign company worth ₹10,00,000. GST rate 18%.
IGST = ₹10,00,000 × 18% = ₹1,80,000
Tech Solutions pays ₹1,80,000 as IGST under RCM directly to Government.
Tech Solutions can claim ₹1,80,000 as ITC.

Problem Example 4 — RCM Time of Supply: M/s XYZ Pvt. Ltd. avails services of director Mr. T worth
₹50,000 on 15th Jan 2025. Invoice raised: 1st Feb 2025. Payment made: 1st May 2025.
TOS under RCM for services = Earlier of:
(1) Date of Payment = 1st May 2025
(2) 60 days from invoice date = 1 Feb + 60 days = 2nd April 2025
TOS = Earlier of 2nd April and 1st May = 2nd APRIL 2025

Problem Case Study: X & Company (Mining) paid royalty of ₹9,00,000 to State Government @ 18%
RCM (CGST 9% + SGST 9%) but failed to declare it.

Without RCM (Wrong) With RCM (Correct)

Turnover ₹1,00,00,000 ₹1,00,00,000
Output GST @ 5% ₹2,50,000 each ₹2,50,000 each
(SGST+CGST each)
ITC on inward supplies ₹75,000 each ₹75,000 each
ITC on RCM paid (royalty ₹9L ₹0 (not paid) ₹81,000 each
× 9%)
Net Output Tax Payable ₹1,75,000 each ₹94,000 each
RCM paid in cash ₹0 ₹81,000 each
 Without RCM (Wrong) With RCM (Correct)
TOTAL CASH OUTFLOW ₹1,75,000 each ₹1,75,000 each
📌 Note: The TOTAL cash payment is the SAME whether RCM is paid or not — but non-payment of RCM is a
procedural violation leading to interest, penalties, and loss of ITC (if time limit to claim ITC lapses).

Terminal Questions — Module 3C

Section A Problems
Problem Q1: ABC Ltd. hires GTA for goods worth ₹2,00,000. GST rate 5%. Calculate RCM.
GST under RCM = ₹2,00,000 × 5% = ₹10,000. ABC pays ₹10,000 in cash. Can claim ₹10,000 as ITC.

Problem Q2: Ram Ltd. receives maintenance services from unregistered supplier for ₹4,00,000 @
18%. Calculate RCM.
GST under RCM = ₹4,00,000 × 18% = ₹72,000. Ram Ltd. pays ₹72,000 in cash. Can claim ₹72,000 as ITC.

Problem Q3: Tech Solutions receives IT consulting from foreign company worth ₹3,00,000 @ 18%.
IGST under RCM = ₹3,00,000 × 18% = ₹54,000. Must be paid in CASH. Can claim ₹54,000 as ITC.
QUICK REVISION — Key Points, Formulas & Memory Aids

Module 1 — Must-Know Facts

Topic Key Fact
GST Launch 1st July 2017
Constitutional Amendment 101st Amendment Act, 2016 (Presidential assent 8th Sept
2016)
Key Articles 246A (GST powers), 269A (IGST), 279A (GST Council),
366(12A) (definition)
GST Council Chairperson Union Finance Minister
Voting Centre 1/3, States 2/3; 3/4th majority to pass
GSTN Incorporation 28 March 2013; 51% owned by financial institutions
Composition Scheme Limit — ₹1.5 Crore (₹75 lakh special states)
Traders
Composition Scheme Limit — ₹50 Lakh
Services
Excluded from GST Alcoholic liquor for human consumption, petroleum (proposed)
GST Sectoral Groups 18 groups

Module 2 — Formulas
Formula Expression
TOS Goods Earlier of: Invoice date OR Payment date
TOS Services (within 30 days) Earlier of: Invoice date OR Payment date
TOS Services (beyond 30 days) Earlier of: Provision date OR Payment date
Value incl. tax back-calc Tax = (Value incl. tax × Rate%) ÷ (100 + Rate%)
Cost-based valuation 110% of cost of production
Agent rule OMV or 90% of agent's selling price

Module 3 — ITC Set-off Order

Credit Type Priority 1 Priority 2 BLOCKED
IGST Credit Pay IGST Pay CGST or SGST (any —
order)
CGST Credit Pay CGST Pay IGST Cannot pay SGST
SGST Credit Pay SGST Pay IGST Cannot pay CGST
RCM Quick Reference
Service/Goods Supplier Recipient pays RCM? Rate
GTA road transport GTA Yes — 5%
Legal services Advocate/Firm Yes — 18%
Cashew nuts (unshelled) Agriculturist Yes — 5%
Sponsorship Any person Yes — 18%
Director services Director Yes — applicable rate
Import of services Foreign supplier Yes — 18% IGST
Raw Cotton Agriculturist Yes — 5%
Security services Non-body corporate Yes — 18%