lOMoARcPSD|29222495

Unit 4
25 March 2024 18:18

1. Determination of Nature of Supply and Place of Supply under the IGST Act*
Determination of Nature of Supply
S.7 to S.9
S.7- Inter State Supply-
• General Rule: An inter-state supply occurs when the supplier's location and the place of
supply are in different states, different union territories, or a combination of both (State and
UT). This applies to goods (sub-section 1) and services (sub-section 3).
• Imports: Import of goods and services into India are considered inter-state supplies (sub-
sections 2 & 4).
• Exports: While not explicitly mentioned in Section 7, exports (supply to someone outside
India) are generally treated as zero-rated supplies (not taxable).
• Special Economic Zones (SEZs): Supplies to or by SEZ developers or units are considered
inter-state supplies (sub-section 5(b)).
• Other Scenarios: Any supply within the taxable territory that's not intra-state and not
covered elsewhere in Section 7 is also considered inter-state (sub-section 5(c)).

S.8- Intra State Supply

Defines an intra-state supply, which is essentially any supply that doesn't fall under the
definition of inter-state supply provided in Section 7.
 General Rule: An intra-state supply occurs when the supplier's location and the place of
supply are in the same state or union territory. This applies to both goods (sub-section 1)
and services (sub-section 2).
 Exceptions to Intra-State Supply:
• Supplies to or by SEZ developers or units (applies to both goods and services).
• Imported goods until they clear customs.
• Supplies made to tourists under Section 15 (applies only to goods)
 Determining Establishments:
• The IGST Act considers establishments in different states or UTs, even under the same
business, as separate entities for tax purposes (Explanation 1).
• Having a branch, agency, or representative office in a territory is considered having an
establishment there (Explanation 2).
 Intra-state supplies are subject to CGST (Central Goods and Services Tax) and SGST/UTGST
(State Goods and Services Tax/Union Territory Goods and Services Tax) levied by the central
and state/UT governments respectively.

S.9- Supplies in Territorial Waters

 Place of supply will be the coastal state or the union territory where the nearest point of the
appropriate baseline is located.

Place of Supply
S.10 to S.14A
S.10- Place of Supply of Goods other than Supply of Goods Imported into or Exported from India
 Place of supply in cases involving movement of goods is where the movement terminates
for delivery to the recipient.
 If goods are delivered on the direction of a third person before or during movement, the
place of supply is the principal place of business of that person.
 If there's no movement involved, the place of supply is where the goods are delivered to the
recipient.

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 For supplies to unregistered persons, the place of supply is determined by the address
recorded in the invoice.
 For goods assembled or installed at a site, the place of supply is the site of installation or
assembly.
 If goods are supplied on board a conveyance, the place of supply is where they are taken on
board.
 If the place of supply cannot be determined, it will be determined as prescribed by
regulations.

S.11- Place of Supply of Goods Imported into or Exported from India

 Goods Imported into India: The place of supply is the location of the importer. In other
words, it is where the importer is located or where they receive the goods.
 Goods Exported from India: The place of supply is the location outside India. This means that
the place of supply for goods being exported is the destination country outside the borders
of India.

S.12- Place of supply of services where location of supplier and recipient is in India
General Rule: The place of supply for services made to a registered person is the location of
the recipient. For services made to an unregistered person, the place of supply is either the
location of the recipient if an address is on record, or the location of the supplier in other
cases.
Specific Cases:
 For services related to immovable property, lodging, accommodation for events, or
ancillary services, the place of supply is where the property or vessel is located or
intended to be located.
 For restaurant and catering services, personal grooming, fitness, etc., the place of
supply is where the services are performed.
 For training and performance appraisal services, the place of supply is either the
location of the registered person or where the services are performed for others.
 For admission to events or amusement parks, the place of supply is where the event
or park is located.
 For transportation services, the place of supply varies based on whether the recipient
is registered or not, or if the destination is outside India.
 For passenger transportation, the place of supply is where the passenger embarks for
a continuous journey.
 For services provided on board conveyances, the place of supply is the first scheduled
point of departure.
 For telecommunication services, the place of supply depends on the type of service
provided and the location of the recipient or the installation of equipment.
 For banking, financial, insurance, and stock broking services, the place of supply is the
location of the recipient on the records of the supplier.
 For advertisement services to government bodies, the place of supply is determined
based on the agreement and the dissemination location.

S.13- Place of supply of services where location of supplier or location of recipient is outside India.
General Rule: The place of supply for most services is the location of the recipient of
services. However, if the recipient's location is not available in the ordinary course of
business, the place of supply will be the location of the supplier.
Specific Cases:
 For services that require physical availability of goods by the recipient or their
representative to the supplier, the place of supply is where the services are
performed.
 For services directly related to immovable property, the place of supply is where the

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property is located.
 For admission to events or organization of events, the place of supply is where the
event is held.
 If services are supplied at multiple locations, including within the taxable territory, the
place of supply will be within the taxable territory.
 For banking, financial, intermediary, and transport services, the place of supply is the
location of the supplier.
 For transportation of goods, the place of supply is the destination of the goods.
 For passenger transportation, the place of supply is where the passenger embarks.
 For services provided on board conveyances during passenger transport, the place of
supply is the first scheduled point of departure.
 For online information and database access services, the place of supply is the
location of the recipient.
 The government has the power to notify circumstances where the place of supply
shall be the place of effective use and enjoyment of a service to prevent double
taxation or non-taxation.

S.14- Special provision for payment of tax by a supplier of online information and database access
or retrieval services
 Tax Liability: When online information and database access or retrieval services are supplied
by a person located in a non-taxable territory to a non-taxable online recipient, the supplier
located in the non-taxable territory is liable to pay integrated tax (IGST) on such services.
 Intermediaries: If an intermediary located in a non-taxable territory arranges or facilitates
the supply of such services, they are deemed to be the recipient of the services from the
supplier in the non-taxable territory. However, certain conditions must be met for the
intermediary to be deemed the recipient.
 Registration: The supplier of online information and database access or retrieval services
must take a single registration under the Simplified Registration Scheme notified by the
Government for payment of integrated tax.
 Representative: If a person located in the taxable territory represents the supplier for any
purpose in the taxable territory, they must get registered and pay integrated tax on behalf
of the supplier. If the supplier does not have a physical presence or representative in the
taxable territory, they may appoint a person in the taxable territory to pay integrated tax on
their behalf.

2. Impact of GST on State Revenue** + Indemnifying the State Revenue Loss

SGST is one of the 2 taxes levied on every Intra-state transaction of Goods and Services. The SGST
is levied by the State where the goods are being sold/ purchased.

Impact of GST on State Revenue

 Improvement of profitability
 Loss in revenue- compensation will be given to such states
 Simplification of tax regime
 Transparency
 Removal of cascading effect
 Reduction of the price gap between organised and unorganised sector
 Prevention of unhealthy competition
 Uniform tax rate
 Reduces transaction cost

Indemnifying the State Revenue Loss

Compensation Law

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3. UTGST Meaning* + Imposition of GST for Union Territories in India*

The UTGST Act expands to Union Territory Goods and Service Tax. UTGST, the short form of Union
Territory Goods and Services Tax, is nothing but the GST applicable on the goods and services
supply that takes place in any of the five territories of India, including Andaman and Nicobar
Islands, Dadra and Nagar Haveli, Chandigarh, Lakshadweep and Daman and Diu called as Union
territories of India. Union Territory GST will be charge in addition to the Central GST (CGST).

The reason behind UTGST applicability in GST is that the common State GST (SGST) cannot be
applied in an Union Territory without legislature. To address this issue, GST Council has decided to
have Union Territory GST Law (UTGST) which would be at par with SGST. However, SGST can be
applied in Union Territories such as New Delhi and Puducherry, since both have their individual
legislatures, and can be considered as “States” as per GST process.

Administration
There are two types of union territories in India:
 Union territory with the legislature
 Union territory without legislature
Currently, there are two union territories with the legislature; Delhi and Puducherry. These types
of union territory have a defined legislature and an elected government. Hence, for these states
SGST is applicable. The central government directly controls the other union territories. Union
Territories that are governed now by the Central Government have a Lieutenant Governor as an
executive. He is the representative of the President of India and appointed by the Central
government. The UTGST Act governs these UTs.

Applicability Of UTGST
As prescribed under section 2 (7) ‘‘output tax’’ concerning a taxable person, means the Union
territory tax chargeable under UTGST Act on the taxable supply of goods or services or both made
by the business (or by its agents) but excludes tax payable by it on reverse charge basis.

4. Exemptions on the Sale and Purchase of Securities in GST***

Securities being essential investments activities of sale and purchase therein has never been
subjected to any service tax or VAT.
GST is fundamentally a destination-based consumption tax whereas securities are investments.

S.2(h) of The Securities Contracts (regulation) Act, 1956:

Securities includes:-
 Shares, stocks, bonds, debentures, stocks and other marketable securities of like nature

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 Derivatives (convertible bonds)

 Units or any other instruments issued by collective investment scheme of investors
 Security receipt under S.2 of SARFEASI Act 2002 and RDDBFI Act, 1993
 Investments under Mutual funds Scheme
 Government Securities
 Although securities have been excluded from definition of ‘Goods’ and ‘Service’ transaction
in securities have been included in the scope of exempt supplies.
 Input Tax Credit used for making both taxable and exempt supplies.
 S.2(49) of the revised draft Model law states that “Goods” means every kind of movable
property other than money or securities.

5. Securities Transaction Tax**

STT was originally introduced in 2004 by the then Finance Minister, P. Chidambaram to stop tax
avoidance of capital gains tax. The STT is levied and collected by the union government of India.
STT can be paid by the seller or the purchaser depending on the transaction. The Securities
Contract (Regulation) Act, 1956 defines Securities the transaction of which are taxable under STT.

Features of Securities Transaction Tax

 STT is levied at the time of purchase and sale of securities
 Securities are tradable such as shares, bonds, debentures, Mutual funds issued either by
Co., or by the Govt.
 The rate of STT differs based on the type of security traded or whether the transaction is
purchase or sale.
 The initiative behind introducing STT was to curb evading of Capital Gain tax on profits
earned by transacting the securities.

6. Refund of Tax
The Indian taxation laws permit the assessee to claim refunds for excess tax paid to the
government during a financial year. A tax refund applicable to employees could be termed as and
falls under the following: Tax Deduction at Source at a rate higher than the actual tax payable.
Under the current scenario, the companies ask their employees to submit a proof of their tax
returns & savings investment so that such savings and investment can be set off against the tax
that is deducted. As per the Income Tax Act 1961, section 237 and 245 deals with provisions
relating to refund of taxes and any such refunds arise on an assessee satisfying to the assessing
officer that the amount of tax paid by the assessee for any year exceeds the amount of tax
payable by him.

Procedure to Claim Refund

 For any assessee to claim a refund under the IT Act, he/she shall do so by filing form 30.
 Under the ordinary course, there is no necessity for filing any form and tax refund may be
claimed during/while filing the Income tax returns.
 There is no tax applicable for refunds as the same is receipt of excess tax paid and not
income earned.
 It takes 4 to 6 months from the date of filing the Income Tax returns to receive the refund.
 The claim of a refund shall be made within one year from the last date of the assessment
year.
 In the event of occurrence of any delay due to any reason whatsoever then an application
for condonation shall be filed before the tax authorities provided that any request for
condonation shall not be applicable If the same is extended beyond six years.
 Eligibility for Interest on the refund shall arise and is calculated at the rate of 0.5% per
month and 6% per annum from the first day of assessment year until the date when the
refund is paid to the assessee.
 A rejection on tax refund may happen in the event of incorrect calculation of tax payable by

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the assessee.

7. Works Contract (GST)

Definition: A works contract involves both the provision of services and the supply of goods, with
the service element being dominant. It includes activities related to immovable property such as
construction, fabrication, installation, repair, maintenance, etc.

Tax Treatment: Under GST, a works contract is considered a supply of services, applicable only to
immovable property. It was subject to both VAT and service tax in the pre-GST era.

Place of Supply: The place of supply for a works contract depends on the location of the
immovable property. If both supplier and recipient are in India, it's the location of the immovable
property. If either party is outside India, it's the location or intended location of the property.

Input Tax Credit: Input tax credit for works contract services is not available for the construction of
immovable property unless it's used for further supply of works contract service.

Maintenance of Records: Registered persons executing a works contract must maintain separate
accounts showing details of the contract, including names and addresses of parties, description
and value of goods/services received and utilized, payment details, etc.

Time Limit for Tax Invoice: In the case of continuous supply of services, tax invoice must be issued
based on the due date of payment specified in the contract or at the time of payment receipt, or
before/upon completion of milestones.

GST Rate: GST rates for works contract services have been revised through notifications, and they
vary based on the type of construction activity.

Conclusion: Under GST, works contracts are treated as a supply of services, aiming to streamline
taxation and avoid double taxation issues prevalent in the pre-GST era. The tax is now uniformly
levied across India on the service component of the works contract.

8. Input Tax Credit Mechanism

S.16 of the GST Act, 2017
ITC refers to the amount already paid as tax by a person upon the purchase of a good or service
which later can be claimed as deduction, upon the tax payable by such persons.

Example-
A Purchases a good for ₹100 and paise ₹10 as tax. Later on, he sells the good purchased to B for
₹100 and collect ₹15 as tax. Under normal circumstances, a is supposed to pay the whole ₹15 to
the government as tax but since he has already paid ₹10 as tax he can deduct it from tax paid to
be which is ₹15 and the remaining ₹5 is to be paid as tax.

S.16(1)- Every registered person, subject to search conditions and restrictions as may be
prescribed and in the manner specified under S.49 after GST act, shall be eligible to take the credit
of input tax charged on the supply of goods or services or both to a person which is used or
intended to be used in the course or furtherance of his business and such amount shall be
credited to electronic credit Ledger of such persons.

S.16(2)- Registered person shall not be entitled to the credit of input tax on the supply of goods or
services to him unless-
 He is in the possession of tax invoice or debit note issued by the supplier registered under
this act or any such tax payment document as may be prescribed.

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 He has actually received the good or service or both.

 The tax charged in the supply of goods or services of both has been actually paid to the
government either in cash or through the utilisation of input tax credit admissible in respect
of such supply.
 He has furnished returns under s.39

S.16(3)- Where are registered person who has claimed depreciation on the component of cost of
the capital goods, plant and machinery under the provisions of Income Tax Act shall not be
allowed to take credit of input tax on the mentioned tax component.

S.16(4)- No registered person shall be allowed to take the credit of input tax in respect to any tax
invoice or debit note charged on the supply of goods or service or both to a person, if such person
has not furnished the tax invoice or debit note before the due date for the month of September
following the end of financial year to which such invoice pertains to or furnishing of the relevant
annual returns, whichever is earlier.

9. Reverse Charge Mechanism

Under the reverse charge mechanism, the liability falls on the recipient to pay the tax amount
directly to the government. This is the opposite of the forward charge mechanism where the
supplier is obligated to remit the GST to the government. Here, the recipient is liable for the
process of both self-invoicing and payment of GST under reverse charge. In case there is any delay
from the recipient side, the supplier holds no responsibility to pay the tax.

Examples of transactions covered under reverse charge

Let's consider a specific transaction involving the supply of cashew nuts, not shelled or peeled,
categorised under Tariff Item 0801. Suppose an agriculturist sells 100 kg of cashew nuts to a GST-
registered person at a rate of ₹200 per kg, making the total value of the supply ₹20,000.
Under the reverse charge mechanism, the liability to pay GST shifts from the supplier
(agriculturist) to the recipient (registered person). The applicable GST rate on cashew nuts is 5%.
Therefore, the GST payable by the registered person can be calculated as follows:
GST Payable = (Value of Supply*GST Rate) / 100
= (INR 20,000*5) / 100
= INR 1,000
The registered person is required to pay INR 1,000 as GST to the government under the reverse
charge mechanism.

Difference between FCM and RCM in GST

The fundamental difference lies in who bears the responsibility of tax payment. Forward charge
mechanism places the burden of tax payment on the supplier, while the reverse charge
mechanism shifts it to the recipient

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