Study Notes
Goods and Services Tax (GST) is the new levy on supply of goods or services or
both.
Ultimate consumer is the one who pays tax and the businesses (‘Taxpayers’) indeed
collect the tax as a sort of agent of the Government.
To ensure the taxes paid by the public / consumers indeed reaches the
Government kitty and not pocketed by the Business entities.
Indirect taxes are basically ‘Consumption Taxes’.
Tax on Goods and Services (GST/VAT) is a well-known Indirect Tax.
VAT involves collection of tax on value addition at each stage of the supply chain.
The net VAT payable by a taxpayer is arrived at by duly deducting the VAT already
paid on inputs/input services [called as Input Tax Credit (ITC)] from the VAT amount
payable on the output goods/services. This approach serves for elimination of
‘cascading effect’ of taxation.
‘ITC’ is almost like ‘cash’ for the taxpayer and therefore claiming of ITC, its actual
eligibility, verification of the same and refund etc., are very important areas in any
VAT regime.
The Constitution (101st Amendment) Act, 2016
Article 246A of the Constitution gave powers to the Parliament (‘CGST’) and State
Legislatures (‘SGST’) to make law to levy GST on supply of goods or services or
both and to Parliament to levy the tax (‘IGST’) where such supply takes place in the
course of inter-State trade or commerce.
The Seventh Schedule to the Constitution contains separate lists viz., Union List,
State List and Concurrent List.
GST Council as Apex federal body (Art 279A)
Destination-based consumption tax
Concurrent ‘dual’ GST
Components of GST – Central GST, State GST/Union Territory GST and Integrated
GST
CGST Act, IGST Act, UTGST Act and SGST Acts of various States
Goods - Section 2(52) of CGST Act - Goods means every kind of movable property
(includes (1) actionable claim, (2) growing crops (3) grass and things attached to or
forming part of the land); Excludes - (1) Money and (2) Securities;
Services - Section 2(102) of CGST Act - means anything other than goods (includes
activity relating to the use of money or its conversion by cash or by any other mode,
for which a separate consideration is charged) Excludes (1) Goods; (2) (2) Money;
(3) (3) Securities;
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TYPES OF SUPPLY
Type of
Statute Simplified Definition
Supply
Sec.
Taxable Any supply of goods/services/both on which GST is
2(108),
Supply leviable.
CGST
Sec.
Inward Receipt of goods/services by any means
2(67),
Supply (purchase/acquisition etc.) with or without consideration.
CGST
Sec. Supply made by a taxable person
Outward
2(83), (sale/transfer/barter/exchange/lease/rental etc.) in
Supply
CGST course of business.
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Intra-State Supply
Type Statute Simplified Meaning
Intra-State Sec. 2(64), Supplier and place of supply in the same
Supply of CGST + Sec. State/UT. Not Intra-State when: (a) To/from
Goods 8(1), IGST SEZ, (b) Imports before crossing customs, (c)
Supplies to tourist under Sec 15.
Intra-State Sec. 2(65), Supplier and place of supply in same State/UT.
Supply of CGST + Sec. Exclusion: Not applicable for supplies to/from
Services 8(2), IGST SEZ.
Inter-State Supply
Type Statute Simplified Meaning
Inter-State Sec. 7(1), Supplier and place of supply are in different
Supply of IGST States/UTs or State & UT.
Goods
Sec. 7(2), Imports (till crossing customs frontier) = Inter-State
IGST supply.
Inter-State Sec. 7(3), Supplier and place of supply in different States/UTs
Supply of IGST or State & UT.
Services
Sec. 7(4), Import of services = Inter-State supply.
IGST
General Inter- Sec. 7(5), Considered Inter-State when: (a) Supplier in India +
State Supply IGST place of supply outside India (b) To/from SEZ (c) Any
supply not intra-State and not covered elsewhere.
Zero-Rated Supplies
Statute Period Simplified Meaning
Sec. 2(23) & Sec. 16(1), 01.07.2017 – Zero-rated = (1) Exports; (2) Supply
IGST 30.09.2023 to SEZ developer/unit.
Sec. 16(1) (after From Zero-rated = (1) Exports; (2) Supply
amendment, w.e.f. 01.10.2023 to SEZ for authorised operations
01.10.2023) only.
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Exempt & Non-Taxable Supply
Type Statute Simplified Meaning
Exempt Sec. 2(47), Supply attracting nil rate, wholly exempt u/s 11
Supply CGST CGST or u/s 6 IGST; includes non-taxable supply.
Non-Taxable Sec. 2(78), Supply on which GST is not leviable under
Supply CGST CGST/IGST (e.g., alcohol for human consumption).
Continuous Supply
Type Statute Simplified Definition
Continuous Sec. Goods supplied continuously or repeatedly under
Supply of Goods 2(32), a contract with periodic invoices (e.g., supply
CGST through pipelines, cables).
Continuous Sec. Services supplied continuously/repeatedly under
Supply of 2(33), a contract for more than 3 months with periodic
Services CGST payment obligations.
Type of Statutory
Simplified Meaning Key Features
Supply Reference
Two or more individual • Single price for all
supplies (goods/services or items • Not naturally
Mixed Sec. 2(74),
both) offered together for a bundled • Tax rate =
Supply CGST Act
single price, NOT naturally highest rate among
bundled. the items
Two or more taxable
supplies that are naturally • Naturally bundled •
Composite Sec. 2(30), bundled and supplied Supplied together •
Supply CGST Act together in the ordinary Tax rate = rate of
course of business, having principal supply
a principal supply.
The predominant element in • Main/primary supply
Principal Sec. 2(90),
a composite supply to which • Other supplies are
Supply CGST Act
other supplies are ancillary. incidental
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Importance of Place of Supply : GST is destination-based tax. Tax should accrue
to the taxing authority which has jurisdiction over the place of consumption. For this
purpose, there is a need to determine Place of Supply i.e. the place where goods or
services have been supplied so as to decide the taxing jurisdiction, intra-state or
inter-state.
Section 122 of the CGST Act, 2017 lists 21 offences liable to penalty, which
can be broadly categorized into four groups:
1. Issue of fake/wrong invoices
2. Evasion or non-payment of tax
3. Fraudulent activities involving supply of goods or services
4. Violations of GST Act provisions.
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Credit Note – Sec. 34(1), CGST Act
A Credit Note is issued when the original invoice was extra/high.
Issued When:
Invoice value was more than actual.
GST charged was higher.
Goods are returned.
Post-sale discount given (not known earlier).
Example:
Original invoice: ₹1,00,000 + 18% GST = ₹1,18,000
Actual value should be: ₹90,000 + GST = ₹1,06,200
Issue Credit Note of ₹11,800 (₹10,000 + GST).
Conditions:
Must relate to the original tax invoice.
Can be issued before:
o 30th November of the next financial year, or
o Filing of annual return,
whichever is earlier.
Debit Note – Sec. 34(3), CGST Act
A Debit Note is issued when the original invoice was short/less.
Issued When:
Invoice value was less than actual.
GST charged was lower.
Extra quantity supplied.
Example:
Original invoice: ₹80,000 + GST = ₹94,400
Actual value: ₹90,000 + GST = ₹1,06,200
Issue Debit Note of ₹11,800 (₹10,000 + GST).
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Offences & Penalties under GST (Section-Wise)
Section Provision Description / Offence Penalty
21 types of offences (not
Tax amount + Penalty
paying tax, issuing false
General up to ₹10,000 or equal
S.122 invoices, wrong ITC,
Penalties to tax evaded,
transporting goods without
whichever is higher
documents, etc.)
Penalty for
Failure to provide
S.123 failure to furnish Up to ₹10,000
information or documents
information
Fine for
Obstructing tax officers in
S.124 obstructing Fine up to ₹25,000
duty
officer
When no specific penalty
S.125 General penalty Up to ₹25,000
given
General Penalties should be
S.126 discipline for proportional; No penalty for Relief available
penalties minor breaches
Power to When proper officer
S.127 Discretionary penalty
impose penalty decides penalty necessary
Waiver of Government can waive
S.128 As notified
penalty penalties
Detention & Penalty = 200% of tax;
Goods transported without
S.129 seizure of Release conditions
documents
goods apply
Serious fraud like fake Good confiscation +
S.130 Confiscation
invoices, tax evasion penalty
Criminal Fraud, fake ITC, bogus Imprisonment (1–5
S.132
offences invoices years) + Fine
Common Methods of Tax Evasion under GST
Type Description
Fake Invoices Issuing invoices without supply to claim fake ITC
Under-reporting Sales Suppressing outward supply to reduce tax liability
Wrong ITC Claim Claiming ITC on ineligible goods/services
Multiple Fake Creating dummy firms to rotate ITC
Registrations
E-way Bill Manipulation Transporting goods without valid e-way bill
Misclassification of Goods Declaring lower-rate HSN codes
Cash Sales Not Reported No entry in GSTR-1 or books
Zero-Rated Supply Fraud Inflated exports to claim refund
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Refund Situations under GST
Situation Section/ Details
Rule
Excess tax paid S.54 Refund of CGST/SGST/IGST paid
by mistake
Zero-Rated Supplies S.54(3) Refund of ITC or IGST paid on
(Exports/SEZ) exports
Inverted Duty Structure S.54(3) ITC refund when input tax > output
tax
Refund to UN/Embassy S.55 Refund of GST on notified agencies
TDS/TCS Refund S.54 If excess deducted
Provisional Assessment S.60 Refund after final assessment
Judicial Order S.54 Refund ordered by court/authority
Consumer Welfare Fund S.57 In certain cases refund goes to
CWF
Liability to Pay in Certain Cases (Section-Wise)
Sectio Person Liable Situation
n
S.85 Transfer of business Both transferor & transferee liable
S.86 Amalgamation/merger Each company liable for pre-merger dues
S.87 Company in liquidation Liquidator must set aside GST dues
S.88 Directors of Private Directors personally liable if tax not
Company recovered
S.89 Partners of Firm Partners jointly & severally liable
S.90 Guardians/Trustees Liable for minor/incapacitated person's
business
S.91 Court of Wards, etc. Managers appointed by court are liable
S.92 Death of a Person Legal representatives liable to extent of
estate
S.93 Agents/Principal Liability for supplies made through agent
Appeals under GST (Section-Wise)
Stage of Section Authority Time Limit
Appeal
First Appeal S.107 Appellate Authority (AA) Within 3 months of
order
Revision S.108 Revisional Authority Within 3 years
Second S.112 Appellate Tribunal Within 3 months
Appeal
High Court S.117 High Court (substantial question 180 days
of law)
Supreme S.118 Supreme Court 90 days
Court
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A taxable event is any event or occurrence that results in a tax liability. The taxable
event in GST is supply of goods or services or both. So the first and the foremost
condition to make transaction taxable to GST is Supply.
A composite supply means a supply comprising two or more supplies of goods or
services or any combination thereof, which are naturally bundled and supplied in
conjunction with each other in the ordinary course of business, one of which is a
principal supply.
GST Registration of business entity under the GST Law implies obtaining a unique
number from the tax authorities for the purpose of collecting tax on behalf of the
government and to avail Input Tax Credit for the taxes on his inward supplies.
Without registration, a person can neither collect tax from his customers nor claim
any Input Tax Credit of tax paid by him.
Advantages of registration to a taxpayer:
He is legally recognized as supplier of goods or services.
He is legally authorized to collect taxes from his customers and pass on the credit
of the taxes.
He can claim Input Tax Credit of taxes paid and can utilize the same for payment
of taxes due on supply of goods or services.
Seamless flow of Input Tax Credit from suppliers to recipients at the national
level.
Increases the credibility of the Business, thus helps in attracting more customers.
Multiple GSTIN
Supplier has to register in each of such State or Union territory from where he
effects supply. In GST registration, the supplier is allotted a 15-digit GST
identification number called “GSTIN”. Registration under GST is not tax specific,
which means that there is single registration for all the taxes i.e. CGST,
SGST/UTGST, IGST and cesses.
A legal entity would have one GSTIN per State, which means an entity having its
branches in multiple States will have to take separate state-wise registration for the
branches in each different States.
An application for registration has to be submitted online within thirty days from the
date when liability to register arise. The Casual and Non- Resident taxable persons
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need to apply at least five days prior to the commencement of the business along
with the security deposit.
In order to calculate and discharge tax liability, it is important to know the date on
which the charging event has occurred i.e. the date when the tax liability arises. This
event is known as Time of Supply. The phrase “the date on which supplier receives
the payment” or “the date of receipt of payment” means the date on which payment
is entered in his books of accounts or the date on which the payment is credited to
his bank account, whichever is earlier.
Value of Supply
In GST, tax is payable on ad-valorem basis i.e. percentage of value of the supply of
goods or services. Therefore, it is essential to know the value so as to ascertain the
tax liability.
If the supplier & the recipient are not related and price is the sole consideration the
taxable value shall be the transaction value i.e. price actually paid or payable. In
most of the cases of regular normal trade, the invoice value will be the taxable
value. In case of imported goods, value shall be determined in accordance with the
provisions of section 3 of the Customs Tariff Act, 1975.
Input Tax Credit
Input tax credit means at the time of paying tax on output, you can reduce the tax
you have already paid on inputs and pay the balance amount. Uninterrupted and
seamless chain of input tax credit (hereinafter referred to as, “ITC”) is one of the key
features of Goods and Services Tax. ITC is a mechanism to avoid cascading of
taxes.
Any registered person can avail credit of tax paid on the inward supply of goods or
services or both, which is used or intended to be used in the course or furtherance of
business.
No Input Tax Credit
A taxable person opting to pay tax under the composition scheme is out of the credit
chain. So he cannot avail Input Tax Credit on his inward supplies. The composition
dealer cannot collect tax paid by him on outward supplies from his customers, the
registered person making purchases from a taxable person paying tax under the
composition scheme cannot avail credit.
Invoicing
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“Tax invoice” should be issued by a registered person supplying taxable goods,
before or at the time of, — (a) Removal of goods for supply to the recipient, where
the supply involves movement of goods; or (b) Delivery of goods or making
available thereof to the recipient, in any other case.
Accounts And Records
The compliance verification is done by the department through scrutiny of returns,
audit and/or investigation. This compliance verification can be done through
documentary checks this requires taxpayer for keeping and maintaining accounts
and records.
Every registered person shall keep and maintain all records at his principal place of
business as mentioned in the certificate of registration. In case more than one
place of business is specified in the certificate of registration, the accounts relating to
each place of business shall be kept at such places of business.
Reverse Charge Mechanism
Reverse Charge means the liability to pay tax by the recipient of supply of goods or
services instead of the supplier. The chargeability gets reversed that is why it is
called reverse charge. It removes the burden of tax compliance from individuals with
limited resources to large organisations with sufficient resources.
All persons who are required to pay tax under reverse charge have to register for
GST irrespective of the turnover. Recipient of supply has to issue invoice on
himself. Tax under reverse charge to be paid using Electronic Cash Ledger. Tax
paid on reverse charge basis will be available for input tax credit if such goods or
services are used for business.
Tax Deducted At Source
TDS is one of the modes/methods to collect tax, under which, certain percentage of
amount is deducted by a recipient at the time of making payment to the supplier.
The purpose of TDS to enable the Government to have a trail of transactions and to
monitor and verify the compliances. It acts as a powerful instrument to prevent tax
evasion and expands the tax net.
Tax Collected At Source
TCS refers to the tax which is collected by the electronic commerce operator when
a supplier supplies some goods or services through its portal and the payment for
that supply is collected by the electronic commerce operator.
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Electronic commerce means the supply of goods or services or both, including digital
products over digital or electronic network. Electronic commerce operator means any
person who owns, operates or manages digital or electronic facility or platform for
electronic commerce.
GST Returns
The basic features of the returns mechanism in GST include electronic filing of
returns, uploading of invoice level information and auto-population of information
relating to Input Tax Credit (ITC) from returns of supplier to that of recipient, invoice-
level information matching and auto-reversal of Input Tax Credit in case of mismatch.
Taxes has to be paid before filing of the returns.
Timely refund mechanism is essential in tax administration, as it facilitates trade
through the release of blocked funds for working capital, expansion and
modernisation of existing business. Under the GST regime, there will be a
standardized form for making any claim for refunds. The claim and sanctioning
procedure is online and time bound. Interest on withheld refund has to be paid at the
rate of 6%. Further, Interest on delayed refund (beyond 60 days, arising from order
of authority/ court) at 9% p.a.
Assessment
Every registered taxable person under GST shall himself assess the taxes payable
and furnish a return for each tax period. The proper officer can scrutinize the return
to verify its correctness. Scrutiny of returns is not a legal or judicial proceeding, i.e.
no order can be passed. The officer will ask for explanations on discrepancies
noticed. If the officer finds the explanation satisfactory then the taxable person will be
informed and no further action will be taken. (Self Assessment)
The proper officer will take action if the taxable person does not give a satisfactory
explanation within 30 days or does not rectify the discrepancies within a reasonable
time.
The officer may-
Conduct audit by the tax department
Proceed for Special Audit procedure
Inspect and Search the places of business of the tax payer
Proceed for Demand and Recovery provisions
When the assessing officer has sufficient grounds to believe any delay in
assessing a tax liability can harm the interest of the revenue. To protect the interest
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of the revenue, he can pass the summary assessment on the basis of evidence of
tax liability with the prior permission of Additional/Joint commissioner.
Summary Assessment means a fast-track assessment based on the return filed by
the assessee. It is completed on a priority basis without the presence of the taxpayer
because the delay in such assessments may lead to loss of revenue. Summary
assessment is usually done in cases of defaulting or absconding taxpayers.
In case if a registered taxable person does not file his return (even with a notice), the
proper officer will assess the tax liability to the best of his judgement. He will
assess on the basis of the available information.
Rectification - Any authority, who has passed or issued any decision or order or
notice or certificate, may rectify any error which is ap parent on the face of record
in such decision or order or notice or certificate, either on its own motion or where
such error is brought to its notice, within a period of three months from the date of
issue of such decision or order or notice or certificate.
Inspection
Inspection is a preliminary step—less serious than search.
Who can be inspected?
GST officers can inspect:
Any place of business
Transporters
Warehouse/godown owners/operators
Vehicles/conveyances carrying goods
The person in charge must:
Produce documents/devices
Allow verification
When can inspection be done?
Only when the officer has “reasons to believe” that the person has:
1. Suppressed sales/stock
2. Claimed excess ITC
3. Violated GST law to evade tax
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4. Transported/kept goods without paying tax, or maintained manipulated
accounts
E-way Bill Check
Any consignment worth more than ₹50,000 can be stopped for checking.
If goods are found without proper documents:
o They can be detained/seized
o Penalties will apply
Search & Seizure (Stronger Power)
When can search be conducted?
Officer must have reason to believe that:
1. Goods liable for confiscation are hidden
2. Documents/books/records useful for proceedings are hidden
Powers during Search
Officer may search any place where such goods or documents are kept.
Goods/documents can be:
o Seized, OR
o Detained (if seizure not practical)
Rights of the Person
A list of seized items must be prepared.
The person gets a copy of the seizure list.
He may take copies/extracts of seized documents.
Arrest under GST
Arrest is used only in exceptional cases, with Commissioner’s prior approval.
When can a person be arrested?
When tax evaded exceeds ₹100 lakh (₹1 crore)
When tax exceeds ₹500 lakh (₹5 crore):
o Offence is cognizable & non-bailable
o Only a Judicial Magistrate can grant bail
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Action Meaning When Allowed Consequences
Reason to believe about
Verify documents,
Inspection Initial checking suppression/ITC
stop vehicles
fraud/violations
Deep Search premises,
Search Goods/docs are hidden
investigation seize items
Taking Goods liable for Goods/books taken
Seizure
possession confiscation as evidence
Taking person Tax evasion > ₹1 crore Non-bailable if > ₹5
Arrest
into custody (serious cases) crore
****
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