UNIT II - Goods and Services Tax, 2017

Introduction

GST is considered as an indirect tax for the whole nation that would make India one
unified common market. It is a tax which is imposed on the sale, manufacturing and the usage of
the goods and services. It is a single tax that is imposed on the supply of the goods and services,
right from the manufacturer to the customer. The credits of the input taxes that are paid at each
stage will be available in the subsequent stage of value addition which makes GST essentially a
tax only on the value addition on each stage. The final consumers will bear only the tax charged
by the last dealer in the supply chain with the set of benefits that are at all the previous stages.

The Goods and Services Tax (GST) is a value-added tax levied on most goods and
services sold for domestic consumption. The GST is paid by consumers, but it is remitted to the
government by the businesses selling the goods and services. In effect, GST provides revenue for
the government.

It is charged at the national and state level at similar rates for the same products and it
also replaces almost all the current indirect taxes that are imposed separately by the Centre and
the States. Goods & Services Tax is a destination based tax which means that the tax is paid at
the place of supply.

Meaning of Goods and Services Tax (GST)

GST stands for “Goods and Services Tax”, and is proposed to be a comprehensive
indirect tax levy on manufacture, sale and consumption of goods as well as services at the
national level. Its main objective is to consolidates all indirect tax levies into a single tax, except
customs (excluding SAD) replacing multiple tax levies, overcoming the limitations of existing
indirect tax structure, and creating efficiencies in tax administration.

Simply put, goods and services tax is a tax levied on goods and services imposed at each
point of sale or rendering of service. Such GST could be on entire goods and services or there
could be some exempted class of goods or services or a negative list of goods and services on
which GST is not levied. GST is an indirect tax in lieu of tax on goods (excise) and tax on
service (service tax). The GST is just like State level VAT which is levied as tax on sale of
goods. GST will be a national level value added tax applicable on goods and services.

A major change in administering GST will be that the tax incidence is at the point of sale
as against the present system of point of origin. According to the Task Force under the 13th
Finance Commission, GST, as a well designed value added tax on all goods and services, is the
most elegant method to eliminate distortions and to tax consumption.

One of the reasons to go the GST way is to facilitate seamless credit across the entire
supply chain and across all States under a common tax base. It is a tax on goods and services,
which will be levied at each point of sale or provision of service, in which at the time of sale of
goods or providing the services the seller or service provider can claim the input credit of tax
which he has paid while purchasing the goods or procuring the service. This is because they
include GST in the price of the goods and services they sell and can claim credits for the most
GST included in the price of goods and services they buy. The cost of GST is borne by the final
consumer, who can’t claim GST credits, i.e. input credit of the tax paid.

Example: A product whose base price is Rs. 100 and after levying excise duty @ 12%value of
the product is Rs. 112. On sale of such goods VAT is levied @ 12.5% and value to the ultimate
consumer is Rs. 126. In the proposed GST system on base price of Rs. 100 CGST and SGST
both will be charged, say @ 8% each, and then the value to the ultimate consumer is Rs. 116. So,
in such a case the industry can better compete in global environment.

Need of GST

 Due to full and seamless credit, manufacturers or traders do not have to include taxes as a
part of their cost of production, which is a very big reason to say that we can see a
reduction in prices. However, if the government seeks to introduce GST with a higher
rate, this might be lost.
 This might seem to be a little vague. However, even at the time of introduction of VAT,
the public revenues actually went up instead of falling because many people resorted to
paying taxes rather than evading the same. However, the government may wish to
 introduce GST at a Revenue Neutral Rate, in which case the revenues might not see a
significant increase in the short run.
 Instead of maintaining big records, returns and reporting under various different statutes,
all assessees will find comfortable under GST as the compliance cost will be reduced. It
should be noted that the assesses are, nevertheless, required to keep record of CGST,
SGST and IGST separately.
 Internationally, the GST is always preferred in a unified form (that is, one single GST for
the whole nation, instead of the dual GST format). Although India is adopting Dual GST
looking into the federal structure, it is still a good move towards a Unified GST which is
regarded as the best method of Indirect Taxes.

Advantages of GST

 Goods and Services Tax has changed the face of indirect tax regime in the nation. It has
subsumed several indirect taxes and therefore simplified taxes for businesses and
compliance easier.
 With GST already into effect and filing for the month of July in the process, the
government is making considerable gains in revenue. GST has brought a large number of
entities into the tax net.
 Industry experts expect that GST should reduce logistics and inventory costs in the long
run. The slow movement across the state levels of goods carrier has stopped with the
transit speed increasing considerably. As per one of the surveys conducted recently, it has
been estimated that the Indians will be able to save almost about Rs 2300 crore which is
spent at the various check post at the border of the state.
 As is the norm with the current tax laws in India, there isn’t any input on capital goods.
But with the new GST Tax laws, one can avail input tax credit on the capital goods. That
way, the investment might surge up quite a bit with an expected 6% increase.
 The normal rules stay put as the 2% interstate-levy with the major chunk of production
kept within the state itself. However, with the change in rules, the tax amount can be
dispersed across the nation to offer a greater lift for the lesser-developed.
 Many countries follow a GST Tax regime and the new tax will make it easy for everyone
to understand the bill. People have already started verifying the bills at restaurants and
 other retail outlets for the right tax. Earlier, there were many cases of people being
charged inappropriately and this has ended with GST.
 GST will also lead to less corruption and there will be a significant reduction in
corruption as all the money spent needs to be reported for the taxation purpose.
Moreover, the retailer would not be able to make sales without the bill hence the cases of
income tax evasion will also reduce a lot.
 This advantage is totally for the consumers who are planning to buy car or phones. The
overall tax rate has been reduced by at least 2 percent and the car price of most of the cars
have been reduced. Another such impact is on phones and Apple recently reduced the
phone of the price by as much as 7.5%.
 In one of the studies conducted by HSBC, the GST would have a positive impact on GDP
of the country and the GDP of the country will increase by at least 80bps which translate
to 0.80%. This is surely a great help to the targets set by the Government.

Structure of GST
India currently has a dual system of taxation of goods and services, which is quite
different from dual GST. Taxes on goods are described as “VAT” at both Central and State level.
It has adopted value added tax principle with input tax credit mechanism for taxation of goods
and services, respectively, with limited cross-levy set-off. The present tax structure can best be
described by the following chart:
SHORTCOMINGS IN THE PRESENT STRUCTURE GST

1. Tax Cascading: The most significant contributing factor to tax cascading is the partial
coverage by Central and State taxes. The exempt sectors are not allowed to claim any
credit for the Cenvat or the Service Tax paid on their inputs.
2. Levy of Excise Duty on manufacturing point : The CENVAT is levied on goods
manufactured or produced in India. Limiting the tax to the point of manufacturing is a
severe impediment to an efficient and neutral application of tax. Taxable event at
manufacturing point itself forms a narrow base. For example, valuation as per excise
valuation rules of a product, whose consumer price is Rs. 100/-, is, say, Rs. 70/-. In such
a case, excise duty as per the present provisions is payable only on Rs.70/-, and not on
Rs.100/-.
3. Complexity in determining the nature of transaction – Sale vs. Service
4. Inability of States to levy tax on services : With no powers to levy tax on incomes or
the fastest growing components of consumer expenditures, the States have to rely almost
exclusively on compliance improvements or rate increases for any buoyancy in their
own-source revenues.
5. Lack of Uniformity in Provisions and Rates
6. Fixation of situs – Local Sale vs. Central Sale
7. Interpretational Issues: whether an activity is sale or works contract; sale or service, is
not free from doubt in many cases.
8. Narrow Base
9. Complexities in Administration

GST IN INDIA- Dual Concepts

In India, the GST model will be “dual GST” having both Central and State GST
component levied on the same base. All goods and services barring a few exceptions will be
brought into the GST base. Importantly, there will be no distinction between goods and services
for the purpose of the tax with common legislations applicable to both.
For Example, if a product have levy at a base price of Rs. 100 and rate of CGST and SGST are
8% then in such case both CGST and SGST will be charged on Rs 100 i.e. CGST will be Rs 8
and SGST will be Rs.8.

Interestingly, as per the recommendations of Joint Working Group (JWG) appointed

by the Empowered Committee in May 2007, the GST in India may not have a dual VAT
structure exactly but it will be a quadruple tax structure. It may have four components, namely –
(a) a Central tax on goods extending up to the retail level; (b) a Central service tax; (c) a State-
VAT on goods; and (d) a State-VAT on services.

The significant features of Dual GST recommended in India, in conjunction with the
recommendations by the JWG, are as under:

1. There will be Central GST to be administered by the Central Government and there will be
State GST to be administered by State Governments.

2. Central GST will replace existing CENVAT and service tax and the State GST will replace
State VAT.

3. Central GST may subsume following indirect taxes on supplies of goods and services:
Central Excise Duties (CENVAT)· Additional excise duties including those levied under
Additional Duties· of Excise (Goods of Special Importance) Act, 1957. Additional customs
duties in the nature of countervailing duties, i.e.,· CVD, SAD and other domestic taxes imposed
on imports to achieve a level playing field between domestic and imported goods which are
currently classified as customs duties. Cesses levied by the Union viz., cess on rubber, tea, coffee
etc.· Service Tax· Central Sales Tax – To be completely phased out· Surcharges levied by the
Union viz., National Calamity Contingent Duty,· Education Cess, Special Additional Duties of
Excise on Motor-Spirit and High Speed Diesel (HSD).

4. State GST may subsume following State taxes: Value Added Tax· Purchase Tax· State Excise
Duty (except on liquor)· Entertainment Tax (unless it is levied by the local bodies)· Luxury Tax·
Octroi Entry Tax in lieu of Octroi· Taxes on Lottery, Betting and Gambling·
5. The proposed GST will have two components – Central GST and State GST – the rates of
which will be prescribed separately keeping in view the revenue considerations, total tax burden
and the acceptability of the tax.

6. Taxable event in case of goods would be ‘sale’ instead of ‘manufacture’.

7. Exports will be zero rated and will be relieved of all embedded taxes and levies at both Central
and State level.

8. The JWG has also proposed a list of exempted goods, which includes items, such as, life
saving drugs, fertilizers, agricultural implements, books and several food items.

9. Certain components of petroleum, liquor and tobacco are likely to be outside the GST
structure. Further, State Excise on liquor may also be kept outside the GST.

10. Taxes collected by Local Bodies would not get subsumed in the proposed GST system.

As per the proposed GST regime, the input of Central GST can be utilized only for payment of
CGST & the input of State GST can be utilized only for payment of SGST. Cross- Utilization of
input of CGST in payment of SGST and vice-a- versa, will not be allowed. (Source:- Hindu
Business Line, dated 30-06-2009)

– Railways and Construction Sector might be included in GST

– Liquor, Petro Sector, Taxes of Local Bodies might be out of GST

– Stamp Duty – It has not yet been decided whether stamp duty will be part of the GST or not.

GST Tax rate

Gold: GST Council has fixed the tax rate of the precious metal at 3%. GST Council on June 3
created a new tax bracket for gold, diamonds, and silver. The current excise duty on gold was
1% and 1% VAT in many states. With 3% GST, Gold is set to become costlier July onward.
Insurance: Premiums are set to rise on car, health & term insurance with the government.
Currently, insurance is taxed at 15%. Under GST tax rate, this would go up to 18%.
Banking Charges: Transaction fee on various banking and financial services are expected to go
up as goods & service tax will tax these services under 18% tax rate from the current 15%.
Hotel Bookings: GST on hotel services will depending on the kind of room you stay in. If the
room tariff is less than Rs 1,000, your stay will be tax-free. However, if the room tariff is
between Rs 1,000 – Rs 2,500, you’ll be taxed 12%. If the tariff is between Rs 2,500 to Rs 7,500,
the stay will be taxed 18%. For luxury hotels, where the tariffs are more than Rs 7,500, GST tax
rate of 28% will be applicable.
Restaurant: There are different tax slabs for restaurants depending on their turnover and
whether they have air-conditioning or or not. Restaurants with a turnover of less than Rs 50
lakh will be levied a tax rate of 5%. Non-AC restaurants will be charged 12% Goods &
Service tax on food bill. Tax rate for AC restaurants and those with the liquor license will be
18%, whereas restaurants in 5-star hotels will attract a GST rate of 28%.
Telecom Bills: Your mobile and internet bills are expected to rise once GST comes into force.
Currently, there is a 15% service tax on telecoms services. Under GST, the tax rate applicable
will be 18%. The industry, which is already stressed with the launch of Reliance Jio, is expected
to pass on these charges to customers.
Movie Tickets: During a GST Council meet in Srinagar, Finance Minister Arun Jaitley had said
movie tickets in cinema halls will be taxed at 28%. The movie tickets below Rs 100 will be
taxed at 18%. Currently, there is service tax on cinema and states have separate entertainment
taxes. For example: Maharashtra has 50% Uttar Pradesh has 30-40%. Even though the tax rate
under the goods & service tax will be lower than entertainment taxes levied in some states,
movie ticket prices in big multiplexes may remain same as the government plans to increase a
tax on junk food and aerated drinks.
Medicines: While there may not be a huge impact of GST on medicines, but a tax rate of 5% on
life-saving drugs that treat diseases like malaria, HIV-AIDS, tuberculosis, and diabetes is
expected to marginally increase prices of these drugs. Until now, these drugs were exempted
from excise and customs duties. However, a few states were charging 5% on these drugs which
will now be subsumed under it. Under GST, there will be a 12% on formulations and 18% on
APIs (active pharmaceutical ingredients) – the bulk drugs that go into the making of final pills
and tablets.
Cab rides: Cab fares could get marginally cheaper for customers from July 1 as the incidence of
tax will come down to 5% for bookings made on cab aggregators like Ola and Uber. Currently,
a tax of 6% is levied on rides booked through cab aggregators.
Tobacco products:
• Filter and non-filter cigarettes not exceeding 65 mm will attract cess of 5% plus Rs 1,591 per
1000 sticks.
• Cigars, levy of 21% or Rs 4,170 per 1000 sticks, whichever is higher.
• Branded gutkha will be slapped with a cess of 72%
• Smoking mixtures for pipes and cigarettes will attract a levy of 290%.
Bikes: Motorcycles of more than 350 cc engine capacity will attract a total of 31% tax rate
under the GST regime, same as the tax incidence on private aircraft and luxury yachts.
Cars:
• All cars fall in the ‘luxury bracket‘ of GST. That means they will attract 28% tax. However,
depending on their size, extra will be levied.
• Small cars or cars under 4 metre length powered by a petrol engine not greater than 1.2-litre
or a diesel engine not greater than 1.5-litre by displacement will be taxed at 28%. For petrol
cars, the effective tax rate will be 29%. However, for diesel cars, the effective tax rate will be
31%.
• For mid-size, luxury cars and SUVs, the effective tax rate will be 43%. The prices of SUVs are
expected to come down as they are currently taxed at 48-55%.
• The government said it would tax hybrid vehicles at a rate as high as 43%. This would be
significantly higher than the prevailing tax of about 29% on such cars.
Air Travel: Economy class air travel will become cheaper with tax rate fixed at 5% against the
existing 6%, under the upcoming goods and services tax (GST) regime from 1 July. However,
for those traveling business class, tickets will become dearer as the tax will go up from 9% to
12%.
No Tax Items: GST Council has decided to keep the following tax-free
 • Daily items like milk, paneer, and curd
• Metro travel, religious travel and Haj yatra
• Healthcare and Education
• Basic food items like cereals, eggs.
• Food grains, especially wheat and rice, However, packaged food items will be taxed at 5%.
Coal: Electricity generation will get cheaper as the GST council has brought down the tax on
coal to 5% from the current tax rate of 11.69%.

Daily use items:

Sugar, tea, coffee and edible oil will attract the lowest tax rate of 5%, almost the same as under
the current tax structure.
Products like hair oil, soaps and toothpaste will be charged 18% instead of present 22-24.
The highest slab of 28% under GST
• Chewing gums, white chocolate, chocolates containing cocoa, wafers coated with chocolate,
instant coffee, custard powder.
• Students’ colours, paints, varnishes, perfumes, beauty products, sunscreen, shampoos, hair
dyes, after-shave lotions and deodorants.
Meat: Animal slaughtering and services provided by veterinary clinics will be exempt from
GST.
Entertainment: Visits to theme parks and sporting events like IPL will attract a levy of 28%
under the new indirect tax regime kicking in from July 1.
Railways: Non AC train travel, including in local trains and metro, has been exempt from GST,
while AC train travel will attract 5% service tax. Ticket prices for AC trains will increase
marginally as current service tax is at 4.5%.
Maintenance Charges: Flat owners who pay Rs 5,000 or more every month as maintenance
charges, excluding property tax, stamp duty, and utility charges, will have to pay GST on the
increased tax rates. As of now, the tax levied is levied at 15.55% on maintenance charges,
which will be replaced with 18% after GST is implemented.
Smartphones: A smartphone currently attracts 2% central excise duty, besides the value-added
tax (VAT), which vary from state to state (5% to 15%). Under GST, smartphones will be taxed
at flat 12%.
Cement: Prices of packaged cement is expected to come down marginally as it would be taxed
at 28% under the GST as against 31% currently on account of different indirect taxes.
Ayurveda: Ayurvedic products are set to get costlier as the government has kept these products
in the 12% bracket. Ayurveda products currently attract 8-9% tax.
Lottery: State run lotteries will be taxed at 12% of the face value and state authorised lotteries
at 28%.

Components in GST

IGST

IGST full form is Integrated Goods and Service Tax.

Integrated GST (IGST) is applicable on interstate (between two states) transactions of goods and
services, as well as on imports. This tax will be collected by the Central government and will
further be distributed among the respective states. IGST is charged when a product or service is
moved from one state to another. IGST is in place to ensure that a state has to deal only with the
Union government and not with every state separately to settle the interstate tax amounts. Let’s
try to understand IGST with an example.

E.g, – Ramesh is a manufacturer in Rajasthan who sold goods worth Rs. 10,000 to Suresh in
Maharashtra. Since it is an interstate transaction, IGST will be applicable here. Let’s assume the
GST rate is 18% for the particular item. So, the IGST amount charged by the Central
Government will be Rs. 1800 (18% of Rs. 10,000), and the refined rate of the product will be Rs.
11,800.

Now, GST is a consumption tax, that means only the state where the goods are actually
consumed will get the tax benefits, irrespective of the manufacturing state.
SGST

SGST full form is State Goods and Service Tax.

SGST (State GST) is one of the two taxes levied on every intrastate (within one state)
transaction of goods and services. The other one is CGST. SGST is levied by the particular state
where the goods are being sold/purchased. It will replace all the existing state taxes including
VAT, State Sales Tax, Entertainment Tax, Luxury Tax, Entry Tax, State Cesses and Surcharges
on any kind of transaction involving goods and services. The State Government is the sole
claimer of the revenue earned under SGST. Let’s understand this with an example.

E.g. – Suresh from Maharashtra wants to sell some goods to Rakesh in Maharashtra. The
product, originally priced at Rs. 10,000, will attract GST at 18% rate comprising of 9% CGST
rate and 9% SGST rate. The SGST tax amount here is Rs. 900 (9% of Rs. 10,000) which is fully
claimed by the Maharashtra State Government. The rate of the product after SGST will be Rs.
10,900.

CGST

CGST full form is Central Goods and Service Tax.

CGST refers to the Central GST tax that is levied by the Central Government of India on any
transaction of goods and services tax takes places within a state. It is one of the two taxes
charged on every intrastate (within one state) transaction, the other one being SGST (or
UTGST for Union Territories). CGST replaces all the existing Central taxes including Service
Tax, Central Excise Duty, CST, Customs Duty, SAD, etc.

The rate of CGST is usually equal to the SGST rate. Both taxes are charged on the base price of
the product. See the example below to understand it better.

E.g. – In the example above, when Suresh sales a product to Rakesh in the same state
(Maharashtra), he has to pay two taxes. CGST is for the central government while SGST is for
the state. The rate of CGST is 9%, same as SGST. After the application of CGST (9% of Rs.
10,000), the final cost of the product will become Rs. 11,800.
As you can probably guess, all the taxes in all the conditions above are borne by the end
consumer in the final cost, not by the manufacturer or the dealer of the product or service. Since
GST is levied on consumption, the state where the product is originally manufactured does not
entitle to any tax amount. If the manufacturing state levies a tax, the same will be transferred to
the consuming state through the Central government.

UTGST (or UGST)

UTGST full form is Union Territory Goods and Service Tax.

The Union Territory Goods and Service Tax, commonly referred to as UTGST, is the GST
applicable on the goods and services supply that takes place in any of the five Union Territories
of India, including Andaman and Nicobar Islands, Dadra and Nagar Haveli, Chandigarh,
Lakshadweep and Daman and Diu. This UTGST will be charged in addition to the Central GST
(CGST) explained above.

For any transaction of goods/service within a Union Territory: CGST + UTGST

The reason why a separate GST was implemented for the Union Territories is that the common
State GST (SGST) cannot be applied in an Union Territory without legislature. Delhi and
Puducherry UTs already have their own legislatures, so SGST is applicable to them.

Difference between different types of GST taxes

Types of Differences IGST SGST

Applicable transactions Inter-state (between two states or one Intrastate (Within one
(Goods & Services) state and one UT) and imports state)
Collected by Central Govt. State Govt.
Benefitting Authority Central Govt. & State Govt. State Govt.
Tax Credit Use Priority IGST SGST
CGST IGST
SGST
Types of Differences CGST UGST/UTGST
Applicable transactions Intrastate (Within one state) Within one Union
(Goods & Services) Territory (UT)
Collected by Central Govt. UT Govt.
Benefitting Authority Central Govt. UT Govt.
Tax Credit Use Priority CGST UGCT
IGST IGST

Similar to every other type of tax, GST also has provisions to give the benefits of tax credits. The
credits will be applicable to the subsequent taxes on the same product or service. All three IGST,
SGST and CGST credits are usable against each other. Any IGST credit will be first used to deal
with IGST tax, then CGST, and then to set off SGST.

Taxes to be Subsumed under CGST and SGST

With the aim of harmonizing the common national market and removing cascading
effect of indirect taxes, Goods and Services Tax (GST) is proposed to be implemented from
April 2016. To that effect, Constitutional Amendment Bill also introduced in last winter session
of the Parliament. The said bill proposed to sub-summed more than a dozen type of Central and
State Level Taxes.

India has opted for a dual-GST model. Under this model GST have two components viz.
the Central GST to be levied and collected by the Centre and the State GST to be levied and
collected by the respective States.

It is proposed to Subsuming following taxes levied by the Central Governments:

 Central Excise Duty

 Additional Excise Duties
 Excise Duty-Medicinal and Toiletries Preparation Act
 Service Tax
 Additional CVD
 Special Additional Duty of Customs – 4% (SAD)
 Surcharges
  Ceses

Further, following taxes levied by the State Governments and also proposed for
Subsuming:

 VAT / Sales tax

 Entertainment tax (unless it is levied by the local bodies)
 Luxury tax
 Taxes on lottery, betting and gambling
 State Cesses and Surcharges (supply of goods and services)
 Entry tax not in lieu of Octroi

However, Alcoholic Liquor for Human Consumption is exempted from the purview of
the GST. Further, the GST Council is to decide when GST would be levied on:

(i) petroleum crude,

(ii) high speed diesel,

(iii) motor spirit (petrol),

(iv) natural gas, and

(v) aviation turbine fuel. On such goods, taxes are continue to be levied as per current applicable
laws,

It is pertain to note that there are still few indirect taxes that may or may not be subsumed
under the GST regime as there is no consensus among States and Centre Governments –

 Basic Custom Duty

 Stamp Duty
 Vehicle Tax
 Electricity Duty
 Other Entry taxes
 UNIT III - Levy and collection under TNGST / CGST acts

Levy and collection under TNGST / CGST acts:

1. Subject to the provisions of sub-section (2), there shall be levied a tax called the central
goods and services tax on all intra-State supplies of goods or services or both, except on
the supply of alcoholic liquor for human consumption, on the value determined under
section 15 and at such rates, not exceeding twenty per cent., as may be notified by the
Government on the recommendations of the Council and collected in such manner as
may be prescribed and shall be paid by the taxable person.
2. The central tax on the supply of petroleum crude, high speed diesel, motor spirit
(commonly known as petrol), natural gas and aviation turbine fuel shall be levied with
effect from such date as may be notified by the Government on the recommendations of
the Council.
3. The Government may, on the recommendations of the Council, by notification, specify
categories of supply of goods or services or both, the tax on which shall be paid on
reverse charge basis by the recipient of such goods or services or both and all the
provisions of this Act shall apply to such recipient as if he is the person liable for paying
the tax in relation to the supply of such goods or services or both.
4. The central tax in respect of the supply of taxable goods or services or both by a supplier,
who is not registered, to a registered person shall be paid by such person on reverse
charge basis as the recipient and all the provisions of this Act shall apply to such recipient
as if he is the person liable for paying the tax in relation to the supply of such goods or
services or both.
5. The Government may, on the recommendations of the Council, by notification, specify
categories of services the tax on intra-State supplies of which shall be paid by the
electronic commerce operator if such services are supplied through it, and all the
provisions of this Act shall apply to such electronic commerce operator as if he is the
supplier liable for paying the tax in relation to the supply of such services:
Provided that where an electronic commerce operator does not have a physical presence
in the taxable territory, any person representing such electronic commerce operator for
any purpose in the taxable territory shall be liable to pay tax: Provided further that where
 an electronic commerce operator does not have a physical presence in the taxable
territory and also he does not have a representative in the said territory, such electronic
commerce operator shall appoint a person in the taxable territory for the purpose of
paying tax and such person shall be liable to pay tax.

Value of taxable supply

1. The value of a supply of goods or services or both shall be the transaction value, which is
the price actually paid or payable for the said supply of goods or services or both where
the supplier and the recipient of the supply are not related and the price is the sole
consideration for the supply.
2. The value of supply shall include–––
a. any taxes, duties, cesses, fees and charges levied under any law for the time being
in force other than this Act, the State Goods and Services Tax Act, the Union
Territory Goods and Services Tax Act and the Goods and Services Tax
(Compensation to States) Act, if charged separately by the supplier;
b. any amount that the supplier is liable to pay in relation to such supply but which
has been incurred by the recipient of the supply and not included in the price
actually paid or payable for the goods or services or both;
c. incidental expenses, including commission and packing, charged by the supplier
to the recipient of a supply and any amount charged for anything done by the
supplier in respect of the supply of goods or services or both at the time of, or
before delivery of goods or supply of services;
d. interest or late fee or penalty for delayed payment of any consideration for any
supply; and
e. subsidies directly linked to the price excluding subsidies provided by the Central
Government and State Governments.
For the purposes of this sub-section, the amount of subsidy shall be included in
the value of supply of the supplier who receives the subsidy.
3. The value of the supply shall not include any discount which is given––
a. before or at the time of the supply if such discount has been duly recorded in the
invoice issued in respect of such supply; and
 b. after the supply has been effected, if—
a. such discount is established in terms of an agreement entered into at or
before the time of such supply and specifically linked to relevant invoices;
and
b. input tax credit as is attributable to the discount on the basis of document
issued by the supplier has been reversed by the recipient of the supply.
4. Where the value of the supply of goods or services or both cannot be determined under
sub-section (1), the same shall be determined in such manner as may be prescribed.
5. Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of
such supplies as may be notified by the Government on the recommendations of the
Council shall be determined in such manner as may be prescribed. For the purposes of
this Act,––
a. persons shall be deemed to be “related persons” if––
i. such persons are officers or directors of one another’s businesses;
ii. such persons are legally recognised partners in business;
iii. such persons are employer and employee;
iv. any person directly or indirectly owns, controls or holds twenty-five per
cent or more of the outstanding voting stock or shares of both of them;
v. one of them directly or indirectly controls the other;
vi. both of them are directly or indirectly controlled by a third person;
vii. together they directly or indirectly control a third person; or they are
members of the same family;
the term “person” also includes legal persons;
persons who are associated in the business of one another in that one is the sole agent or sole
distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be
related.

Composition Levy

The current state indirect tax regime has provided a simpler compliance for small dealers known
as the Composition Scheme. Under this scheme you,
  Pay taxes only at a certain percentage of turnover
 File periodic returns only (usually on a quarterly basis)
 Have an option of not having to maintain detailed records or follow tax invoicing rules
 Are not allowed to take Input Tax Credit (ITC)
 Are not allowed to collect tax on sales

Thus for smaller businesses, it is simpler to calculate tax liability. This saves time and energy
involved in maintaining detailed records.

Input Tax credit.

Meaning of Input Tax credit.

Input tax credit means credit of ‘input tax’as defined in section 2(55) of GST Model Law,
November 2016.

Input tax in relation to a taxable person, means the IGST including that on import of goods,
CGST and SGST charged on any supply of goods and/or services to him and includes the tax
payable under section 8(3) but does not include the tax paid under section 9 of GST Model Law,
November 2016.

1. Section 8(3) covers GST paid under reverse charge.

2. Section 9 covers GST paid under composition scheme.

3.Input Tax Credit is eligible only when it is credited to electronic credit ledger of taxable
person.

Manner of taking Input tax credit.

A person who is registered as a taxable person shall be eligible to take credit of input tax
admissible to him and the said amount shall be credited to the electronic credit ledger of such
person. Such credit shall be utilized only for payment for self-assessed output tax liability.
1. Electronic credit ledger is the input tax credit ledger in electronic form maintained at the
common portal for each registered taxable person.

2. Input means any goods other than capital goods, used or intended to be used by a supplier in
the course or furtherance of business.

3. Outward Supply means supply of goods or services, whether by sale, transfer, barter,
exchange, license, rental, lease or disposal or any other means made or agreed to be made by
such person in the course or furtherance of business.

Credit of Input Tax under special circumstances

S. No. Case When ITC can be claimed

Where a person who has applied for
registration under the Act within
thirty days from the date on which he
1. becomes liable to registration and has
been granted such registration or a
person who voluntarily takes
registration though not liable.
When a person opts out of
2.
composition scheme
3. When exemption on goods or
ITC in respect of inputs held in stock and
inputs contained in semi-finished or
finished goods held in stock shall be
entitled on the day immediately preceding
the date from which he becomes liable to
pay tax under the provisions of this Act.
ITC in respect of inputs held in stock and
inputs contained in semi-finishedor
finished goods held in stock shall be
entitled on the day immediately
precedingthe date from which he becomes
liable to pay tax under section 8 [on basis
of transaction value]
Further, credit on capital goods shall be
reduced by such percentage as may be
prescribed.
Where an exempt supply of goods or
 services withdrawn services by a registered taxable person
becomes a taxable supply, such person
shall, ITC in respect of inputs held in
stock and inputs contained in semi-
finished or finished goods held in stock
relatable to such exempt supply and on
capital goods exclusively used for such
exempt supply shall be entitled on the day
immediately preceding the date from
which such supply becomes taxable.
Further, credit on capital goods shall be
reduced by such percentage as may be
prescribed

Input tax credit cannot be taken after one year from the date of invoice or filing of annual
return.

1. Maximum time limit to take input tax credit in respect of any supply of goods and/or services
is within one year from the date of issue of tax invoice relating to such supply.(For the credit of
Input Tax under Special Circumstances as mentioned in above table).

2.Further, time limit to take input tax credit in respect of invoice or debit note in normal course
shall be earlier of Furnishing of return under section 34 for the month of September following
the end of financial year to which such invoice or debit note pertains OR
Furnishing of annual return. (last date for furnishing an annual return is 31st December u/s 39
following the end of financial year)

Conditions of taking Input tax credit.

A taxable person shall be not be entitled to the credit of any input tax in respect of any supply of
goods and/or services to him unless following conditions are satisfied:-
1. he is in possession of a tax invoice or debit note issued by a supplier registered under GST Act
or such other taxpaying document as may be prescribed,

2. he has received the goods and/or services,

3. the tax charged in respect of such supply has been actually paid to the credit of the appropriate
Government, either in cash or through utilization of input tax credit admissible in respect of the
said supply; and

4. he has furnished the return under section 34.

1. All the above 4 conditions needs to be satisfied for taking Input Tax Credit.

2. Where the goods against an invoice are received in lots or installments, the registered taxable
person shall be entitled to the credit upon receipt of the last lot or installment.

3. For the purpose of sr. no. 2 above, it shall be deemed that the taxable person has received the
goods, where the goods are delivered by the supplier to a recipient or any other person on the
direction of such taxable person, whether acting as an agent or otherwise, before or during
movement of goods, either by way of transfer of documents of title to goods or otherwise.

Input tax Reversal of input tax credit on input services if payment not made to supplier of
service within three months.

Where a recipient fails to pay to the supplier of services, the amount towards the value of supply
of services along with tax payable thereon within a period of three months from the date of issue
of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall
be added to his output tax liability, along with interest thereon, in the manner as may be
prescribed.

Proportionate ITC when partly used for business and taxable supplies

S. No. Cases Apportionment

1. Where goods and/ and/or services are used by the the amount of input tax credit
 registered taxable person partly for the purpose of shall be restricted to so much
any business and partly for other purposes of theinput tax as is
attributable to the purposes of
his business
Where the goods and/or services are used by the The amount of credit shall be
registered taxable person partly for effecting taxable restricted to so much of the
2. supplies and partly for effecting non-taxable input tax as is attributable to
supplies, including exempt supplies but excluding the taxable supplies including
zero rated supplies zero rated supplies

Special Provision in respect of Banks, FI and NBFC

For banking company or a financial institution including a non-banking financial company,

engaged in supplying services by way of accepting deposits, extending loans or advances credit
shall be restricted to input tax attributed to taxable supplies OR 50% of eligible ITC on inputs,
capital goods and input services in that month.

Note:-
1. The option once exercised by Banks, FI and NBFC shall not be withdrawn during the
remaining part of the financial year.

Negative list of goods and services ineligible for ITC

Input tax credit shall not be available in respect of the following:-

1. Motor Vehicles: except when they are supplied in the usual course of businessor are used for
providing the following taxable services:-
(i) transportation of passengers, or

(ii) transportation of goods, or

(iii) Imparting training on motor driving skills.

2. Goods and services for food, beauty treatment, health mainly for personal consumption :
(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and
plastic surgery except where such inward supply of goods or services of a particular category is
used by a registered taxable person for making an outward taxable supply of the same category
of goods or services;

(ii) membership of a club, health and fitness centre,

(iii) rent-a-cab, life insurance, health insurance except where the Government notifies the
services which are obligatory for an employer to provide to its employees under any law for the
time being in force; and

(iv) Travel benefits extended to employees on vacation such as leave or home travel
concession.

3. Works contract service:-Works contract services when supplied for construction of

immovable property, other than plant and machinery, is not eligible, except where it is an input
service for further supply of works contract service.

4. Construction service:- Goods or services received by a taxable person for construction of an

immovable property on his own account, other than plant and machinery, are not eligible for
input tax credit, even when used in course or furtherance of business;
5. GST paid under composition scheme:- Goods and/or services on which tax has been paid
under section 9 (composition scheme) are not eligible.

6. Goods and services used for personal consumption:- Goods and/or services used for
personal consumption are not eligible for input tax credit.

7. Lost, stolen or destroyed goods and free samples:- Goods lost, stolen, destroyed, written off
or disposed of by way of gift or free samples are not eligible for input tax credit.

8. GST paid after detection of fraud or suppression or goods removed in contravention of

GST Act:- Any tax paid in terms of section 67, 89 or 90 of Model GST Law, November, 2016
are not eligible for input tax credit. This covers GST paid after detection of fraud or suppression
or goods removed in contravention of GST Act.
Input Tax Credit on capital goods

There is no specific provision in respect of ITC of capital goods. Thus, entire ITC of GST paid
on capital goods will be available in first year itself, as these are ‘goods’.

Note:-
“Capital goods” means goods, the value of which is capitalized in the books of account of the
person claiming the credit and which are used or intended to be used in the course or furtherance
of business section 2(19) of GST Model Law, November 2016.

Credit of tax not allowed if depreciation claimed on tax component

If depreciation is claimed under the Income Tax Act on the tax component of capital goods then
ITC shall not be allowed on the said amount of tax component.

Thus, if net value of capital goods is Rs 100 lakhs and GST paid is 18 lakhs, the taxable person
should claim depreciation in income tax only on Rs 100 lakhs.

ITC on pipelines and telecommunication tower

Credit of input tax in respect of pipelines and telecommunication tower fixed to earth by
foundation or structural support including foundation and structural support thereto shall be
taken in three yearly instalments of one-third of credit every year.

Merger, amalgamation or sale of business

Where there is a change in the constitution of a registered taxable person on account of sale,
merger, demerger, amalgamation, lease or transfer of the business with the specific provision for
transfer of liabilities, the said registered taxable person shall be allowed to transfer the input tax
credit that remains unutilized in its books of account to such sold, merged, demerged,
amalgamated, leased or transferred business in the manner prescribed.
Reversal of input tax credit if goods become exempt or taxable person switches to
composition scheme

Where a person who has availed of input tax credit switches over to composition scheme or,
where the goods and/or services supplied by him become exempt absolutely under section 11, he
shall pay an amount, by way of debit in the electronic credit or cash ledger, equivalent to the
credit of input tax claimed on the day immediately preceding the date of such switch over or, as
the case may be, the date of such exemption.

Credit on capital goods shall be reduced by a prescribed percentage points.

After payment of such amount, the balance of input tax credit, if any, lying in his electronic
credit ledger shall lapse.

Recovery of ITC wrongly taken

Where credit has been taken wrongly, the same shall be recovered from the registered taxable
person in the manner as may be prescribed in this behalf.

Input Service Distributor

“Input Service Distributor” means an office of the supplier of goods and/or services which
receives tax invoices issued under section 23 towards receipt of input services and issues tax
invoice or such other document as prescribed for the purposes of distributing the credit of CGST
(SGST in State Acts) and/or IGST paid on the said services to a supplier of taxable goods and/or
services having same PAN as that of the office referred to above.

• Manner of distribution of credit by Input Service Distributor

The credit of CGST as CGST or IGST and IGST as IGST or CGST where the Distributor and the
recipient of credit are located in different States.

The credit of SGST as SGST or IGST where the Distributor and the recipient of credit are
located in different States.
The credit of CGST and IGST as CGST where the Distributor and the recipient of credit, being a
business vertical, are located in the same State.

The credit of SGST and IGST as SGST where the Distributor and the recipient of credit, being a
business vertical, are located in the same State

• Conditions for distribution of Input Tax Credit

The Input Service Distributor may distribute the credit as per following conditions:-

(i) the credit can be distributed against a prescribed document issued to each of the
recipients of thecredit so distributed, and such invoice or other document shall contain such
details as may be prescribed;

(ii) the amount of the credit distributed shall not exceed the amount of credit available for
distribution;

(iii) the credit of tax paid on input services attributable to a supplier shall be distributed
only to that supplier (of goods and services);

(iv) the credit of tax paid on input services attributable to more than one supplier shall be
distributed only amongst such supplier(s) to whom the input service is attributable and such
distribution shall be prorata on the basis of the turnover in a State of such supplier, during the
relevant period, to the aggregate of the turnover of all such suppliers to whom such input service
is attributable and which are operational in the current year, during the said relevant period.

• Manner of recovery of credit distributed in excess

Where the credit distributed by the Input Service Distributor is in excess of the credit available
for distribution by him, the excess credit so distributed shall be recovered from such distributor
along with interest, and the provision of sections 66 and 67 shall apply mutatis mutandis for
effecting such recovery

ITC in respects of Inputs sent for job work

1. The registered taxable person (principal) shall be entitled to ITC on inputs / capital goods sent
to a job-worker for job-work or even it is directly sent to the place of job worker without their
being first brought to the principal’s place of business, provided that

a. the said inputs are received back by ‘principal’ within a period of one year of their being sent
out. For capital goods this time limit is three years.

b. If said inputs or capital goods are not received back after job-work or otherwise or even not
supplied from place of job worker within aforesaid period, it shall be deemed to be supplied by
the principal to job-worker on the day when the said inputs or capital goods were sent out.

c. If inputs or capital goods are sent directly to job-worker, the period of one year or three years
shall be counted from the date of its receipt by the job worker.

d. In case of Moulds, dies, jigs, fixtures or tools the aforesaid conditions are not applicable.
Composition Levy in the GST Regime

Similarly, the same benefit is provided under the GST regime. Small dealers and businesses
could opt for the composition scheme known as Composition Levy. Under this scheme, a
Composite Tax Payer pays tax only at a certain percentage of his turnover.

Threshold Limit

 Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura,

and Himachal Pradesh – Aggregate turnover of the person having same PAN of above Rs
10 lakhs during the previous financial year but does not exceed Rs 75 lakhs.
 Rest of India – Aggregate turnover of the person having same PAN of above Rs 20 lakhs
during the previous financial year but does not exceed Rs 1 crore.

Rate of Levy

 Rate
o Manufacturer- 2% of the turnover in a state or Union Territory
o Trader-1%
o Supplier of food or drinks for human consumption- 5% of the turnover in a state
or Union Territory

Conditions for a Composite Tax Payer

Apart from the threshold limit, the following conditions are applicable for a composite tax payer:

 Cannot be engaged in supply of services, other than supply of food or drinks for human
consumption
 Cannot be engaged in manufacture of specific notified goods
 Cannot supply goods not taxable under GST
 Cannot supply goods through an e-commerce operator
 No Interstate outward supplies – A composite tax payer should not engage in interstate
outward supply of goods and / or services.
 Payment of composition tax – If the composite tax payer is in the trade of supplying
goods and services, then composition levy will be applicable for both supply of goods
and supply of services.
 Does not have to collect tax – The composite tax payer does not have to collect tax on
all his outward supply of goods and / or services.
 Applicable for all business verticals under the same PAN – Composition levy will be
applicable for all business verticals operating within state or interstate under the same
pan.
What does this mean?
An individual with different business verticals, like:
o Mobiles & Accessories
o Stationery
o Franchisee

In the above scenario, the composition scheme will be applicable for all three business
verticals. The dealer cannot opt for any one business vertical to fall under the
composition scheme. For example, if the business vertical’s place of business is in
Karnataka & Kerala for a single PAN, each of the business vertical in that particular state
should have only ‘Intra-State(within state)’ supplies.

 Cannot claim Input Tax Credit – The composite tax payer is not eligible to claim input
tax credit on all his inward supply of goods and / or services.