A Practical Guide To GST - Adv. Sanjay Dwivedi (2017 Edition)
A Practical Guide To GST - Adv. Sanjay Dwivedi (2017 Edition)
A Practical Guide To GST - Adv. Sanjay Dwivedi (2017 Edition)
GST
SANJAY DWIVEDI
Advocate
2017
Chamber of Small Industry Associations
Thane – 400604. Maharashtra. INDIA
Published by
Printed at
Last year when I met him again, the Goods & Services Tax, was
uppermost in our minds and COSIA was determined that we would do
our best to ensure that our entrepreneurs are well-prepared and not
caught napping when the new law is introduced.
The perfect person to make forward was Mr. Sanjay Dwivedi, who not
only had vast experience while working in Excise Department but also
had established a consultancy & legal practice with his well-learned, soft
spoken meticulous & measured approach to deal with taxation issues of
entrepreneurs. His experience before Tribunals & Courts and niche to
interpret law as it is surely a plus for this noble mission.
The Relationship with him clicked from the beginning itself. Though there
were huge delays and uncertainties about the date of introduction of the
Goods & Services Tax, there was never any uncertainty that it was certain
to come and that Sanjay Dwivedi would be with us to hand-hold
entrepreneurs and familiarize them with the GST as it evolved.
Consequently, there were very few surprises when it was finally enacted
from July 1st, 2017 in the historic Central Hall of Parliament. In fact,
COSIA had the privilege of being represented by him at meetings of the
GST Consultative Committee in MSME Ministry, New Delhi where he
wonderfully articulated our demands with his understanding of both the
Government view and intimate understanding of the problems of
MSMEs.
So, when the suggestion was made that Mr. Sanjay Dwivedi should author this
book as a national service, particularly for the MSMEs all over the country,
COSIA had no hesitation in agreeing to publish the book as part of our own
contribution as one of the most active apex bodies of MSME Associations in the
country.
One can continue to criticize on the issues of the multiple rates, classification
issues, place of supply, profiteering provisions etc. however COSIA takes a
pragmatic view. COSIA believe, that with a pro-active and sympathetic
Government, which has already announced initial relaxed implementation, for
Industry and Trade players to catch-up, though there will be the occasional
hiccups, things will soon fall into place.
President, COSIA
Preface
The book helps you understand – how to find out answer to these
questions. Of course advice of legal expert may be required for
specific situations. A book cannot be a substitute for legal advice.
Preface
Further, we will not go as much into legal fine points as into its
general understanding and practical aspects. At the end of every
chapter, I have quoted the relevant legal provisions and have very
briefly explained as to what those provisions talk about. The idea is
that the interested reader can then refer to the law.
I have tried to avoid reproducing the entire set of law verbatim. But
it is highly recommended that the text of the law be read along with
the book. References are mostly cited in the footnote so that the flow
of reading remains uninterrupted.
This book is merely trying to explain the law in simple language. But
it is always desirable to look at the actual text of law so as to get the
authentic meaning. The text is available at link
http://www.cbec.gov.in/htdocs-cbec/gst/index.
• The Central Goods and Services Tax Act, 2017 has been
referred to simply as the “CGST Act”. Similarly name of the
other acts have also been shortened.
Happy reading.
Sanjay Dwivedi
Advocate
July, 2017
INDEX
Dedication
Forewords
Preface
Chapters Pages
1. GST in an Evening – A broad overview of the 001 – 035
scheme of taxation
13. Composition Scheme: Easy way out for small 313 – 326
tax payers
GST in an Evening
This chapter provides a broad overview of the GST Law. In a way it
describes the syllabus covered by this book. It is recommended that this
chapter be read first.
Seventeen taxes have been merged into GST. Eight of these were
imposed by the Central Government and nine by the State
Governments. The list of the 17 taxes merged into GST is available in
the Appendix. It would be worthwhile to have a look at structure
and nature of some of these taxes existing before GST came to be
implemented. We shall see what were the problems faced in the
existing tax system and what were the root causes. This will help us
in comparing GST with the old system of taxation.
Thereafter we will see the overall structure of GST, its coverage, the
reverse charge, credit scheme, time when the tax becomes payable
etc. This chapter would thus provide a very short introduction and
would act as a foundation for the discussion that follows in the book.
The Taxation System before GST: The Problems & the Solution
1
Chapter 1 GST in An Evening
1The Central Government had the powers to levy excise duty vide entry 84, List I,
Schedule VII of the Constitution. The entry read as under:
84. Duties of excise on tobacco and other goods manufactured or produced in
India except—
(a) alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic drugs and narcotics,
2
Chapter 1 GST in An Evening
We can see that the taxing powers were divided between the Central
and State Governments on the basis of „taxable event‟. Thus, in the
same supply Central government used to levy Central Excise Duty
(event – manufacture) and the state government used to levy VAT
(event – sale). Once the goods left the factory and entered the market,
VAT was payable at each subsequent sale. The traders in the chain
were liable to pay VAT on sale. But, since they were not
manufacturing the goods, they were not required to pay C. Excise
duty. In other words there was no Central Excise duty beyond the
first point. Similarly the service tax was levied on provision of
only the five items of petroleum (mentioned above) are included in that entry. Power to
levy CST on these five items continues to be with the Center.
The entry 62 now reads:
"62. Taxes on entertainments and amusements to the extent levied and collected
by a Panchayat or a Municipality or a Regional Council or a District Council.".
3
Chapter 1 GST in An Evening
4
Chapter 1 GST in An Evening
5
Chapter 1 GST in An Evening
4 Tata Consultancy Services vs. State of Andhra Pradesh [2004 (178) E. L. T. 22 (SC)]
6
Chapter 1 GST in An Evening
5 Actually, the transfer of property in goods involved in works contract was subjected to
levy of Sales Tax (VAT/ CST) by way of a constitutional amendment.
7
Chapter 1 GST in An Evening
- printing on glass
8
Chapter 1 GST in An Evening
The best way to resolve the above issues was to merge the various
taxable events into one and also to have a single taxing authority.
The central government could levy a single tax all over the country,
and the amount so collected could be distributed between the centre
and all the state governments. In other words, one person should be
allowed to hold a single registration in the country and pay a single
tax which would be collected by one government. A single law
would bring uniformity in classification, valuation & procedures. A
single unified authority handling assessment, collection,
investigation, adjudication, appeal etc. would make life easier for the
business community. The dream was to have a system where we:
i. Have a single registration for the entire country and pay the
tax against the same. (Like we pay Income Tax against a
9
Chapter 1 GST in An Evening
ii. Pay a single tax on all the bills issued, without going into the
questions as to whether the transaction is of goods or service,
or whether the process is manufacturing or not.
iii. Take credit of the tax charged in all the bills received. No
credits would be blocked or ineligible.
Mind well, this was the ideal goal. This was the desire. This is not
what has really happened. This is not the actual system that we have
now. In reality, we have achieved unification in some aspects, but the
fragmentation continues in other aspects. Most prominently, we
don‟t have a single all India registration. This is a huge step
backward. It will put immense burden of compliance and would be
cause of multitude of litigations. In every transaction we will have to
define the beneficiary state which will receive its share of tax (termed
as „place of supply‟). This has immensely added to the complexity.
Complexity will inevitably lead to errors and litigations; and will also
become cause of harassment providing a fertile ground for
corruption.
10
Chapter 1 GST in An Evening
11
Chapter 1 GST in An Evening
6As we shall see later, for certain purposes it still remains relevant as to whether the
supply is of goods or of service. But irrespective of whether it is goods or service, the
same value of the supply will now be taxed by both the governments.
12
Chapter 1 GST in An Evening
Inter-State
(Supply from one IGST
state to another)
Supply
Intra-State
(Supply within the CGST + SGST
state)
Governing Laws:
With effect from 8th July, 2017 the CGST Act as well as the IGST Act
were both made applicable to Jammu & Kashmir as well7. Initially
the CGST/ IGST Acts contained a clause saying that “It extends to the
7 Two ordinances were promulgated by the President of India, extending both the Acts
to the state of Jammu & Kashmir with effect from 8th July, 2017.
13
Chapter 1 GST in An Evening
whole of India except the State of Jammu and Kashmir”. Now, the portion
“except the State of Jammu and Kashmir” has been deleted.
Apart from the above, the Goods and Services Tax (Compensation to
States) Act, 2017 will have to be referred for the purpose of levy of
Compensation Cess on a few products. Further, there are circulars
clarifying various aspects. The circulars represent opinion of the
government 8 . Of course if the court finds that the government‟s
opinion is contrary to the law, then the law would prevail. It means
that the tax payers have right to plead before the court that the
circular does not represent correct interpretation of law. However,
the government cannot challenge its own circular. In other words,
the circulars are binding upon the department.
Tax Structure:
CGST = Central GST (also called „Central Tax‟); SGST = State GST (also called „State
Tax‟); IGST = Integrated GST (also called (Integrated Tax‟)
8We may appreciate that there is difference between Government & the Parliament.
The Central laws are enacted by the Parliament. The government and the trade can have
different opinion as to what the Parliament actually intended or meant. Thus, if a
Circular appears incorrect to the trade it can always challenge it before the court.
Obviously, the government itself cannot challenge its own circular.
9Throughout this book, the rates in all examples are for illustration purposes only.
Actual rate may vary from product to product and service to service.
14
Chapter 1 GST in An Evening
We may note that in case of import of goods, the Customs value and
the Basic Customs Duty are first added (1000 +100) and the IGST is
calculated on this total. If in any transaction there is any tax other
than GST, then that tax would form part of the value on which GST is
to be calculated.
10Education Cess @2% + Secondary & Higher Education Cess 1% is payable on the
Basic Customs Duty.
15
Chapter 1 GST in An Evening
We had seen that credit of Central Sales Tax is not available to the
buyer situated in another state, because the tax is received by the
seller‟s state government. This problem has been resolved by making
the SGST destination based. The destination is decided on the basis
of consumption. That is to say that the SGST component of the tax
would go to that state where the goods or service is consumed. In
most cases, it would be the same as the state where the buyer is
located. We have 29 states in the country and two Union Territories
(Delhi & Pondicherry) also have legislative assemblies. Obviously,
we will have 31 different SGSTs. In case of remaining 5 Union
Territories, the SGST would be substituted by Union Territory Tax.
Supply from one Union Territory to another would be inter-State
supply and IGST would be leviable. Transactions between any state
and Union Territory would also be inter-State and IGST would be
levied.
11 There are some differences in various class of tax payers. For instance there are
provisions for services provided through E-Commerce operators. Then, there is a
composition scheme for those having turnover up to Rs. 75 lakh. The scheme is
available only to manufacturers and traders. In service sector it is available only to
‘supply of food & beverages (non-alcoholic)’, but not to other service providers.
16
Chapter 1 GST in An Evening
supply is within their state and IGST if the supply is to another state.
The governing laws are also same throughout the country because
the laws framed by all the states are based upon the model law
recommended by the GST Council.
GST applies to supply of all Goods & Services except the following:
• Electricity
i. Petroleum crude,
In case of Real Estate Service Tax and VAT was payable on units sold
by builder if any part of the payment was received prior to issuance
of Completion Certificate. This has now been replaced by GST. We
may note that Stamp Duty, Registration Fees and Property Tax are
not merged into GST.
12The government can issue the notification if the GST council recommends so. In
contrast, levying GST on electricity or liquor would require constitutional amendment.
17
Chapter 1 GST in An Evening
- Manufacturer
- Service Providers
- Professionals
The amount of tax is equal to the value multiplied by the rate. The
tax is payable on the value of supply and the rate of tax would be as
notified by the government. Thus, if value of the supply is Rs. 1000
and the rate of IGST is 18%, the amount of tax would be Rs. 180.
Similarly, if the rate of CGST and SGST both were 9%, then the CGST
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Chapter 1 GST in An Evening
payable would Rs. 90 and SGST would be Rs. 90. For example, the
notification no. 1/2017-Central Tax (Rate), dated 28/06/2017
prescribes rates of the Central Tax (i.e. CGST) for various goods. The
notification contains six schedules and the rates are as under:
Section 15 of the CGST Act read with Valuation Rules governs the
method to determine value in various situations. In general value
means the transaction value i.e. the price actually paid or payable
(i.e. the price value at which the transaction actually takes place).
However, the transaction value applies only if:
In case any (one or both) of the above conditions do not meet, the
valuation rules are to be applied.
The tax is not to be calculated on MRP. Where the products are sold
on MRP, the MRP includes the tax. Hence the supplier has to work
out his value in a manner that the „value + tax‟ does not exceed MRP.
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Chapter 1 GST in An Evening
It may happen that more than one item falls under the same HSN
Code. Therefore, while reading the rate notification one should take
note of not only the code, but also the description of the product.
Registration:
Option has been given to have more than one registration in a state.
If a taxpayer so desires he can obtain separate registration for each
vertical of business in the same state. This is an option and not a
20
Chapter 1 GST in An Evening
14‘Aggregate Turnover’ is a defined term. We shall discuss the definition later in the
book.
21
Chapter 1 GST in An Evening
Turnover
Supplier to get registered &
above 20/10
Pay Tax
lakh
Turnover up Customer to
to 20/10 lakh Customer
pay GST
registered
under RCM
Not
Registered
Customer not Tax not
registered payable
Reverse Charge
Reverse charge, on the other hand, refers to the case where the
liability to pay tax to the government is placed on the shoulders of
the recipient of the supply. This method of collection of tax was
already prevalent in service tax. Now, in GST the method has been
applied to certain goods as well as services.
15 Since the taxable event in GST is ‘supply’, there would be a ‘supplier’ and the
‘recipient’ of the supply. In general, recipient means the person who is liable to pay for
the supply.
22
Chapter 1 GST in An Evening
16 Notification no. 10/2017-IT (Rate) and 13/2017-CT (Rate), both dated 28/06/2017
23
Chapter 1 GST in An Evening
• Tobacco leaves
• Supply of lottery.
24
Chapter 1 GST in An Evening
19Whenever we talk of paying GST, we are referring to the liability of ‘paying tax to the
government’. We are not talking about the amount of tax payable to our supplier. We
are saying that the GST is payable to the ‘government’ on the outward supply.
20For instance, certain petroleum products are out of coverage of GST and Central
Excise duty as well as VAT would be payable on the same. Credit of this would not be
available for payment of GST on outward supplies.
25
Chapter 1 GST in An Evening
We can think of the CT and the ST as two parallel rail tracks, which
never meet. One cannot use credit of CT to discharge tax liability of
ST and vice versa. However, IT is a common basket which can be
used to pay all the three taxes. Similarly, all the three taxes can be
used to pay IT.
Credit is available only if the inward supply is used for the business
purposes. Credit is not available if it is used for a non-business
purpose or for personal consumption. It will of course be debatable
as to what is meant by business purpose and what is not; and what is
the extent of the „business purpose‟.
There is a basic principle that if there is no tax on the output side, one
cannot get credit on the input side. Therefore, if the outward supplies
are exempted/not taxable, then there is no credit available on the
inward supplies. Zero rated supplies are an exception to this rule.
Even though no tax is payable on exports and supplies to special
economic zones full credit remains available on the inward supplies.
The rules provide mechanism to determine and payback (i.e. reverse)
the credits taken on exempted supplies.
Exemptions
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Chapter 1 GST in An Evening
Above two supplies will be called „zero rated‟ even if they are made
on payment of IGST. Further, the tax payable on such supplies would
always be IGST even if the supplier and the SEZ are within the same
state.
21One can ordinarily expect that if there exists a notification exempting a supply from
levy of CGST, there would also exist parallel notifications exempting it from SGST and
IGST.
27
Chapter 1 GST in An Evening
In order to determine this, the GST law has developed a whole new
concept of "Place of Supply". The concept is that, if the location of the
supplier and the place of supply fall within the same state, the
supply is intra-State and the CGST and SGST would be leviable on
the same. On the other hand if the location of the supplier and the
place of supply fall within different states, the supply is inter-State
and IGST would be leviable on the same. Thus the nature of supply is
to be determined from two parameters viz.
28
Chapter 1 GST in An Evening
We may note that while the first parameter is the location of the
supplier the second parameter is not the location of the recipient. It is
the place of supply and „place of supply‟ is an artificial, defined, legal
concept. Its meaning may not coincide with the common English
meaning of the term. There are separate provisions under GST law
for determining place of supply of goods and the place of supply of
services. The law considers various situations and declares – what
would be the place of supply in those situations. The two examples
given above are two such situations covered by the law. In case of
supply of goods there are five situations considered under section 10.
The complexity increases when we move from goods to services.
Sections 12 and 13 of IGST Act together consider 27 situations where
any place of supply of service has been specified by the law.
Time of Supply
29
Chapter 1 GST in An Evening
several factors and those factors too vary according the situation. The
provisions for time of supply of goods are different from that in case
of services. The provisions are different in case of normal charge and
reverse charge. Separate criterion is to be applied when the supply is
a „continuous supply‟.
Thus, for instance, the time of supply of goods is the earliest of the
following:
- the legal last date for issue invoice (the date of removal)
30
Chapter 1 GST in An Evening
amount of tax payable for the supply. The contents of Tax Invoice
have been prescribed by rules. We can design format of the invoice to
suit our convenience. But it must contain all the details prescribed by
the rule. Of course it can contain any other additional detail.
We can issue a Tax Invoice any time before removal of the goods or
before providing the service. But the invoice must be issued latest by
the time of removal of the goods. They are not permitted to first
remove the goods and then to issue the invoice later. In case of
services the Tax Invoice must be issued maximum within 30 days of
the supply.
Document Applies to
31
Chapter 1 GST in An Evening
(Exports & SEZ supplies are not exempted. They are zero
rated. )
Receipt Voucher Receipt of Advance
32
Chapter 1 GST in An Evening
b. Now you would log in to the website and you can see the
data uploaded by me. (You would actually see a statement of
all the invoices uploaded by everyone against your GSTIN).
You are required to verify and approve it. If you approve it,
the amount of tax paid by me gets posted into your „electronic
credit Ledger‟. Thus you get the ITC. In case you find that the
data uploaded by me is incorrect, you are required to make
suitable amendments online. The modified data gets posted
to your Credit Ledger. When you submit this statement of the
approved/modified data, you have filed your GSTR-2. You
are required to file it between the 11th to 15th days of every
month.
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Chapter 1 GST in An Evening
You can see that the method of availing credit is through approval of
the Tax Invoice data by the recipient. The record of credits
maintained by the tax payer would be useful only for the comparison
purpose. The actual credit would be available online. If a credit is not
on the website, we have not availed it.
Apart from this, there is an annual return to be filed after end of the
financial year. It is to be filed latest by December. In case the
turnover of the registered person exceeds Rs. 2 Cores in a financial
year, then he has to get his accounts audited and is required to file
the annual return along with a copy of the audited annual accounts
and a reconciliation statement duly certified. Essentially, the annual
return is reconciliation of the value of supplies declared in the GST
return with the audited annual financial statement.
The returns discussed above are those which are applicable to most
tax payers. But there are certain specific returns applicable only to
some tax payers. For instance there is separate return for e-commerce
operator, composition tax payer etc. Job-workers are also required to
file a quarterly statement showing the details of the goods sent to the
job-worker and those received back.
34
Chapter 1 GST in An Evening
Happy learning!
35
CHAPTER 2
This is what we are going to learn in this chapter. We will see the extent to
which GST has spread itself. We will see what is covered within its net, and
what is not?
Topics Discussed
Highlights
Compensation Cess
Meaning of Supply
Characteristics of supply
Analysis of Section 7
Meaning
Consideration
Chapter 2 Scope of the Levy
Business
2. Import of Service:
- Panchayat Functions
Legal Provisions
37
Chapter 2 Scope of the Levy
Highlights
1. There are three taxes under GST scheme that would regularly
be referred:
(iii) State Goods and Services Tax (SGST) – also called the
‗State Tax‘.1
2. Supply is the taxable event under GST. The tax has been levied
on all supplies of goods or services or both. But:
1Actually each state has separate SGST. Thus, we have Maharashtra GST, Gujarat GST,
etc. In case of Union Territories, there is Union Territory Tax (UTT) instead of SGST.
38
Chapter 2 Scope of the Levy
12. But, in case of the following supplies the tax is payable to the
government by the recipient and not by the supplier. This
system of collecting tax from the recipient (instead of supplier)
is called ‗reverse charge‘:
39
Chapter 2 Scope of the Levy
Thus, for example, manufacture is the taxable event which gives rise
to liability of Central Excise duty. Sale is the taxable event for levy of
VAT. Similarly, provision of service is the taxable event for levy of
service tax. We can say that the charge of tax is fixed upon happening
of the taxable event. So long as the taxable event does not occur, the
levy of tax does not arise. Unless manufacture takes place, there can
be no liability to pay C. Excise Duty. Unless sale of goods occurs,
there can be no liability to pay VAT. Unless an activity amounts to
‗provision of service‘ there can be no liability to pay service tax.
The provision in the law which says that tax would be levied, is
called the ―charging section‖ or the ―levy provision‖. Thus, section 3
of the C. Excise Act, 1944 is the charging section. It creates the charge
of the C. Excise Duty. It says that there shall be levied a duty of excise
on all excisable goods that are produced or manufactured in India.
Similar charging sections would be found in every tax law.
2Article 265 of the constitution says “no tax shall be levied or collected except by
authority of law”. The charging section creates the basic authority. The GST cannot be
collected by the government without authority of the various Acts dealing with GST.
40
Chapter 2 Scope of the Levy
provide a guide leading to the answers – who shall pay, how much
and how. Before we apply any other provision of the law, we should
examine the levy provision. We should first answer the question
whether there is a levy? In other words - Does the law impose tax on
this transaction? The answer is found in the charging sections. It is
highly desirable that we read and re-read the charging sections
carefully paying attention to each and every word.
Thus, in case of ‗intra-State supplies‘ in any state two taxes have been
levied
3Inter-State literally means – between two states; and intra-State means within the
same state. However, as we shall see later, these terms have special meaning in GST law.
Refer to the chapter “Place of Supply: Is the supply inter-State or intra-State”.
4 In case of intra-State supply within a Union Territory, the “Union Territory Tax” is
levied under Section 7 of the Union Territory Goods and Services Act, 2017. Although
the section 7 uses the expression “Union Territory Tax” it is common to call it UT GST.
41
Chapter 2 Scope of the Levy
(*In case of ‗intra-State‘ supply within a Union Territory, the taxes would
be CGST and UTT)
Compensation Cess:
Apart from the levy under the above Acts, there is one more levy viz.
the Compensation Cess imposed under the Goods and Services Tax
(Compensation to States) Act, 2017. This tax is limited to certain
specified supplies. The GST Council has recommended Cess at
different rates on 55 items. For example a cess of 3% has been
recommended on ―Motorcycles (engine > 350 cc)‖. Highest rate of
cess (290%) has been imposed on ―Smoking mixtures for pipes and
cigarettes‖. The cess is in addition to the CGST, SGST or IGST levied
42
Chapter 2 Scope of the Levy
I highly recommend that you read the full text of sections 9 and 7 of
the CGST Act. Text of section 9 is reproduced below in italics.
5Section 5 of the IGST Act levies tax on inter-State supplies and reads almost similar to
sec 9 of CGST/ SGST Act.
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Chapter 2 Scope of the Levy
(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.
Keeping the products out of GST makes them costly. The petroleum
refineries would not be able to avail credit of the tax paid on their
various purchases and expenses. At the same time, the user
industries (of these petroleum products) would also not get credit of
the C. Excise and VAT paid on them.
44
Chapter 2 Scope of the Levy
6For sake of convenience, we are generally referring to the notifications issued under
only one Act. However, notifications on similar lines have been issued under other acts
as well.
45
Chapter 2 Scope of the Levy
The supplies covered by the above sub-sections (3) and (4) are
discussed in detail in the chapter “The Reverse Charge Mechanism”
46
Chapter 2 Scope of the Levy
47
Chapter 2 Scope of the Levy
The section 9 (1) of the CGST Act provides the following five aspects
of the levy of CGST8, viz.
8 Section 9 (1) of the State GST Act of all the states are similarly worded. Similar is the
language of section 7 of UT GST Act, 2017.
48
Chapter 2 Scope of the Levy
rate of CGST and SGST is 14% each. For IGST the maximum rate
actually announced is 28%. Off course there is Compensation Cess
over and above this, but that applies to only a few things.
Meaning of Supply:
Supply is the keyword in GST law. Unless ‗supply‘ takes place, the
levy of GST does not arise. We may note that the word used is
‗supply‘ and not ‗sale‘. Supply is a much broader term. In general,
supply means to provide, to furnish, to make available, to deliver,
etc. We wished that the term were comprehensively defined. But the
GST law does not really define it. Section 7 says ‗supply‘ includes…..
and then it provides a list. Thus, all it does is provide a list of
transactions that are included in the meaning of ‗supply‘. But, it
doesn‘t mean that any other kind of transaction is not included.
7. (1) For the purposes of this Act, the expression "supply" includes—
(a) all forms of supply of goods or services or both such as sale, transfer,
barter, exchange, licence, rental, lease or disposal made or agreed to
be made for a consideration by a person in the course or furtherance
of business;
(b) import of services for a consideration whether or not in the course or
furtherance of business;
(c) the activities specified in Schedule I, made or agreed to be made
without a consideration; and
(d) the activities to be treated as supply of goods or supply of services as
referred to in Schedule II.
(2) Notwithstanding anything contained in sub-section (1),--
(a) activities or transactions specified in Schedule III; or
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Chapter 2 Scope of the Levy
Characteristics of supply
Since ‗supply‘ has not been defined, therefore its meaning is wide
open to the subjective understanding of people and the government
authorities. While on the one hand it would lead to uncertainty,
disputes and litigations, on the other hand it also gives the widest
possible meaning to the word ‗supply‘.
50
Chapter 2 Scope of the Levy
What if, the law says – ‗vehicle‘ includes a toy vehicle. No one would
have thought of the toy as a vehicle. The general understanding is
that a vehicle is the means of transportation. On the other hand toys
are for the purpose of amusement and play. Transportation of goods
or passengers is not the purpose of a toy. Yet, since in this example
the definition of vehicle includes toy vehicle, one has to obtain
registration of the toy as well. Thus the word ‗includes‘ has been
used to expand the meaning of ‗vehicle‘ beyond its ordinary
meaning.
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Chapter 2 Scope of the Levy
The GST law does provide for certain exceptions. Thus, for
example, association and its members have been treated as
different persons. Branch of a person in another state is also
treated as branch of a distinct person.
To repeat, GST has been levied on supply. The law does not define
the word ‗supply‘ but it provides for certain inclusions. Let us now
see what are the inclusions made in the meaning of supply.
52
Chapter 2 Scope of the Levy
7. (1) For the purposes of this Act, the expression ―supply‖ includes––
53
Chapter 2 Scope of the Levy
54
Chapter 2 Scope of the Levy
As per the clause (a) supply includes the supplies made in the course
or furtherance of business9.
‗In the course of‘ means in the process of, during, in the path of. ‗In
furtherance of‘ is for the purposes of development, betterment,
advancement, improvement, promotion.
9
‘Business’ is defined vide section 2(17) of the CGST Act.
55
Chapter 2 Scope of the Levy
2. Import of Service:
7. (1) For the purposes of this Act, the expression ―supply‖ includes––
For sake of comparison, we may also consider the entry 4 in the first
schedule of the CGST Act. The activities specified in the Schedule I
are to be treated as supply even if made without consideration. The
entry 4 reads as under:
Both of the above entries are supplies under GST. While in the
former one the ‗consideration‘ is present, in the latter one the
essential feature is that the import of service is in the course of
furtherance of business. When consideration is present then it is not
56
Chapter 2 Scope of the Levy
10 This is the definition of ‘import of service’ as per section 2 (11) of the IGST Act.
57
Chapter 2 Scope of the Levy
Here, the first two conditions are fulfilled. The supplier is located
outside India and the recipient is in India; but the ‗place of supply‘
being defined as the location of the ‗supplier of the service‘ i.e. out of
India. Hence, this is not ‗import of service‘. No GST is payable on the
commission paid to the agent located abroad.
7. (1) For the purposes of this Act, the expression ―supply‖ includes––
58
Chapter 2 Scope of the Levy
supply taxable under GST. However, if the company had not availed
ITC, then tax would not be payable on donation of such goods.
59
Chapter 2 Scope of the Levy
covered by the levy. If the gifts exceed the amount of Rs. 50,000/- the
entire supply becomes subject to levy.
- Travel benefits
- Medical Facilities
- Food
- Telephone
- Scholarship to children
- a supply or
The term gift has not been defined in the GST bills. If one adopts
common English meaning, a gift is something voluntary supplied
without any consideration. Obviously, there cannot be a contractual
obligation to give gift.
60
Chapter 2 Scope of the Levy
For instance, if the salary itself is paid in terms of goods, this will
constitute a supply of goods by the company to the employee and
GST would be payable on this.
3. Supply of goods-
61
Chapter 2 Scope of the Levy
supplies. Off course the agent would be liable to pay tax on his
commission.
To resolve these issues under service tax law, the government had
declared certain activities to be services. These are called ‗declared
services‘. On similar lines now the schedule II, declares certain
activities to be supply of goods, and certain activities to be supply of
services. The entries in schedule II are as under:
1. Transfer
62
Chapter 2 Scope of the Levy
merely handover the possession and allow the recipient to use it, it is
a service transaction.
63
Chapter 2 Scope of the Levy
person for use, for any purpose other than a purpose of the
business, whether or not for a consideration, the usage or
making available of such goods is a supply of services;
64
Chapter 2 Scope of the Levy
- Trademarks
- Patents granted by the patent authorities
- Copyright
- Design
- Other similar rights (technical know-how, trade secrets, etc.)
65
Chapter 2 Scope of the Levy
Works contract has been defined vide section 2 (119) of CGST Act as
under
66
Chapter 2 Scope of the Levy
In this backdrop we may note that under GST law the composite
‗works contract‘ (which necessarily involves transfer of property in
goods as well as rendering of service) is to be treated as supply of
service.
But, what to do for other supplies? For all other cases, the supplier is
required to determine
- What if the multiple supplies are made but the values are not
segregated?
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Chapter 2 Scope of the Levy
Section 8 of the CGST Act provides the solution. Let‘s take the
following example to understand this.
Here the tax @18% should be calculated on the entire amount of Rs.
1,05,000/-. We would say that
68
Chapter 2 Scope of the Levy
69
Chapter 2 Scope of the Levy
Here two situations are possible (a) Price of Computer and Mobile
Phones is separately indicated in the invoice, or (b) A combined
single price of both the products is mentioned. The law says that in
the first case, we shall charge tax separately for Computer and for
Mobile Phone at the rates applicable to each of them. But, in the
second case where separate prices are not provided, the tax would be
paid at the highest rate amongst the two.
When a combined single price is given for the two supplies, such
supply is called ‗mixed supply‘. Here, both the supplies are principal
supply but separate prices are not declared. The term is defined as
under14:
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Chapter 2 Scope of the Levy
The third and the last situation is that the computer and mobile
phones are supplied together but their prices are separately declared.
These are two supplies – both are principal supplies. The tax on
computer would be calculated at 18% and on the mobile phone at
12%. There is no phrase given in the law to identify such supplies.
Let‘s call them ‗multiple supplies‘.
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Chapter 2 Scope of the Levy
Now we know that GST is levied only on ‗supply‘. If the law declares
that certain activity or transaction will not be treated as supply, the
result is that there is no levy of GST on such supplies. Eight activities
have been listed in the schedule III and the notification number
11/2017-IT (Rate) has been issued under the clause (b) above. There
are six entries in the schedule III; and the notification covers
panchayat functions. Let‘s see each of them.
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Chapter 2 Scope of the Levy
73
Chapter 2 Scope of the Levy
74
Chapter 2 Scope of the Levy
75
Chapter 2 Scope of the Levy
Legal Provisions:
These sections also say that the tax would be payable at a rate
notified by the government. The rate under CGST & IGST has
to be notified by the Central Government and that under
SGST by the respective State Government.
These sections further say that the tax shall be paid by the
‗taxable person‘.
17UTT is levied under Section 7 of UT GST Act, 2017. Section 21 of the Act imports
several provisions of the CGST Act.
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Chapter 2 Scope of the Levy
77
CHAPTER 3
Topics Discussed
Introduction
- Normal Charge
- Reverse Charge
- Notified Supplies
- URP Supplies
Legal framework
Introduction
Normal Charge: Under this system the charge of the tax is on the
supplier of the goods or services or both. The supplier is liable to pay
the tax to the government. Off course he is entitled to recover the
same from his customer/ client. But in case the tax is not paid, the
government would recover it from the supplier and not from the
customer/ client. This system of collecting tax from the supplier is
called „normal charge‟ or „forward charge‟.
Reverse Charge: In case of certain supplies, the liability to pay tax has
been cast on the recipient (instead of the supplier)3. This is called
reverse charge. If the tax has not been paid for any reason, the
government would raise demand on the recipient of the supply and
not on the supplier. The charge is on the recipient and not on the
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Chapter 3 The Reverse Charge Mechanism
Normal Charge
Tax
Reverse Charge
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Chapter 3 The Reverse Charge Mechanism
Total 1,18,000
What would be the impact, if the tax were payable under normal
charge and under reverse charge? Following would explain:
Normal Charge:
In both the cases:
The client pays Rs. 1,18,000 to
the Advocate. The Client spends Rs.
1,18,000/-
Advocate pays GST of Rs.
18,000/- to the government. The Advocate gets Rs.
1,00,000/-
Reverse Charge:
The Government receives
Client pays Rs. 1,00,000/- to the Rs. 18,000/-
Advocate;
The client gets ITC Rs.
and GST of Rs. 18,000/- to the 18,000/-
government.
4As we shall see later, there is an exemption from payment of tax under RCM for the
days on which the total value of supplies received from un-registered persons does not
exceed Rs. 5000/-
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Chapter 3 The Reverse Charge Mechanism
lost his ITC. Since he is not required to pay tax, he is not entitled to
avail ITC. Thus, the tax paid on his inward supplies becomes a cost
to the Advocate.
There are two kinds of supplies under reverse charge. These are:
Registered
Person
Notified
Supplies
Un-Registered
Reverse Person (URP)
Charge
Non-notified Un-Registered
URP Supplies Person (URP)
We may note that the reverse charge has been brought in, not only
for services but also for goods. While the list of notified goods is very
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Chapter 3 The Reverse Charge Mechanism
Legal framework:
We may recall that CGST has been levied vide section 5 of the CGST
Act. The sub-section (3) empowers the government to notify supplies
under reverse charge; sub-section (4) says that the tax on supplies
received from un-registered persons shall be paid by the registered
recipient. There are parallel provisions under the CGST Act and the
CGST Act of various states. The provisions can be summarised as
under:
Sec 5 (4) Sec 9 (4) Says that tax on all supplies received by a
registered person from an un-registered
person (URP) shall be paid by the
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Chapter 3 The Reverse Charge Mechanism
v. Supply of lottery
A table specifying the HSN code, the supplier of the goods and the
recipient of the goods as mentioned in the notification is given in the
appendix.
Tax liability: The tax is payable under reverse charge only if the
supplier and the recipient are as mentioned in the notification. In the
first four cases the recipient is mentioned as “any registered person”.
Therefore, the tax under reverse charge is payable only if the
recipient is a registered person. If the recipient is not registered, there
is no tax liability on him. There is no liability on the recipient to get
registered merely for paying tax on these goods.
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Chapter 3 The Reverse Charge Mechanism
85
Chapter 3 The Reverse Charge Mechanism
86
Chapter 3 The Reverse Charge Mechanism
87
Chapter 3 The Reverse Charge Mechanism
It does not apply to notified supplies: We have seen that there are two
kinds of RCM – the notified supplies and the URP supplies which are
not notified. The notified supplies are covered by section 9 (3) and
the non-notified URP supplies by section 9 (4) of the CGST Act. The
exemption of 5000/- per day is available only to the second category
i.e. the non-notified supplies received by a registered person from an
unregistered person.
Thus, the days on which it exceeds Rs. 5000/-, the tax becomes
payable on the whole amount (and not merely on the excess
amount). In other words certain days are exempted and certain days
are taxable. All the transactions on exempted days are exempted. All
the transactions on taxable days are taxable. We cannot deduct Rs.
5000/- from the value of supplies on the taxable days. If the value on
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Chapter 3 The Reverse Charge Mechanism
taxable days is Rs. 6000/-, the tax is payable on entire 6000/- and not
on mere Rs. 1000/-.
You might have noted that the above notification exempts only intra-
State supplies. So what about inter-State supplies? Well, legally an
un-registered person cannot make inter-State supply. Section 24
makes it mandatory for him to get registered. This provision is
creating lots of trouble because inter-State supply could happen even
by a small shop-keeper. Suppose for instance a person ordinarily
residing in Chhattisgarh visits Kolkata and while coming back buys
some sweets. Suppose he asks for a bill bearing his address of
Chhattisgarh. Has the shopkeeper just made an inter-State supply? Is
he now required to be compulsorily registered? Imagine the level of
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Chapter 3 The Reverse Charge Mechanism
90
Chapter 3 The Reverse Charge Mechanism
This is easier said than done. One has to go into too much minute
detail. For example, if an employee submits expense statement for his
tour the accounts section has to break down his expenses into each
item of goods and service, determine its HSN/ SAC, rate of tax, see
whether there is any exemption. Did he eat in AC restaurant or non-
AC? Or he simply purchased soft drinks from a general store? Each
of these would be subject to scrutiny and challenge. It would be
better if the government imposes tax on entire reverse charge at a
single rate without any requirement to determine HSN/ SAC.
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Chapter 3 The Reverse Charge Mechanism
Total 3,65,800
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Chapter 3 The Reverse Charge Mechanism
Note that the manufacturer will have to pay tax on the transport
charges twice. First he pays it as his inward supply. Tax so paid
would become available to him as credit.
Will it really make any difference if the GTA were not in reverse
charge? The effect would have been the same. The tax of Rs. 500/-
would then have been paid by the GTA and charged to the
manufacturer. The manufacture would have taken ITC. The tax on
outward supply would still remain the same.
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CHAPTER 4
Computation of Tax
Value, Classification, Rate of Tax, and Exemption
How much tax is actually payable? This chapter discusses the method to
answer this question. The method would remain same irrespective of
whether the tax is to be paid under normal charge or under reverse charge.
Topics Discussed
Introduction
HSN Code
Rate of Tax
Exemption
Value of Supply
Chapter 4 Computation of Tax
Introduction
Thus, the amount of tax depends upon the value of supply and the
rate of tax. Both will always be under scrutiny of the GST authorities.
Any error in application of correct rate or correct value would lead to
demand of tax. The rate of tax itself is dependent upon HSN Code/
SAC and description of the goods or the service supplied. Moreover
there could be an exemption granted to the supply. In such cases, the
effective rate of tax would be arrived after giving effect to the
exemption.
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Chapter 4 Computation of Tax
1Actually it is the first schedule to the Customs Tariff Act, 1975. For convenience sake
we refer to it simply as ‘Customs Tariff’.
2http://www.wcoomd.org/en/topics/nomenclature/overview/what-is-the-
harmonized-system.aspx
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Chapter 4 Computation of Tax
3 http://www.cbec.gov.in/resources//htdocs-cbec/customs/cst1617-
300616/cst-act16-17.pdf (see page 27)
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Chapter 4 Computation of Tax
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Chapter 4 Computation of Tax
Meaning of the dashes: The dashes used before the terms of the
heading, sub-heading etc. have meaning. A double dash „- -„ is a sub-
group of a single dash „-„. A triple dash „- - -„ is a sub-group of a
double dash „- -„ etc.
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Chapter 4 Computation of Tax
Construction Services
Distributive Trade Services; Accommodation, Food &
Beverage Service; Transport Services; Gas & Electricity
Distribution Services
Financial and related services; real estate services; and
rental and leasing services
Business and Production Services
Community, Social & Personal Services and other
miscellaneous services
The classification of services is at six digit level. Meaning of the digits
is as under:
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Chapter 4 Computation of Tax
- Chapter 99
- Section 8
- Heading 9988
- Group 99884
- Service code 998843
The notifications prescribing rate of Tax for services refer to SAC
only up to 4 digits i.e. till the headings. Therefore, for all practical
purposes determining the SAC up to 4 digits is sufficient.
There are totally 568 entries grouped into the above 5 sections. The
highest number of entries (241) fall under the section 8 which is
“Business and Production Services”. This section is divided into
following 9 headings which are further divided into 48 groups.
Within each heading there are multiple groups and within each of
the groups that are multiple service codes.
Heading Description
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Chapter 4 Computation of Tax
Rate of Tax
If the value of supply and the rate of tax are known, the amount of
tax will simply be equal to the value multiplied by the rate. The rates
of tax have been prescribed vide various notifications. Separate
notifications have been issued to prescribe the rates under IGST Act,
CGST Act, the GST Act of various states and the Compensation Cess
Act. Following are some of the notifications issued by the Central
government prescribed rate of tax:
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Chapter 4 Computation of Tax
The said notification contains six schedules (six tables). The rate of
tax is divided table-wise. Thus, the rate of tax on all the items listed
in the schedule I, is 5%. Similarly, the rate for items listed in schedule
II is 12%, schedule III is 18% and so on. The numbers mentioned in
column 2, are HSN code. As discussed earlier, the HSN code is to be
determined from the Customs Tariff.
The rate is dependent upon the HSN Code as well as the description:
Rate of tax for the product cannot be determined solely on the basis
of HSN code or solely from its description. Both have to be taken into
account. It is possible that the same heading appears in more than
one schedule with different description.
For example, heading 8504 appears at sr. 375 of the schedule III
where the rate of tax is 18%. At the same time the heading also
appears at sr. 137 of schedule IV where the rate of tax is 28%.
4IT refers to Integrated Tax i.e. IGST and ‘R’ refers to Rate. The notifications regarding
rate of tax have been given a separate series and the word “(Rate)” is used after their
number.
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Chapter 4 Computation of Tax
Sub-heading /
Tariff item
Schedule I – 5%
173 30 Insulin
104
Chapter 4 Computation of Tax
Schedule IV – 28%
Please refer the entry 173 in schedule I. the HSN code is 30 which
refers to chapter 30, but the description is merely „Insulin‟. Since it is
in schedule I, the applicable rate is 5%. The entry does not cover the
whole chapter 30. It covers only „Insulin‟. “Nicotine polacrilex gum”
also falls under chapter 30 but that is covered by schedule III and
hence chargeable to tax @18%.
Heading 4011 falls under three schedules viz. the schedules I, III and
IV. All covers „tyre‟ but there is difference in the description and the
rates would apply accordingly. If someone just reads the entry 190 in
schedule I and concludes that the rate of tax for entire heading 4011
is 5%, he would be wrong.
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Chapter 4 Computation of Tax
Items not mentioned anywhere, are covered by schedule III: We may also
note the entry 453 of schedule III which reads “Goods which are not
specified in Schedule I, II, IV, V or VI”. The item could be falling
under any chapter. Thus, if an item is not covered by any other
schedule and is not specifically mentioned in any other entry of
schedule III as well then it is covered by the entry 453 and the
applicable rate would be 18%.
Items covered by more than one entry: If the same item falls under two
or more entries, then the choice lies with the taxpayer. The
Department cannot force him to pay tax at the highest rate. But
before taking such a stand, be sure that the product really falls into
the heading of your choice. In general, this will not happen.
The customs tariff defines HSN code at eight digit level. However, so
far as the Tax Invoice is concerned, the government has announced
some relaxation. In the Tax Invoice, the necessity of mentioning the
HSN code is to the following extent we are required:
Above 5 Crores 4
This relaxation does not mean much to the trade. In most cases they
will need to determine the classification for the purpose of
determining the rate of tax. For the purpose of filing shipping bills or
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Chapter 4 Computation of Tax
107
Chapter 4 Computation of Tax
Exemption:
While section 9 of CGST Act says that GST would be payable at the
rates notified by the government, the section 11 empowers
government to grant exemption 5 . A few notifications have been
issued under section 11 granting exemption. Exemption is always a
stage subsequent to the levy. It may be that a notification under
section 9 declares a particular rate (i.e. it levies tax) but another
notification under section 11 may exempt the supply. In such a
situation, the exemption would be available.
For example, recall that entry 453 in schedule III (notification 1/2017-
ITR) covers every item that is not specified elsewhere and the rate of
tax against this entry is 18%. Thus, there is no supply of goods which
is not covered by the notification. But after having read this
notification, we are still entitled to apply an exemption notification.
Following are some of the exemption notifications.
Notification Contents
Scheme of the law: The Section 15 contains the scheme for valuation. It has
five sub-sections.
5
Parallel
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Chapter 4 Computation of Tax
Section 15 (3) says the value shall not include discount. But
it prescribes some conditions. If the conditions are not
fulfilled, the discount amount cannot be deducted (for the
purpose of computing GST).
Transaction value:
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Chapter 4 Computation of Tax
recipient of the supply are not related and the price is the sole
consideration for the supply.
Where any of these conditions is not satisfied, one has to refer to the
rules.
Value of Transaction
Supply Value
5 Inclusions
Discount
s
110
Chapter 4 Computation of Tax
Value does not include GST i.e. CGST, SGST, Transaction value
UTGST and the GST Compensation Cess. means the price
However all other taxes, duties, cesses, fees actually paid or
and charges levied under any law would be payable for the
part of the value if they are charged supply.
separately by the supplier. For example,
Central Excise duty as well as GST is payable on tobacco and tobacco
products. On such products the excise duty will first added to the
basic value and then only the GST will be calculated. If any other tax
were payable, that would also be included in the value for
calculating GST.
The second inclusion in the value has been mentioned in the section
15 (2) (b) in the following words
(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;
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Chapter 4 Computation of Tax
Of course this would apply only if the supplier was in the first
instance liable to pay to the laboratory. Whether the latter was
indeed liable to make the payments or not is a question of fact. We
may ask a simple question to ourselves – against whom can the
laboratory make a legal claim for payment? What if the supplier fails
to pay to the laboratory? Can it file a legal claim against the supplier
or against the recipient? If the legal claim lies against supplier, it is
obvious that the liability to pay was of the supplier.
3. Incidental expenses
The transport charges, and insurance for the supply is also includible
in the value. Thus, for instance if certain goods are supplied for Rs. 1
lakh and certain other charges are also levied, then the tax would be
payable on the entire amount. Following would illustrate this:
Price 1,00,000
Transportation 1000
Insurance 100
Total 1,01,600
112
Chapter 4 Computation of Tax
Here we may note that the rate of tax would not be separate for the
goods and for transportation, or insurance etc. These charges form
part of the „value of supply of the goods‟. These are not separate
supplies. The entire supply is a composite supply and the rate
applicable to the main supply would be charged. Thus, it is
immaterial that the rate of GST on services of GTA is only 5% and the
rate on the goods supplied above is 18%. The tax would be payable at
18% on the total value.
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Chapter 4 Computation of Tax
added to the value of only that supplier who actually receives it.
Subsidy received by one supplier cannot be added to the value of
another supplier.
Treatment of Discount
(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
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Chapter 4 Computation of Tax
(iii) the recipient reverses the ITC availed by its (being the
GST amount on the discount)
6
It is not essential to circulate a policy in every case. The discount can be simply
mentioned in the purchase order. What is important here is that there has to be an
agreement before the supply is made; and that agreement is referred in the
invoice.
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Chapter 4 Computation of Tax
(a) Firstly, the value would be the „open market value‟ of such
supply;
(b) If the open market value is not available, then it would be the
value of supply of goods or services of like kind and quality;
(c) if the value is not determinable under clause (a) or (b), then
we should apply rule 30. If value cannot be determined even
7Tax is payable when we make a supply to our own branch (registered or an un-
registered fixed establishment) in another state. It would also be payable if we are
making supply to a separately registered vertical within the same state.
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Chapter 4 Computation of Tax
At this stage, we should also take note of the following two proviso:
Provided that where the goods are intended for further supply as
such by the recipient, the value shall, at the option of the supplier, be
an amount equivalent to ninety per cent of the price charged for the
supply of goods of like kind and quality by the recipient to his
customer not being a related person:
Provided further that where the recipient is eligible for full input tax
credit, the value declared in the invoice shall be deemed to be the
open market value of the goods or services.
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Chapter 4 Computation of Tax
(c) 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.
a. Firstly, it shall be
(a) be the open market value of the goods being supplied, or at the
option of the supplier, be ninety per cent. of the price charged for
the supply of goods of like kind and quality by the recipient to
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Chapter 4 Computation of Tax
his customer not being a related person, where the goods are
intended for further supply by the said recipient.
(b) where the value of a supply is not determinable under clause (a),
the same shall be determined by the application of rule 30 or
rule 31 in that order.
Method of Rule 30 : Under rule 30, the value shall be equal to 110% of
the
119
Chapter 4 Computation of Tax
Value of supply =
8 See sec 2 (52) and sec 2 (102) respectively for the definition of goods and service.
120
Chapter 4 Computation of Tax
Option 2: One can chose to adopt this method. But once the option is
exercised, it cannot be withdrawn during the remaining part of that
financial year. Under this option, the value shall be as under:
121
Chapter 4 Computation of Tax
international bookings
122
Chapter 4 Computation of Tax
123
Chapter 4 Computation of Tax
coupon, or a stamp
Pure Agent:
(iii) the supplies procured by the pure agent from the third party
as a pure agent of the recipient of supply are in addition to
the services he supplies on his own account.
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Chapter 4 Computation of Tax
(b) neither intends to hold nor holds any title to the goods or
services or both so procured or supplied as pure agent of the
recipient of supply;
(c) does not use for his own interest such goods or services so
procured; and
The rule also provides the following illustration which will help us to
understand the concept:
125
Chapter 4 Computation of Tax
126
CHAPTER 5
Time of Supply:
Topics Discussed:
Introduction
- Normal Charge
- Reverse Charge
- Supply of Vouchers
- Other cases
- Normal Charge
- Reverse Charge
- Supply of Vouchers
- Addition to value
- Other cases
Chapter 5 Time of Supply
Introduction
OK, but which month? The month in which invoice is issued or the
month in which the goods or service is actually supplied or the
month in which the payment is received? The law has created an
amalgam of all three and that amalgam is called ‘time of supply’. It’s
an artificial, defined concept.
The liability to pay tax shall arise at the ‘time of supply’. If the time of
supply occurs in July, the tax is payable in August. If the time of
supply occurs in December, the tax is payable in January. If the time
of supply occurs in March, the tax is payable in April. If the tax is
payable on quarterly basis then the tax for entire quarter would be
payable after end of the quarter. Thus, the tax for July to September
would be payable in October.
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Chapter 5 Time of Supply
delivery of goods or
129
Chapter 5 Time of Supply
Telecom Operators
Other suppliers
notified by the
government
130
Chapter 5 Time of Supply
131
Chapter 5 Time of Supply
In the above background let’s see how time of supply has been fixed
in various situations.
132
Chapter 5 Time of Supply
Now, we have already noted that the invoice can be issued before or
at the time of removal of the goods. Therefore, the above criteria get
split into the following three criteria:
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Chapter 5 Time of Supply
then tax would be payable only on Rs. 2 lakh and not on the entire
value of Rs. 10 lakh. In other words the tax payable in August would
be Rs. 36,000/- and the balance tax of Rs. 1.44 lakh would be payable
in October (as the goods were removed in September).
Suppose certain goods were supplied for Rs. 10,180/- (value Rs.
10,000/- + Tax Rs. 180/-), and the recipient makes a payment of Rs.
11,000/-, a question would come up as to how to deal with the excess
amount of Rs. 820/-. The law says that the supplier has an option:
He can either treat this as Advance and pay tax or he can pay the tax
when the next invoice is issued to the recipient for a subsequent
supply. This facility is available only if the excess amount does not
exceed Rs. 1,000/-. In case the excess amount is more than Rs. 1000/-,
he will have to treat it as advance (or may be deposit – depending
upon its actual nature).
The tax would be payable on reverse charge if the goods are notified
(whether the supplier is registered or not) or if the same are supplied
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Chapter 5 Time of Supply
30 days from the date of the invoice (or any other document
in lieu of invoice) issued by the supplier.
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Chapter 5 Time of Supply
136
Chapter 5 Time of Supply
what would be the ‘time of supply’ in case such interest/ late fee/
penalty are charged. The provision says that it would be the ‘date on
which the supplier receives such addition in value’. Fortunately, the
law does not say that the time of supply would be on merely raising
a demand for interest or that it has to coincide with the time when
the goods were removed etc.
In case of services, the time of supply has been linked to the fact as to
whether the invoice has been issued within the prescribed period or
not. We may recall that generally the invoice is required to be issued
within 30 days of supply of the service. But in case of insurers, banks
etc. it is to be issued within 45 days. The time of supply would be
determined as under:
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Chapter 5 Time of Supply
Invoice within
Invoice delayed
time
Date of
Date of Invoice Provision of
Service
Receipt of Receipt of
payment Payment
We may note that delaying the issuance of invoice even by one day
would shift the time of supply back at least by 30 days. This would
result in payment of tax on GST.
If there is any case where the above two situations do not apply then
the time of supply would be the date on which the recipient shows
the receipt of services in his books of account,
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Chapter 5 Time of Supply
60 days from the date of the invoice (or any other document
in lieu of invoice) issued by the supplier.
It has been provided that if above method fails for any reason, then
the ‘time of supply’ would be the date of entry in the books of
account of the recipient of supply.
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Chapter 5 Time of Supply
the supply (i.e. removing the goods or providing the service), and the
date of receipt of payment. The rate of tax may vary during these
three events. It may be possible that the rate of tax was 12% when the
advance was received, but it became 18% when the goods were
removed. How would the tax liability determined in such cases.
Section 14 of the CGST Act deals with such situation. It deals with
the subject in two parts. Therefore, before going to the actual rule,
please see the following thumb-rule. This is an idea to easily
understand and remember the provision. But actual words used in
the law must be seen.
Thumb rule for determining rate tax, when the rate changes
Three events are considered Determine whether the events
are happening after the cut-off
Date of making the supply
line or before it.
The date of issue of invoice
On whichever side of the cut-
off line, two events are
The date of receipt of
happening – that would be the
payment
applicable rate.
1. Where the supply was made before the change in rate of tax:
(i) The invoice for the same has The date of receipt of
been issued and the payment payment or
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Chapter 5 Time of Supply
(ii) Where the invoice has been The date of issue of invoice;
issued prior to the change in
rate of tax; but:
(iii) Where the payment has been The date of receipt of payment
received before the change in
rate of tax, but the invoice for
the same is issued after the
change in rate of tax,
2. Where the supply was made after the change in rate of tax:
(ii) Where the invoice has been issued The date of receipt of
and payment is received before the payment or
change in rate of tax
The date of issue of
invoice,
whichever is earlier
(iii) Where the invoice has been issued The date of issue of
after the change in rate of tax but invoice
the payment is received before the
change in rate of tax
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Chapter 5 Time of Supply
142
Chapter 5 Time of Supply
Time of supply of If the invoice was issued within the legal time
services – normal limit (i.e. within 30 days of provision of
charge service), then earlier of the following:
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Chapter 5 Time of Supply
recipient of supply:
144
CHAPTER 6
Topics Discussed:
Highlights
Introduction
Eligibility to credit
Legal Provisions
146
Chapter 6 Input Tax Credit
Highlights
8. Credit of IGST can be used to pay all the GSTs and credit of all
GSTs can be used to pay IGST.
10. Credit is available only if the inward supply is used for our
business. It is not available to the extent the supply is used for
non-business activities.
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Chapter 6 Input Tax Credit
12. However full credit remains available against exports and the
supplies made to SEZ. If we are not in position to utilise this
credit, refund of the same is available.
Introduction:
I hope, you are aware of the credit system used for collection of taxes.
This system was prevalent in VAT as well as in Central Excise and
Service Tax.
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Chapter 6 Input Tax Credit
Eligibility to credit
Those familiar with CENVAT credit rules would recall that credit
was available only on input, input service and capital goods. All the
three were defined phrases and credit was not available if the goods
or the service did not fall within the definitions. Thus if a question
arose as to whether a company is entitled to credit on services of pest
control received in his office, one had to look at the definition of
input service and decide whether pest control was an input service.
the course or
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Chapter 6 Input Tax Credit
Input tax: The term refers to IGST, CGST, SGST or UTT charged on
our inward supplies1. It includes the following:
But Input Tax does not include the tax paid by a person under
Composition Scheme.
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Chapter 6 Input Tax Credit
„In the course of‟ means in the process of, during, in the path of. „In
furtherance of‟ is for the purposes of development, betterment,
advancement, improvement, promotion.
2In terms of the explanation to Section 16 (2) (b) of the CGST Act and the Section 10 (1)
(b) of the IGST act it shall be deemed that I have received the goods.
3 Ref. section 19 (2) of the CGST Act.
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Chapter 6 Input Tax Credit
(A) There are four basic conditions to be fulfilled before the eligible
credit could be availed. A person would is not entitled to the credit
unless:
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Chapter 6 Input Tax Credit
and if the supplier fails to pay the tax, the credit is added to
the recipient‟s liability in the subsequent period.
Bill of entry
154
Chapter 6 Input Tax Credit
(a) motor vehicles and other conveyances except when they are
used—
155
Chapter 6 Input Tax Credit
(e) goods or services or both on which tax has been paid under
section 10;
(i) any tax paid in accordance with the provisions of sections 74,
129 and 130.
156
Chapter 6 Input Tax Credit
157
Chapter 6 Input Tax Credit
Transportation of goods.
Outdoor catering,
Beauty treatment,
Health services,
a. Where the inward supply and the outward supply fall under
the same category. Thus for example if somebody purchases
food or beverages (for example Idlee, Roti, bread, soft drinks
etc.) and sells them, then he would be eligible to avail credit
on the inward supply.
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Chapter 6 Input Tax Credit
In case of the following three services, the credit is not allowed under
any circumstance.
Membership of a club,
We may note that the first item is about a „club‟. This has to be
distinguished from an „association‟ - at least from a Trade or Industry
Association. Thus the GST paid on membership fees of a Trade or
Industry Association would be available.
Rent-a-cab,
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Chapter 6 Input Tax Credit
Life insurance,
Health insurance
As we have seen earlier, works contract under GST refers only to the
contracts relating to immovable property. Credit of GST paid on
works contract is not available to the recipient if the works contract
was supplied for construction of an immovable property. However
credit would be available if the immovable property in question is
„plant and machinery‟. The credit is also available in the case where it
is an input service for further supply of works contract. The
explanation below section 17 defines „plant and machinery‟ as under:
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Chapter 6 Input Tax Credit
161
Chapter 6 Input Tax Credit
162
Chapter 6 Input Tax Credit
In this backdrop we may also note that under GST law the
composite „works contract‟ (which necessarily involves transfer
of property in goods as well as rendering of service) is to be
treated as supply of service. [Refer the entry 6 (a) in schedule II of
the CGST Act, 2017].
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Chapter 6 Input Tax Credit
6
Refer section 10 of CGST Act
164
Chapter 6 Input Tax Credit
Any tax paid in accordance with the provisions of sections 74, 129
and 130: These are the cases where tax is paid after detention,
seizure, confiscation etc. detection of fraud etc.
Legal Provisions:
Section 2 (46) of CGST Act says that „electronic credit ledger‟ means
the ledger referred in sec 49 (2)
"Input tax credit" means the credit of input tax [Sec 2 (63)];
Section 49 (2) says that the self-assessed ITC would be credited to the
e-Credit Ledger.
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Chapter 6 Input Tax Credit
Section 19 provides for ITC where the inputs or capital goods are
sent for job-work.
166
CHAPTER 7
Nature of Supply
Is the Supply Inter-State or Intra-State?
We will not be able to issue an invoice, unless we first determine the ‘nature
of the supply’ (i.e. whether the supply is inter-State or Intra-State). In turn,
the nature will depend upon the concept of ‘place of supply’. This is at the
heart of the design of taxation system under GST and this can prove to be
the nightmare for the business community. The state-wise fragmentation of
GST is the biggest spoiler of the most significant tax reform.
Topics Discussed
• Introduction
• Nature of Supply
- Inter-State supply
- Intra-State supply
Introduction:
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Chapter 7 Nature of Supply
Inter-State IGST
Nature of Supply
Intra-State CGST + SGST
SGST 9% 90
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Chapter 7 Nature of Supply
• Each state has its own SGST. A recipient located in one state
cannot avail credit of the SGST paid in another state. Thus, for
instance, a person registered in Maharashtra cannot avail
Credit of the Gujarat State GST. He can avail credit only of the
Maharashtra State GST. Therefore a wrong determination of
the nature of supply may lead to loss of credit and dispute
with the government authorities.
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Chapter 7 Nature of Supply
However, the resolution of this issue has not been left to our common
sense. Instead the legislature has created a scheme for the purpose of
determining whether the transaction is inter-State or intra-State.
Briefly stated, the scheme is as under:
Sections 7, 8 & 9 of IGST Act determine the nature of the supply, that
is to say, they provide the legal basis on which a supply will be
treated as inter-State or intra-State. This is done with reference to two
parameters:
2Section 2 (86) of CGST Act defines “place of supply” as referred to in Chapter V of the
IGST Act. In turn, sections 10, 11, 12 and 13 of the IGST Act decided as to what would be
the place of supply in various situations.
3 Location of the supplier of service has been defined vide section 2 (71) of CGST Act
4 Sections 7, 8, 9 of the IGST Act.
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Chapter 7 Nature of Supply
The general rule is that where the location of the supplier and the
place of supply are in the same state, the supply is intra-State; and if
these are in different states the supply would be inter-State. So while
preparing an invoice, you should always ask the question – where is
the ‘place of supply’ and don’t answer it from your general
understanding. If the goods are being dispatched to a place in
Rajasthan, the place of supply may or may not be Rajasthan. Services
would prove more difficult to deal with.
Location
of the Place of CT + ST
supplier Supply
Place of IT
Supply
Note that while “location of the supplier” is the first part of the
criteria, the second part is not the “location of the receiver”. Instead it
is the “place of supply”. So a supplier can say that, “I'm required to
pay IGST if the place of supply is in another state.” It doesn't matter
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Chapter 7 Nature of Supply
where the goods are physically delivered. What matters is the ‘place
of supply’ as defined in the above four sections of IGST Act, and not
the location of the receiver. It may happen that the supplier as well as
the receiver, both are located in the same state and still the place of
supply is in another state. The reverse is also possible. However, in
most cases the location of the recipient has been defined to be the
place of supply. Let’s now look at the provisions in detail.
Goods
Place of Supply
Sec 12 - Location of
Supplier & Receiver both
in India
Services
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Chapter 7 Nature of Supply
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Chapter 7 Nature of Supply
iii. When the supplier of service is located in India and the place of
supply is outside India: As we shall see later, while in case of
goods, the place of supply would be out of India if it is an
export, but in case of services the situation is different. It is
possible that a service
transaction is not treated
Supplies treated as inter-State
as export of service even
if the ‘place of supply’ is ▪ When the location of
outside India. A service supplier & the ‘place of
transaction would be supply’ is in different
treated as export only if State/ UT
it satisfies all the ▪ Import of Goods/ Services
conditions set under
section 2 (6) of the IGST ▪ When supplier of service is
Act. Further, even in case located in India and ‘place
of goods, if the buyer is of supply’ is outside India
located outside India and ▪ Supply to SEZ; supply by
on his instructions the SEZ
goods are delivered
within India, then the ▪ Any other supply within
‘place of supply’ will be India if it is not treated as
outside India (i.e. the ‘intra-State’
buyer’s location) 5 . For
example, say a company in UK places order on a company
in Maharashtra to deliver goods to another person in
Maharashtra. Here, even when the goods are delivered in
the same state, the place of supply is UK (buyer’s location).
The supply will be treated as ‘inter-state’.
5 Please refer the discussion on section 10 (1) (b) in the next chapter.
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Chapter 7 Nature of Supply
We may note that the first two cases are already covered by section 7
and are to be treated as inter-State supply.
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Chapter 7 Nature of Supply
177
Chapter 7 Nature of Supply
The above explanations would apply to the whole IGST Act and not
only to the section 8. The first explanation says that two
establishments of the same person would be treated as
establishments of distinct persons in certain situations. The situations
are as under:
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Chapter 7 Nature of Supply
It may happen that the company does not make any supply from
Gujarat but has an office and manpower stationed in Gujarat. The
company may need such an office for marketing operations, for
research or for any other purpose. Since, it does not make any supply
from Gujarat, it has not obtained GST registration there. But, the
establishments in two states would still be considered as
establishments of distinct persons. If the company transfers some
stock from Kerala to its Gujarat office, it will be a ‘supply’ under GST
law. Thus so far as this concept of ‘distinct person’ is concerned, it is
not necessary that the establishments in two states must be registered
under GST. Even the unregistered establishments would be treated
as that of distinct persons.
Registered Registered
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Chapter 7 Nature of Supply
Registered Not
Registered
Registered Registered
India has a lengthy coastal line. It is possible that either the supplier
or the place of supply (or both) are located in the Territorial Water.
There was a discussion as to whether the taxing jurisdiction for such
locations would lie with Central government or with the State
government. File was decided that the taxing jurisdiction would be
with the nearest coastal state or the union territory. Thus for example
say the place of supply happens to be in the oilfields of ONGC in
Bombay High. These oilfields are located around and 75 km off the
coast of Mumbai. The nearest state would be Maharashtra; and
therefore the place of supply would be Maharashtra. The legal basis
has been provided by the section 9 which reads as under:
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Chapter 7 Nature of Supply
181
Chapter 7 Nature of Supply
Recipient
Consideration
Not Payable
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Chapter 7 Nature of Supply
not recipient of the goods. In GST law whenever we are talking about
‘recipient’, in general we are referring to ‘recipient of the supply’.
On the other hand, the supply is free then ‘C’ would be the recipient
because the goods have been delivered to him.
6 Location of the recipient of service is defined exactly in the same language in which the
location of supplier of service is defined. Hence as separate discussion on the same has
been omitted.
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Chapter 7 Nature of Supply
The location of supplier of service has been defined under the CGST
as well as the IGST Act8,. The definition is as under:
(b) where a supply is made from a place other than the place of
business for which registration has been obtained (a fixed
7Fixed Establishment is defined defined vide sec 2 (50) of CGST Act and 2 (7) of IGST
Act. Definitions in both the Acts are worded exactly the same.
8 Section 2 (71) of CGST Act and 2 (15) of the IGST Act.
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Chapter 7 Nature of Supply
9 Please refer para 5.2.7 and 5.3.4 of the education guide issued by CBEC in June 2012.
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Chapter 7 Nature of Supply
186
CHAPTER 8
Place of Supply
Topics Discussed
• Introduction
Introduction
In the previous chapter, we saw that that the nature of supply (i.e.
whether it is interstate or intrastate) depends upon to factors viz. the
location of supplier and the place of supply. Having dealt with the
first one – location of supplier, let’s move to the second factor.
The provisions are separate for goods and services. In all there are
four sections dealing with the topic:
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Chapter 8 Place of Supply
189
Chapter 8 Place of Supply
190
Chapter 8 Place of Supply
This section deals with five situations and then says that if a case is
not covered by any of these five, then the government will frame
rules to determine the place of supply. As of now, no rules have been
framed. Let’s consider each of these five situations and understand
what would be the ‘place of supply’ in each case.
Let’s read the clause (a), dealing with this situation. It says:
Place of Supply
Location of the
• the supplier or goods at the time
Movement by • the recipient or at which
• any other
person • the movement
of goods
terminates
• for delivery to
the recipient
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Chapter 8 Place of Supply
The essential things here are – the movement of the goods and the
termination of the movement. The termination is with the reference
to ‘delivery to the recipient’. But, the movement could be even by the
recipient. The provision gets ambiguous here. How would the POS
be determined in case of ex-works delivery to the recipient? Once the
goods are handed over to the recipient, the supplier loses control
over further movement. Let us understand this by the following
example.
ii. Now suppose, in the above example, the trader ‘B’ sells the
very same goods to another person ‘C’ located in Rajasthan
requiring further movement. However so far as the
transaction between ‘A’ and ‘B’ is concerned, the movement
terminated at Ahmedabad. Once the delivery to ‘B’ is
complete, any further movement of the goods is not relevant
for determining the ‘place of supply’ of the supply made by
the Mumbai manufacturer ‘B’.
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Chapter 8 Place of Supply
To,
M/s. _______ (supplier)
For __________
______________
(Signature of the recipient)
193
Chapter 8 Place of Supply
194
Chapter 8 Place of Supply
Example 1 Example 2
Supplier Delivery to
Supplier 'A' Delivery to 'A' 'C'
(Mumbai) 'C' (Pune) (Mumbai) Bangaluru
Similarly in the example 2, even when the goods are moving out of
the state, the supply remains an ‘Intra-State’ supply if the customer
happens to be within the same state.
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Chapter 8 Place of Supply
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Chapter 8 Place of Supply
iv. It shall be deemed that the third person has received the
goods. This will enable him to avail ITC without
physically receiving the goods at his locations.
(c) where the supply does not involve movement of goods, whether
by the supplier or the recipient, the place of supply shall be the
location of such goods at the time of the delivery to the
recipient;
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Chapter 8 Place of Supply
In all the above cases the place of supply shall be the location of such
goods at the time of the delivery to the recipient. Since there is no
movement of the goods involved, the delivery to the recipient would
be given at the place where the goods are located.
(d) where the goods are assembled or installed at site, the place of
supply shall be the place of such installation or assembly;
In the first case above, the location of the supplier as well as the place
of installation of the goods are both in Maharashtra. Hence the
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Chapter 8 Place of Supply
Supplier Installation
Inter-State (IT)
Mumbai Bangalore
It may happen that the installation is in a state other than the state of
the buyer. Even in such cases the place of supply would be the place
where the goods are installed. We may note that this is contradictory
to the situation 2 discussed above. In situation 2, the ‘place of supply’
was the location of the Example 3
person on whose
instructions the goods were
delivered. In general, such
person would be the buyer.
Thus, the buyer’s location
was the place of supply.
However in the present
situation the place of supply
is the location where the
goods are installed.
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Chapter 8 Place of Supply
3That is to say that in case of conflict between clause (b) and clause (d) of the
subsection (1) of section 10, the clause (d) will prevail.
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Chapter 8 Place of Supply
201
Chapter 8 Place of Supply
at Mumbai. Now, while the goods were sold during the journey from
Mumbai to Delhi, the plane could be flying over different states at
different times. But for all such sales, the place of supply would be
Mumbai itself.
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Chapter 8 Place of Supply
4 Section 2 (5) of IGST Act defines export and 2 (10) defines import of goods
203
Chapter 8 Place of Supply
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Chapter 8 Place of Supply
(1) The provisions of this section shall apply to determine the place of
supply of services where the location of supplier of services and the
location of the recipient of services is in India.
(2) The place of supply of services, except the services specified in sub-
sections (3) to (14),--
205
Chapter 8 Place of Supply
206
Chapter 8 Place of Supply
207
Chapter 8 Place of Supply
Provided that where the right to passage is given for future use
and the point of embarkation is not known at the time of issue of
right to passage, the place of supply of such service shall be
determined in accordance with the provisions of sub-section (2).
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Chapter 8 Place of Supply
Provided that where the address of the recipient as per the records
of the supplier of services is not available, the place of supply shall
be location of the supplier of services:
209
Chapter 8 Place of Supply
210
Chapter 8 Place of Supply
d. Place of performance
It may be appreciated that the above general rule will apply only in
those cases which are not covered by any of the twelve exceptions.
Thus, before one applies the general rule, he must check whether any
of the exceptions (i.e. those from sub-rule 3 to sub-rule 14) cover the
situation.
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Chapter 8 Place of Supply
Supply
Recipient
Registered
Yes No
Location of the
Registered Person Address on
Record Exists?
Yes No
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Chapter 8 Place of Supply
• For the Architect, the builder and the interior contractor, the
supply is intra-State because all of them are situated in
Bangalore itself. Thus, they would charge CT + Karnataka ST.
The clause (a) lists following eight services, and says that they are
included.
1. Architects,
2. Interior decorators,
3. Surveyors,
4. Engineers and other related experts
5. Estate agents,
6. Grant of rights to use immovable property
7. Carrying out construction work
8. Co-ordination of construction work;
However, the above eight services are not the only services covered
by the clause. The clause says “services directly in relation to an
immovable property, including……”. Thus, any service that can be said
213
Chapter 8 Place of Supply
214
Chapter 8 Place of Supply
Services ancillary to the services referred in clauses (a), (b) and (c):
Ancillary service is that service which provides support to the
primary activity. Ancillary refers to supplementary, sub-ordinate.
Property located in multiple states: What would be the POS if the
contract is for construction of a road that passes through 4 states? All
the 4 states would claim share of the revenue. The explanation to
section 12 (3) provides that in such a situation the value of the
services would have to be separated for each state. It would be
advisable to raise separate invoices for the POS in separate states.
The separation of value would be done:
- in terms of the contract or agreement for the service, or
- (in the absence of such contract or agreement), the basis
would be prescribed by rules.
Exception 2: Personal services: Performance Based – Sec 12 (4)
In case of following services, the POS would be the location where
the services are actually performed:
• Restaurant and catering services,
• Personal grooming, fitness, beauty treatment,
• Health service including cosmetic and plastic surgery
Thus, a restaurant would always raise bill, charging CGST and SGST.
Same would be the case with supplier of the other services
mentioned here.
Exception 3: Services in relation to training and performance
appraisal – Sec 12 (5)
The POS would be as under:
Service to Place of Supply
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Chapter 8 Place of Supply
The POS in following cases would be the place where the event is
actually held or where the park or such other place is located.
Service Details
This entry refers to the fees for entry into the event or the place. For
example, if tax is to be paid on ‘entry fees’ for a bird sanctuary, the
POS would be the location of the sanctuary. But, if a restaurant is
operated inside the sanctuary, the POS would not be determined by
applying this clause. We would apply the clause 12 (4) (even under
that clause the POS would be the location of the sanctuary).
Service Details
Compare this with the previous clause. Both are related to events.
But, the previous clause was about ‘admission’, while the present one
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Chapter 8 Place of Supply
It is notable that in this case, in the first instance the POS is the
location of the registered recipient. Thus, there won’t be any
difficulty in availing credit. The provision is similar to that in case of
training and appraisal. In both the cases, if the recipient is registered,
the POS is his location. In comparison, the POS on ‘admission to
event’ will always be the place where the event is held or the park
etc. is located.
217
Chapter 8 Place of Supply
218
Chapter 8 Place of Supply
issued for journey from Mumbai to Delhi and return. In this case, for
the first journey, the POS would be Maharashtra; and for the return
journey it would be Delhi.
Right to passage for future use: This issue is relevant only for service
provided to un-registered persons. Airlines issue ticket booklets in
advance for unknown journeys. For example, ticket could be issued
for Rs. 50,000/- for 25 journeys anywhere in India in next six months.
The tax is payable at the time of issue of ticket. But at that point of
time, the embarkation point is not known. In that case, the general
rule would be applied, which means, the POS would be:
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Chapter 8 Place of Supply
Location of
Through
recipient, on
Internet
record
Address of
Others recipient, on
record
• Banking Services
220
Chapter 8 Place of Supply
• A State Government,
• A statutory body or
221
Chapter 8 Place of Supply
and suppose those 7 states are identified i.e. the contract/ agreement
names those 7 states. Then:
(c) The value of supply for each state will have to be determined
separately.
• Recipient’s
address on
record;
• Else, supplier’s
location.
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Chapter 8 Place of Supply
(including services
provided in relation to
such function)
If the property is located in more than one state, then value will
have to be divided and apportioned to each state.
ii. Personal
grooming,
iii. Fitness,
iv. Beauty
treatment,
v. Health service
including
cosmetic and
plastic surgery
223
Chapter 8 Place of Supply
appraisal ‘Place of
Performance’
• Ancillary Services
224
Chapter 8 Place of Supply
• Post-paid
connections –
billing address
• Pre-paid
connections –
through agents
– address of the
agent
• Pre-paid
connections to
subscriber –
where payment
is received or
voucher is sold.
• Pre-paid
service availed
through
internet etc. –
location of
recipient on
record.
• Other cases –
address of
recipient, on
record.
Wherever address
on record not
available – POS is
location of the
supplier.
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Chapter 8 Place of Supply
(1) The provisions of this section shall apply to determine the place
of supply of services where the location of the supplier of
services or the location of the recipient of services is outside
India.
(3) The place of supply of the following services shall be the location
where the services are actually performed, namely:-
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Chapter 8 Place of Supply
227
Chapter 8 Place of Supply
(8) The place of supply of the following services shall be the location
of the supplier of services, namely:--
228
Chapter 8 Place of Supply
229
Chapter 8 Place of Supply
(g) the location of the fixed land line through which the
service is received by the recipient is in the taxable
territory.
As can be seen the provisions are quite similar to the Service Tax
provisions under Place of Provision of Service Rules.
There are certain services which can be provided only if the goods in
question are made available to the supplier of the service. For
example, a sample can be tested only if the sample is made available
to the testing agency. Similarly, the person’s presence would be
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Chapter 8 Place of Supply
required for carrying out his MRI scan. In such cases and the place of
supply is the location where the services are actually performed.
However, there is one exception to this rule viz. if the goods are
imported into India for repairs. In such cases, the general rule would
apply and the Place of Supply would be location of the recipient. This
exception would apply only if:
• The goods are not put to any other use in India. Off
course, their use may be required for the purpose of
repairs. Thus, repair of a machine may require its trial
run. But it should not be used beyond such
requirement.
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Chapter 8 Place of Supply
This clause deals with not only admission to events but also the
organisation of events. In both the cases, the place of supply shall be
the place where the event is actually held. We may contrast this with
the case covered by section 12 (services in domestic transactions).
Under Section 12, the ‘admission’ and ‘organisation’ was treated
differently. In case of ‘admission’ the POS was the place where the
event was held or the park was located; and in case of ‘organisation’
it was location of the registered service recipient. The events
mentioned under sec 13 (5) are:
Sub-section (6) & (7) speak about the services covered under
previous three sub-sections viz.
The net effect of the sub-section (6) is that if a service is even partly
provided in India, the place of supply for the entire service would be
the state/ UT in India. If the supplier happens to be in the same state
in India, he would have to pay CGST + SGST on the supply. The
transaction would not be export (even if payment is received in
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Chapter 8 Place of Supply
Thus, the recipient of commission will have to pay tax out of his
commission.
5Since the ‘place of supply’ is the location of the service provider himself, the supply
will be an ‘intra-state supply’ and he will be paying CGST + SGST.
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Chapter 8 Place of Supply
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Chapter 8 Place of Supply
OIDARS has been defined vide Sec 2 (17) of the IGST Act, 2017 as
under:
OIDARS Means:
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Chapter 8 Place of Supply
(b) the credit card or debit card or store value card or charge
card or smart card or any other card by which the recipient
of services settles payment has been issued in India;
(g) the location of the fixed land line through which the service
is received by the recipient is in India.
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Chapter 8 Place of Supply
including services by
experts and estate agents,
Supply of accommodation
by a hotel, inn, guest
house, club or campsite,
by whatever name called,
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Chapter 8 Place of Supply
Co-ordination of
construction work,
including that of
architects or
interior decorators,
• Intermediary
• Hiring means of
transport (except
aircraft & vessel)
up to 1 month
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Chapter 8 Place of Supply
240
CHAPTER 9
Topics Discussed
• Introduction
- Corrections
- Series of Documents
- Serial number
- Manual Records
- Sale on Approval
• Vouchers
- Receipt Voucher
- Refund Voucher
- Payment Voucher
• Stock Records
- Manufacturer
- Service Providers
- Works Contract
• Legal Provisions
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Chapter 9 Documents and Records
Introduction:
• Proof of liability
The tax payer should maintain his records in such a manner that he
can easily demonstrate the nature of the transaction and the amounts
involved. If the goods are moving for the purpose of demonstration,
the document should say that it is for that purpose; if they are
moving for the purpose of weighment, the document should say so,
etc. The records should be sufficient to determine the tax liability and
should also prevent the department from making any incorrect
inference.
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Chapter 9 Documents and Records
Documents are necessary for every kind of movement of goods: Under GST
law we are required to issue documents for every movement of
goods, irrespective of whether the movement constitutes a ‘supply’
or not. If the movement constitutes a supply, we must issue Tax
Invoice (for taxable supplies), or Bill of Supply (for exempted
supply). If the movement does not constitute ‘supply’ we still have to
issue challans. Thus, there has to be a document for every kind of
movement – whether it is for sale, stock transfer, job work,
weighment, demonstration, trial, display in exhibition or any other
reason.
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Chapter 9 Documents and Records
• Delivery challans
Serial number: Each of the rules (from 46 through 55) mention about
serial number of the documents. The basic requirement is that:
245
Chapter 9 Documents and Records
246
Chapter 9 Documents and Records
• passwords
247
Chapter 9 Documents and Records
If you are registered under GST law then you must issue Tax Invoice
for all the supplies made by you. However, Tax Invoice should not
be issued:
The Tax Invoice should contain the details prescribed in the rules.
Similarly, the details required to be contained in a ‘Bill of Supply’ has
also been specified in the rules.2
The date of invoice is one of the factors for determining the ‘time of
supply’. Therefore it has a direct impact on the date on which tax
would become payable. Let’s see when the invoices are required to
be issued.
When can we issue the Tax Invoice for Outward Supply of Goods?
– delivery of goods or
2Please refer to the Appendix for list of the details required in a Tax Invoice and Bill of
Supply. Sample formats of various documents have also been provided.
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Chapter 9 Documents and Records
When can we issue the Tax Invoice for Outward Supply of Services?
Here, the date should be counted from the date of completion of the
service and not from its beginning.
Small Value Invoices: In case the Invoice value is less than Rs. 200/-
Tax Invoice for Inward Supplies: We had earlier seen that there are
certain supplies on which the tax is payable under Reverse Charge
Mechanism (RCM). The law requires us to issue Tax Invoice for the
inward supplies received from unregistered suppliers. We may note
that there can be a tax liability under reverse charge even in case of
invoices issued by a registered supplier. For example, a person may
be engaged in providing services of a goods transport agency on
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Chapter 9 Documents and Records
which tax is payable under reverse charge3 and at the same time he
may be supplying other services on which tax is payable under the
normal charge. We are required to issue tax invoices only where the
supplier is not registered. Such tax invoices can be issued on a
monthly consolidated basis. Full data support such consolidated
invoice should be maintained.
Invoice for Zero Rated Supplies: Zero rated supply means (a) Exports
and (b) supply to SEZ unit or developer for their authorised
operations. Such supplies can be made in any of the following two
methods:
3 A GTA has an option to avail ITC and pay tax under normal charge.
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Chapter 9 Documents and Records
• under a contract,
The dates for issuance of invoice are as under. We may note that date
of invoice is not the only factor to determine ‘time of supply’. The
time of supply of service will depend upon date of payment and
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Chapter 9 Documents and Records
upon the fact as to whether the invoice was issued within due date or
not.
Sale on Approval: It may happen that the goods are first handed over
to the customer for inspection, trial, verification etc. The customer
may take decision as to whether to buy or not after such trial and the
process may take time. The CGST Act makes provision for such a
situation. Section 31 (7) reads:
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Chapter 9 Documents and Records
Document Applies to
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Chapter 9 Documents and Records
We may note here that in case of RCM, the Tax Invoice is required to
be issued by the recipient of the supply only when the supplier is un-
6If you have received a lump sum of Rs. 1 lakh and the rate of tax is 12%, then the
Taxable Value will be 100000/1.12 i.e. Rs. 89,286, and the tax would be Rs. 10,714. [If
the rate of tax is 12% divide the amount by 1.12; if it is 18%, divide it by 1.18 and so on].
7 This is as per the proviso to rule 50 of CGST Rules, 2017
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Chapter 9 Documents and Records
Document Applies to
• Excess value and/ or tax had been charged in the Tax Invoice;
or
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Chapter 9 Documents and Records
Stock Records:
• Finished goods
8 Section 35 of CGST Act, 2017 read with rule 56 of CGST Rules, 2017
• Waste & Scrap
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Chapter 9 Documents and Records
• Opening balance,
• Receipt,
• Supply,
• Balance of Stock
(a) the names and addresses of the persons on whose behalf the
works contract is executed;
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Chapter 9 Documents and Records
1. Every transporter
- Consigner,
- Consignee
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Chapter 9 Documents and Records
- Consigner,
- Consignee
Further, they shall store the goods in such manner that they can be
identified item-wise and owner-wise and shall facilitate any physical
verification or inspection by the GST officers.
Legal Provisions:
• The time limit within which the invoice must be issued. [31
(1) about goods, and 31 (2) about services]
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Chapter 9 Documents and Records
Sec 32: says an URP shall not collect tax; and a registered person shall
collect it only in accordance with the law.
Sec 33: Requires that the tax amount should be shown separately in
the invoice and other documents.
Sec 34: Addresses to the situations where the value or tax amount
mentioned in an invoice is required to be decreased or increased at a
later stage. These include the cases where goods or services are found
deficient, the goods are returned etc. It provides for issuance of credit
note and debit note. It says that the tax liability will be adjusted as
per these credit notes and debit notes.
- Tax Invoice
- bill of supply
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Chapter 9 Documents and Records
- Passenger Transportation
- Telecom Operators
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Chapter 9 Documents and Records
• delivery of goods or
• Telecom Operators
• Other suppliers
notified by the
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Chapter 9 Documents and Records
government
(b) Due date of payment is not Before or at the time when the
ascertainable supplier of service receives the
payment
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CHAPTER 10
Payment of Tax
GST is paid by utilising the amount available in e-Credit Ledger or in the e-
Cash Ledger. Therefore, first the amounts have to be available in these
ledgers.
Topics Discussed
• Introduction
- Creating a Challan
- Making Payment
- Challan Status
• Legal Provisions
Chapter 10 Payment of Tax
Introduction
There are two ledgers and one register maintained on the GST portal
(www.gst.gov.in)2 in respect of each ‘registered person’. These are:
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Chapter 10 Payment of Tax
our total tax liability at any point of time. GST PMT-01 is name of the
form in which this register is to be maintained. In case we notice any
discrepancy in this register, we should inform the department online
in form GST PMT-04.
The Electronic Credit Ledger – PMT-02: This is the Ledger, where our
Input Tax Credits are recorded. In general, the process of recording
credits is in two steps. The supplier uploads the invoice data and we
approve it on the website. The credit is posted to the e-Credit Ledger
upon our approval. In case of supplies received from un-registered
persons, we ourselves have to issue a Tax Invoice and include its
data in form GSTR-23. When we want to utilise the credits, we have
to pass entries online (debit entries). This reduces the balance of
available ITC. The balance is carried e-Credit Ledger
forward to the next period.
Theoretically the balances can be Credited = ITC taken
carried forward for an unlimited Debited = ITC utilised/
period. The amount available in the e- reversed
Credit ledger can be used only to pay
tax. It cannot be used to pay interest
or penalty.
We can even claim refund of the ITC if the credit has accumulated
due to exports or due to inverted tax structure 4 . The amount of
refund claimed is debited in the credit ledger. In case the refund is
rejected, the officer is required to re-credit this ledger by an order in
form GST PMT-03. Such re-credit would be made only if the claim is
finally rejected even in appeal (or if we give an undertaking to the
department that we shall not file appeal).
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Chapter 10 Payment of Tax
5This is different from the TDS & TCS under Income Tax Act. We are referring to TDS &
TCS of GST. TDS is to be deducted if recipient of the supply is government, local
authorities etc. and TCS is to be deducted when the supply is made through e-
Commerce Operator.
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Chapter 10 Payment of Tax
entries in these ledgers. Once we pass the debit entries, the money
goes to the government and our ledger balance is reduced.
We may note here that the person has deposited Rs. 50,000/- vide the
challan. Hence Rs. 50,000/- would be credited to the cash ledger.
However, he has debited this ledger only by Rs. 40,000/- to pay the
tax. This will leave a balance of Rs. 10,000/- which would be carried
forward and he can use it later. The point is that if you deposit excess
amount, it’s not lost. It remains available in the cash ledger.
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Chapter 10 Payment of Tax
6Tax period means the period for which the return is required to be furnished . In
most cases it is a month. For tax payers under composition scheme, it is a quarter.
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Chapter 10 Payment of Tax
Challan Status: The tab ‘Challan History’ contains list of the challans
with a column ‘Challan Status’. Status can also be tracked by clicking
“Services> Payments > Track Payment Status”.
Effect of debit entry in the cash ledger: When we deposit money into the
cash ledger, it is off course received by the government in its account.
However, it remains available to us for use; and we can use it only to
pay GST, interest, penalty or other liabilities under the GST law. Use
of this money is indicated by passing a debit entry in the cash ledger.
Once we pass the debit entry, the money finally belongs to the
government (in the sense that now, it is no more available to us for
use).
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Chapter 10 Payment of Tax
The e-Credit ledger will have credits in respect of all the four taxes
viz. the Integrated Tax, the Central Tax, the State Tax (or UT Tax),
and the Compensation Cess. While the credit of compensation cess
can be used to pay only the compensation cess, the other credits can
be used interchangeably, but with the following two restrictions:
➢ Balance to pay IT
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Chapter 10 Payment of Tax
The above sequence has been adopted to minimise the need for
transfers. If at all transfer becomes necessary, then it is preferable to
have a transfer between the two accounts of the Central government
(i.e. IT and CT). Transfer between the Central government and a state
government (or union territory) should be the last resort. Therefore,
another way to look at the sequence of utilisation of credits is as
under.
Stage Method
- IT to pay IT
- CT to pay CT
- ST to pay ST
- UT to pay UT
- IT to pay CT or
- CT to pay IT
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Chapter 10 Payment of Tax
i.e. use
ITC is not available to your customer unless you pay the tax. Further,
you cannot file GSTR-3 without first paying the tax. It is not possible
to file the return and show the tax amount in arrears. This brings in a
strict discipline in payment of tax. This is further fortified by section
49 (8) of the CGST act. Bt says that you cannot pay the tax for the
current period unless you have paid the tax for the past period. It
reads as under:
(8) Every taxable person shall discharge his tax and other dues
under this Act or the rules made thereunder in the following order,
namely:––
(c) any other amount payable under this Act or the rules
made thereunder including the demand determined
under section 73 or section 74.
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Chapter 10 Payment of Tax
Suppose, I have declared a tax liability of Rs. 25 lakh for October (by
way of filing GSTR-1 and GSTR-2) and suppose I fail to pay the same
by 20th November.
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Chapter 10 Payment of Tax
Legal Provisions:
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CHAPTER 11
GST Returns
A return is a statement where we declare our tax liability to the
government and also inform how we have discharged that liability. In most
cases, the GST returns are to be filed on monthly basis.
Topics Discussed
• Introduction
- GSTR-1
- GSTR-2A
- GSTR-2
- GSTR-1A
- GSTR-3
- B2B Invoices
- Deemed Exports
• Preparing GSTR-2:
- Understanding GSTR-2A
• Filing of GSTR-3
- Part A of GSTR-3
- Part B of GSTR-3
• Annual Return:
• Legal Provisions
Introduction:
The GST law prescribes several returns to be filed, but not all of them
apply to every tax payer. Most tax payers will have to file 3 monthly
(GSTR-1, 2 and 3) and one annual return (GSTR-9). Separate returns
are prescribed for tax payers under composition scheme, those
required to deposit TDS/TCS, Non-resident tax payers, Input Service
Distributors etc. A list of 11 returns prescribed under GST law is
given at the end of this chapter. Apart from those, the tax payers will
also have to file a quarterly return (ITC-04) in respect of the materials
sent for job-work. Formats of these returns are provided in the CGST
Rules.
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the same. Based on this two-way process, the tax liability of the
supplier and the credit of the recipient are finalised. The credit notes
and debit notes issued are also taken into account. The process finally
leads to payment of tax and filing of the consolidated return ‘GSTR-
3’.
Please note that we are required to determine rate of tax for all our
procurements from un-registered persons. So, if we are required to
pay tax on tea, coffee, photocopying expenses, etc. we need to know
the code. I had a situation where company had spent some amount
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Chapter 11 GST Returns
for conducting pooja. We had to sit with the list of items which ran
into about 117 and determine HSN Code and the rate of tax of each
of them (many were exempted).
1 In case the recipient is under composition scheme, the data is communicated to him in
from GSTR-4A. Similarly, the data is communicated in from GSTR-6A to the ISD.
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Chapter 11 GST Returns
2We are required to pay tax on reverse charge basis on the notified supplies, and also
on all supplies received from un-registered persons. Please see the chapter on Reverse
Charge Mechanism, for details.
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Chapter 11 GST Returns
The form has separate columns for the amount of tax charged
and the amount of credit available. Wherever, we are not
eligible to avail credit against an invoice, we should fill in the
‘Amount of ITC available’ as zero.
3Here error means – the data is different from the invoice provided by the supplier.
Suppose the invoice shows value of Rs. 1 lakh and tax of Rs. 12 thousand, we need to
ensure that the online data also reflects the same figure. But we cannot modify the tax
amount to Rs. 18 thousand merely because in our opinion the rate should have been
18%.
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Chapter 11 GST Returns
Supplier Recipient
GSTR-1
stands
modified Add missing
Tax Invoices
Cr/ Dr Notes
Add
Accept RCM
or Import of Goods
Reject Cr/ Dr Notes
GSTR-1A GSTR-2
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Chapter 11 GST Returns
There are four ways of filing these returns. We can adopt any of
them:
- The tool will convert the data into a file type called
‘Json’. This Json file is to be then uploaded on the
GST Portal.
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Chapter 11 GST Returns
Inter-
Invoice wise
Tax State
Invoice
Large
Intra-
B2C Consolidated
State
Small Consolidated
In the above chart divide the B2C Small into inter and intra state.
Inter-State is to be reported consolidated – state wise (see the
table below).
5. Zero rated supplies: Two supplies are referred as zero rated viz.
(a) Exports and (b) Supplies to SEZ
It may happen that there was some error in reporting the details
in the GSTR-1 for the previous periods. The same can be
corrected by providing the correct information in table no. 9 and
10 of the GSTR-1. Similarly, the invoice itself might contain error
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Chapter 11 GST Returns
and we would have issued debit note or credit note to rectify the
same. These would also get reported in these two tables. Any
debit/ credit note pertaining to invoices issued before 1st July
2017 (under pre-GST laws) are also to be reported in this table.
4If you have received a lump sum of Rs. 1 lakh and the rate of tax is 12%, then the
Taxable Value will be 100000/1.12 i.e. Rs. 89,286, and the tax would be Rs. 10,714. [If
the rate of tax is 12% divide the amount by 1.12; if it is 18%, divide it by 1.18 and so on].
5 This is as per the proviso to rule 50 of CGST Rules, 2017
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5B outward – E-Com
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Chapter 11 GST Returns
• Tax Invoices
• Bills of Supply
• Credit Notes
• Debit Notes
3. Advances Received:
6Tax Period means the period for which we are preparing the return. Please see section
2 (106) of the CGST Act.
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Chapter 11 GST Returns
4. Advances Paid
Preparing GSTR-2:
Due date: GSTR-2 is to be filed after 10th of the month and the last
date is 15th. Thus it can be filed from 11th to 15th day.
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Chapter 11 GST Returns
Part - A: Inward
Table 4.Reverse Charge
Supplies
GSTR-2A
Table 6. Invoice;
Part - B: ISD
Cr/ Dr Notes
We are required to verify the data received in above form against the
documents and information available with us. If we find it matching,
we would accept it. If the data in the form is different from that in the
invoices received by us, then we need to rectify it. We have already
discussed this aspect in detail in the earlier part. The changes made
by us will then be communicated (by the portal) to the suppliers in
form GSTR-1A. The Table 3 captures the data of inward supplies
received from a registered person. In an ideal case, the entire data of
this table would be auto-populated (as uploaded by our suppliers
and communicated to us in form GSTR-2A). But it does not include
the invoices on which tax is payable by us under reverse charge.
• Notified RCM
• RCM on supplies received from un-registered persons
• IGST on import of goods
• Goods procured from SEZ
• Credit or debit notes received in respect of above two
received
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Chapter 11 GST Returns
Partially
Invoice level
Fully
Ineligible
Credits
for Non-Taxable
supply
Quantify
Others
for Non-Business
supply
Filing of GSTR-3
GSTR-3 is the end result of the GSTR-1, GSTR-1A and GSTR-2. The
data provided in these forms is finally consolidated in the GSTR-3. It
is to be filed on or before 20th day of the succeeding month. It consists
of two parts – Part A and Part B.
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Chapter 11 GST Returns
- Deemed Exports
- Exempted Supply
- Non-GST Supply
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Chapter 11 GST Returns
- Inter-State supplies
- Intra-State supplies
• Amount of ITC
• TDS/TCS Credit
Table 6: This table provides a summary of the ITC received during the
taxable period. It does not show the opening balance, closing balance
or the credits utilised.
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Chapter 11 GST Returns
We can see that the total liability = Table 8 + Table 10 + Table 11.
This has to be discharged by debiting the Cash Ledger and the Credit
Ledgers. Credit cannot be used to pay interest and late fees. Thus, the
liability under tables 10 and 11can be discharged only by debit in the
Cash Ledger. For discharging the tax liability (table 8) we can use
both the ledgers.
Table 12: This summarises the amount of tax payable and paid. The
amount payable is same as that appearing in table 8.
Table 13: This table is about other amounts i.e. other tan tax. This
summarises the amounts of Interest, Late Fee and any other amount
payable and paid. The payment is made by debiting the Cash Ledger.
Table 14: Refund claimed from Electronic cash ledger: In case the
taxable person wishes to withdraw the amount lying in the cash
ledger, he can make a request in this table.
Table 15: This table shows the debit entries in electronic Cash Ledger
and the Credit ledger. The entries in the ledgers are not made
through this table. Instead we have to make entries directly in those
ledgers and submit the return. When the return is submitted, the
debit entries made by us get populated in this table.
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The returns can be filed only after payment of tax and therefore the
payments are also to be made on quarterly basis, but before filing of
the return.
Annual Return:
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Late fees at the rate of Rs. 100/- per day is payable on delay in filing
the returns. This is subject to a maximum of Rs. 5000/-.
The late fee for delay in filing Annual Return is also Rs. 100/- per
day, but the maximum limit is 0.25% of the turnover in the state.
Legal Provisions:
7 Sec 35 (5) of CGST Act read with rule 80 (3) of CGST Rules.
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Chapter 11 GST Returns
Sec 46 – says that if we fail to file a return, the department shall issue
us notice asking us to file the return within 15 days.
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Chapter 11 GST Returns
301
CHAPTER 12
Job-Work
Use this mechanism if you want to outsource any operation on your goods.
You can send the goods without charging GST and receive them back –
again without GST. The job-worker will charge GST on his ‘job-charges’.
Introduction
➢ A is the Principal
➢ B is the job-worker
The liability to account for the goods and to pay tax on them has
been placed on the principal. Job-worker’s liability is to pay tax on
the amount charged by him for carrying out the job-work.
The situation is quite different under GST. The taxable event under
GST is supply of goods or services or both. Section 143 has made a
special provision regarding job work. It allows a registered person
(the principal) to send any inputs or capital goods to a job worker
without payment of tax. The liability to pay tax on the final product
rests with the principal. Secondly, the activity of the job worker is a
service, irrespective of whether the process results into manufacture
of a new product or not. The job worker is, thus supplying a service
to the principal and is required to pay GST on the same1.
1Off course the job worker has an option to avail exemption from registration if his
turnover is below Rs. 20 lakh and he does not make any interstate supply (and fulfil
other conditions as well). But in that case, the registered principal would have to pay tax
on the job-worker’s bill, under reverse charge.
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Chapter 12 Job-Work
Let’s assume that I purchase certain goods and send them to you for
carrying out job-work (i.e. for some treatment or process). Let’s also
assume that I am registered under GST. The process goes on as
under:
Procedure in detail:
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Chapter 12 Job-Work
2. The goods can also be sent directly to the job-worker from our
vendor’s premises. For example, if a manufacturer located in
Mumbai purchases some goods from a vendor in Ahmedabad
and wants to send it to a job-worker situated in Vadodara, it
is not necessary for him to first bring the goods to Mumbai.
The goods can directly move from the vendor to the job
worker. In this case:
2It is expected that the intimation would be online. However, at present the common
portal does not contain any such functionality. The
3 Explanation to section 143 of CGST Act.
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Chapter 12 Job-Work
5. On many occasions it so
• Job-work is a service.
happens that the principal
sends several raw materials • Manufacturing services
which are are classifiable under
processed/assembled into a headings 9988 and 9989.
new product. In such cases
the job worker should • Mention the SAC in the
provide a signed a statement invoices for job-charges.
of consumption of various
• Mention HSN Code of
materials and the quantity of
goods in the Challans
the resultant item. This
would help in reconciliation
of the quantities sent and received.
7. The principal can supply the goods directly from the job-
worker’s premises to his customers in India or can export the
same. He will have to issue Tax Invoice wherein he can
mention the location of the job-worker from where the goods
are moving. Supply within India would be on payment of
appropriate GST. The export would be either on payment of
IGST or under bond/ LUT. For the purpose of ascertaining
‘place of supply’ the location of the principal would be the
‘location of the supplier’.
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Chapter 12 Job-Work
11. Time limit: The principal should bring the goods back from
the job-worker within the following time limit:
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Chapter 12 Job-Work
(b) Capital Goods (other than moulds and dies, jigs and
fixtures, or tools): within three years
(c) Moulds and dies, jigs and fixtures, or tools: No time limit
specified.
12. The above time limit would also apply if the goods are
supplied directly from the job-worker’s premises on payment
of tax within India, or with or without payment of tax for
export.
14. Any waste and scrap generated during the job work can be
supplied
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Chapter 12 Job-Work
Total 1,10,000
309
Chapter 12 Job-Work
Tax Invoice
Invoices received
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Chapter 12 Job-Work
However, we should note that value of the goods used by the job-
worker to provide the job-work service would be part of the value of
the service. Hence the same would be includible in the turnover.
In case the job worker is registered, he has to issue a Tax Invoice and
charged GST on the value of job-work service. In case of intra-State
supply, if the job worker is not registered, the principal will have to
pay GST on the job charges under reverse charge mechanism. In case
of inter-State supply the job worker has to compulsorily get
registered.
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Chapter 12 Job-Work
Legal Provisions:
Sec 19 allows ITC on the goods sent to job-worker and stipulates that
if the goods are not received back within one year it shall be deemed
to be a supply when the inputs were sent one year back. Similar are
the provision for capital goods not received back within 3 years.
Sec 22: provides that for the purpose of computing turnover limit of
Rs. 20 lakh (or 10 lakh in special category states) the value of the
goods supplied after job-work would not be included in the
aggregate turnover of the job-worker (instead it would be added to
the turnover of the principal).
Sec 143: provides the basic frame work for job-work. It enables
sending the goods to job-worker without payment of tax; sending
from one job-worker to another; return within one year 3 year;
supplying to the customer directly from job-worker’s premises; etc.
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CHAPTER 13
Composition Scheme
Topics Discussed
• Introduction
• Procedure:
- Issuing Bills:
• Legal Provisions
Chapter 13 Composition Scheme
Introduction
The scheme looks attractive. The tax payer under this scheme is
required to pay a very small amount of tax; the tax is payable on
quarterly basis, returns are also quarterly, and detailed records are
not required. The only catch is that neither can the person avail
credits (ITC) nor can his customers avail credit of the tax paid by
them. Presently, the scheme is available only to those whose turnover
did not exceed 75 lakh in the previous financial year. Except for the
suppliers of food & beverages (non-alcoholic), the scheme is not
available to any service provider. But the eligibility criteria are very
stringent.
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Chapter 13 Composition Scheme
The supplies referred in clause (b) are food & non- 2.5% SGST
alcoholic beverages. These are treated as supply of
service. The actual words of the clause (b) are as
under:
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Chapter 13 Composition Scheme
We may also note that the condition is about turnover in the previous
financial year and not in the current year. Thus if the turnover in
2016-17 did not cross Rs. 75 lakh, the person would be eligible to the
scheme in the year 2017-18. The benefit would continue to be
available so long as the turnover in a financial year does not cross Rs.
75 lakh. The moment the limit of Rs. 75 lakh is reached, the benefit
becomes unavailable.
▪ exempt supplies i.e. the supplies which attract nil rate of tax,
or which are exempted vide a notification. It also includes
4Aggregate turnover is defined vide sec 2 (6) of CGST Act. Exempt supply is defined vide
sec 2 (47) and it includes non-taxable supply. The term non-taxable supply is defined
vide sec 2 (78)
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Chapter 13 Composition Scheme
▪ The amount of GST i.e. Central tax, State tax, Union territory tax,
integrated tax and cess
A person can opt for the composition scheme only if he fulfils all of
the following conditions5:
5These conditions are specified in the Section 10 of CGST Act and the rule 5 of the CGST
Rules.
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(g) He is not eligible to ITC: This is part of the basic feature of the
scheme. The person working under composition scheme is
not entitled to claim credit of tax paid on his inward supplies.
Thus, neither does he get credit on inward supplies nor do his
customers get credit on the outward supplies made by him.
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Chapter 13 Composition Scheme
(i) All businesses under same PAN have to come under the scheme: it
is not permissible to opt for composition scheme for merely a
part of the business. Suppose a person has businesses in
Orissa and West Bengal, it is not possible to work under
composition scheme in one state and under regular scheme in
the other one. In fact, even if more than one registrations are
obtained for different verticals of business then also, he has to
remain in any one of the scheme for all verticals.
(j) Option lapses when turnover crosses Rs. 75 lakh: The benefit of
composition scheme continues so long as the turnover does
not cross Rs. 75 lakh in a financial year. Turnover for each
financial year is to be computed separately. All the years in
which the turnover remains within the limit, the person
remains eligible to the scheme. If in any year, the turnover
crosses the limit, he loses the benefit for the further period
and also for the subsequent year.
(k) Stock held on 1st July 2017 should not have been purchased inter-
State or imported:
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Chapter 13 Composition Scheme
- Interest; and
- Penalty
Procedure:
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Chapter 13 Composition Scheme
Exercising the option: The person who wants to avail benefit of the
scheme has to formally opt for it. The option is to be exercised in the
following manner:
Bill for goods must be issued before the goods are removed. In case
of services, it can be issued within 30 days of the date of provision of
the service.
8
Section 18 (4) of CGST Act, 2017
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Chapter 13 Composition Scheme
Issuing bill is compulsory for all the supplies of Rs. 200 and above. If
the value of the supply is less than Rs. 200/- then:
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Chapter 13 Composition Scheme
persons
Payment of Tax and filing of returns: The person opting for composition
scheme is required to file
9Nine services are so notified vide notification no. 13/2017-CT (Rate) and Five goods
are notified vide notification 4/2017-CT (Rate). Parallel notifications are issued under
IGST and SGST laws as well.
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Chapter 13 Composition Scheme
Legal Provisions:
Sec 2 (62) ‘input tax’ does not include tax paid under composition
levy.
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CHAPTER 14
Topics Discussed
• Introduction
• Import of Goods
- Meaning
• Import of Services
- Meaning of export
- Format
- Bond
- Bank Guarantee
- LUT
- Invoice
- Eligibility
- Unjust Enrichment
- Procedure
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Chapter 14 Import and Export under GST
Introduction:
Import of Goods:
Import Duty Structure before & under GST: Upon introduction of GST,
the import duty structure has been modified. Prior to GST, the duty
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Input Tax Credit on Import of Goods: We may note that Input Tax
Credit is not available for the Basic Customs Duty or the Customs
Cess. Hence,
5 See proviso to the section 8 (2) of the GST (Compensation to States) Act, 2017.
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Chapter 14 Import and Export under GST
Import of goods
Tax Customs Duty (Basic + Ed. Cess + Sec & Higher Ed.
Cess)
+ IGST
Import of Services:
Every supply made by a person from abroad may not be taxable: In case of
import of services, the IGST is payable by the importer under reverse
charge under the IGST Act. The notification 10/2017-ITR fixing the
tax liability on recipient under reverse charge, does not use the word
‘import’. Instead it describes the category of the service as:
The liability to pay tax is on the recipient of the service which is “any
person located in the taxable territory other than non-taxable online
recipient”.
The notification merely shifts the tax liability from supplier to the
recipient. It does not create a levy. The tax liability does not arise
because of this notification. The charge is created by section 5 of the
IGST Act. The tax is levied on supply and by definition ‘supply’
includes import of services. We may recall, the provisions of section 7
(b) of CGST act and the entry 4 in the Schedule-I. Both of these deal
with import of services. They read as under:
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Chapter 14 Import and Export under GST
Business:
Taxable
Related/
for a
Unrelated
consideration
Person Non-
Business:
Taxable
Import of
Service Business:
Taxable
Related/
Establishment
Abroad Non-
No Business: Not
consideration Taxable
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Chapter 14 Import and Export under GST
• Issue: (a) Tax Invoice when the supply is received; and (b)
Payment Voucher when the payment is made 10.
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Chapter 14 Import and Export under GST
YYYY
* The rate is given for illustration purposes only. We will have to apply the
actual rate applicable to the service.
Import of Services
Tax IGST
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Chapter 14 Import and Export under GST
• The ARE-1 procedure has been done away with. Now, ARE-1
is not required to be issued.
14This is because supply to SEZ have been categorised as inter-State supply. Please see
section 7 (5) of the IGST Act, 2017.
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(iv) the payment for such service has been received by the supplier
of service in convertible foreign exchange; and
(v) the supplier of service and the recipient of service are not
merely establishments of a distinct person in accordance with
Explanation 1 in section 8;
Tax would be payable, if the supply does not constitute export: There could
be situations where even though the recipient of service is abroad,
yet the service does not qualify as export. This is because there are
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Central Sales Tax law also treated the above sale to merchant
exporter as a sale in the course of export. The merchant was required
to provide certificate in form ‘H’ to the seller. Here, the seller may or
may not be a manufacturer. Section 5 (3) of the CST Act, 1956 said
that:
This concept does not find any place in the GST law. Supply of goods
to a person who is procuring it for the purpose of export, is not
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Chapter 14 Import and Export under GST
If the exporter has not executed the bond or has not filed LUT, then
payment of IGST is the only option left to him. Off course, IGST
would not be payable if the supply is otherwise exempted. But in
that case, he will not be able to get benefit of ITC. Similarly goods or
services cannot be supplied to SEZ without payment of IGST without
bond/ LUT.
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Chapter 14 Import and Export under GST
If failed to
Report the Tax
export within 3 Send Goods to
Invoice in
months - Pay Customs
GSTR-1
Tax + Interest
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Chapter 14 Import and Export under GST
The word “normally” used in the second sentence above has made
the discretion of Commissioner very wide. If he feels it necessary he
can demand bank guarantee for higher amounts.
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Chapter 14 Import and Export under GST
Who can sign the Bond/ LUT?: The Bond/ LUT should be executed/
signed by the working partner, the Managing Director or the
Company Secretary or the proprietor or by a person duly authorised
by such working partner or Board of Directors of such company or
proprietor on the letter head of the registered person.
Who can file LUT?: Filing LUT is the easier option. It does not require
stamp paper and does not require bank guarantee. While bond is for
a specified amount, the LUT does not specify any amount. It shall be
valid for 12 months. But everyone is not allowed to file LUT.
Notification 16/2017-CT says that the following registered person
shall be eligible for submission of Letter of Undertaking in place of a
bond. Those not fulfilling these criteria will have to file bond.
Status holders are those exporters who have been recognised by the
DGFT as a ‘status holder’. The DGFT issues certificate recognising
the status. Under para 3.21 there are Star Export Houses. These are
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granted from one star up to five star status depending upon their
export performance.
The expression “who has received the due foreign inward remittances
amounting to a minimum of 10% of the export turnover, which should not
be less than one crore rupees” had created some confusion in the field.
The confusion was about – what should not be less than one crore
rupees? Whether the inward remittances or the export turnover. This
has been amply clarified vide the CBEC Circular No. 5/5/2017– GST,
dated 11th August, 2017. The export turnover of the preceding
financial year should not be less than one crore. Both of the following
conditions should be satisfied:
Invoice: The supplier should issue Tax Invoice under GST Rules.
However, there is no requirement to file ARE-1 anymore. The Tax
Invoice should also include the following remarks (whichever is
applicable):
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Time Limit to prove the Export: Following is the time limit within
which the exporter has to prove that the goods or services have
actually been exported. Under the Bond/ LUT, the exporter binds
himself to pay the tax due along with the interest within 15 days of
the expiry of the time limit.
Services That the payment of such One year from the date of
services is received by the issue of the invoice for
exporter in convertible export
foreign exchange.
The exporters should not issue Tax Invoice in advance. ‘Invoice’ here
means the invoice issued under section 31 of the CGST Act, 2017. It
does not refer to the commercial invoice raised on the foreign buyer.
Therefore, the period of three months or one year is to be counted
17Rule 34 of the CGST Rules, 2017 as amended vide notification 17/2017-CT, dated 27th
July, 2017. We can find the notifications on the Board’s website www.cbec.gov.in
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from the date of the Tax Invoice issued under GST law and not the
Commercial Invoice issued for purpose of claiming payment from
the foreign buyer.
Both the systems will have GSTIN of the exporter. Details of the Tax
Invoice would be transmitted from GSTR-1 to the customs portal;
and export confirmation would be electronically transmitted by the
Customs System to the GST common portal. Thus, the exports
claimed in the GSTR-1 would be matched with the Shipping Bills.
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It means, we are not required to prove that burden of the tax has not
been passed on to the buyer.
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Chapter 14 Import and Export under GST
Lastly, ‘net ITC’ refers to ITC availed during the period for which
claim has been filed.
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Chapter 14 Import and Export under GST
If the zero rated supplies are made on payment of tax, the supplier is
entitled to refund of the tax so paid. Where the supplier is not in
position to utilise the accumulated ITC, he can use this method to
encash the ITC. Bond or LUT is not required in this mode of supply.
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Chapter 14 Import and Export under GST
In case, the services are exported on payment of IGST, the claim for
refund can be filed only after the payment is received in convertible
foreign exchange. The process would be as under:
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Chapter 14 Import and Export under GST
(a) withhold payment of refund due until the said person has
furnished the return or paid the tax, interest or penalty, as the
case may be;
(b) deduct from the refund due, any tax, interest, penalty, fee or
any other amount which the taxable person is liable to pay
but which remains unpaid under this Act or under the
existing law.
a. The time limit for filing appeal has not yet expired; or
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CHAPTER 15
Transition to GST
Topics Discussed
• Introduction
- Purpose of TRAN-1
- Persons Covered
- Situations Covered
o Actual Credit
o Deemed Credit
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Chapter 15 Transition to GST
• Goods of Principal lying with Agent [Sec 142 (14) of State GST
Acts – Table 10]
• Legal Provisions
Introduction:
As we know, C. Excise, Service Tax & VAT are the three major taxes
subsumed into GST along with 14 other taxes. It is an obvious
question as to what will happen to the taxes paid under existing
laws1 . How will the credit be taken under GST regime? Where a
person is registered, say, under C. Excise law, his credits are already
recorded in the ER-1 or other returns. The ER-1 for June 2017 will
have closing balance of Cenvat Credit. Similar balances might be
there in other returns (Service Tax, VAT etc.). We need a mechanism
to transfer these balance to GST. And what about those who are not
registered? In fact, it may happen that the person is registered under
one law and not under the other one. Thus, for instance it is possible
that a person is registered under VAT and not registered under C.
Excise. Similarly, the transactions may spill over to the GST regime.
For example, goods supplied on payment of C. Excise duty & VAT
1 Existing laws refer to the laws relating to taxation of goods and services that were in
force prior to 1st July, 2017. Thus, the Acts, Rules, Notifications etc. relating to C. Excise,
Service Tax, VAT are ‘existing laws’. It is defined vide section 2 (48) of the CGST Act,
2017.
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could be rejected by the customer after GST comes into force. We also
need to understand as to how to deal with the materials lying with
job-workers. What happens to the notices issued under existing laws,
on-going investigations, pending refunds, appeals etc. All such
questions and many more are specifically dealt in this chapter.
Broadly the transition provisions cover three topics:
PART – A
Last date for filing TRAN-1: The form is to be filed on the GST portal
within 90 days from 1st July, 2017. Thus the last date would be 29th
September, 2017. If the GST Council approves, then Commissioner
can been empowered to extend this period for further 90 days2.
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Chapter 15 Transition to GST
Purpose of TRAN-1: Following are some of the purposes for which the
form would be used. Please refer the:
iv. To avail credit of the Duty/ Tax paid under earlier law,
but where the input/ service received after 30th June.
- Have stock lying with their job-workers (or are holding stock
of their principals as job-worker)
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- Had paid service tax and VAT on a contract, but the supply is
being made in the GST regime.
- Had sent goods for sale on approval basis, before 1st July,
which were not sold before 1st July.
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iii. Credits can be availed only if the person is liable to pay GST
on his outward supply. If there is no GST on the outward
supply, there is no question of availing ITC.
Whether credit of Ed. Cess, SHE Cess, and KKC can be transferred
to GST
Rule 117 requires filing of GST TRAN-1 for availing credits eligible
under section 140. But it says that a registered person can specify in
the form only the eligible duties and taxes, as defined in Explanation 2
to section 140, to which he is entitled. The said Explanation 2 reads “For
the purposes of sub-section (5), the expression “eligible duties and taxes”
means…….”. The list of duties and taxes thereafter do not specify Ed.
Cess, SHE Cess, and KKC as ‘eligible’. Therefore, so far as the rule
117 is concerned, it does not permit transfer of credits of these
duties/taxes.
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Pragmatic Way:
The department may take a view that these credits are not
admissible. Consequently, demand notices could be issued for
recovery of credit along with interest. If the amount of credit is small,
it would not be worth going into litigation. However, if the amount is
large, the right course may be to take the matter to High Court by
way of Writ. The provisions of rule 117 could be challenged on the
ground that it curtails the scope of section 140 (3) by applying the
explanation 2 to the whole section.
Part - B
Transfer of Closing Balance of Credits: [Sec 140 (1) – Table 5]
Closing Balance of
C. Excise Return
Service Tax Return Electronic Credit Ledger
VAT Return
Entry Tax Return
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Chapter 15 Transition to GST
will include the credits of CVD and SAD availed on imported goods.
All these credits would be
transferred to GST as ‘Central Tax’ • Table 5 (a) is applicable to
(i.e. CGST) those who were registered
under C. Excise or Service
Those registered under C. Excise as
Tax law. But it’s not
a dealer/ depot/ importer, cannot
applicable to their
transfer credit through this table.
registrations as dealer/
The returns filed by them under C.
depot/ importer.
Excise law, does not have any table
showing opening or closing • Table 5 (b) and (c) are
balances of credits. It merely shows applicable to those
details of the goods sold and the registered under state laws
corresponding invoices under (VAT/ Entry tax)
which the same had been
purchased.
Similarly, this sub-section does not apply to those who were not at all
registered under the C. Excise or Service Tax law.
Now, firstly, check whether we are really eligible to total credit of Rs.
6 lakh or to a lesser amount. Different practices have been adopted
by persons who are manufacturer as well as a service provider:
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Chapter 15 Transition to GST
Therefore, one should determine his actual total credit balance. Take
help of the credit accounts maintained by you. The balance of credit
in the following accounts would be the actual balance.
Design of the table 5 (a) is as under (the data is just for illustration):
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Chapter 15 Transition to GST
Similarly a person can transfer the credit balances under VAT and
Entry Tax laws. These credits would be carried forward to GST as
‘State Tax’ of the respective state. However, we are not entitled to
transfer so much credit which is attributable to pending forms viz. C,
F, H & I. We are required to list out all the pending forms and
calculate the differential tax arising out of those forms. In case the
available balance is more than the differential tax then we would
transfer the excess credit. If the available balance is lesser than the
differential tax then no amount would be transferred to the e-credit
ledger. If such forms are received subsequently, we will have to seek
refund from the state government.
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Off course, in the 2nd case, we don’t have to pay the differential
amount before filing the TRAN-1. But the amount to be carried
forward would be Nil. In case we produce the forms later on, we
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Chapter 15 Transition to GST
shall be entitled to claim refund upto Rs. 8 lakh from the state
government.
On the other hand, under GST law full credit is available within the
same year in which the capital goods are received. The law allows us
to claim the balance credit through TRAN-1. In fact, if even the credit
first 50% had not been taken we can claim the entire amount through
table 6 of the TRAN-1. In this table we are required to provide
invoice wise list of the capital goods. The table 6 (a) concerns the
Central Taxes (C. Excise Duty, CVD and SAD) while the table 6 (b)
concerns state VAT and Entry Tax. The un-availed credit means the
credit admissible minus the credit already availed i.e. the amount of
balance credit that we are still eligible to avail.
Credit on closing stock of goods as on 30th June 2017 [Sec 140 (3) –
Table 7]
Those who were registered under C. Excise and VAT had availed the
credits on their stocks and the closing balance of the credit as on 30th
June, is to be transferred through table 1. But there could be other
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Chapter 15 Transition to GST
persons who had not availed the credits earlier, but are now eligible
to avail the same. These credits allowed in respect of the following
stocks as on 1st July 2017 (opening stock):
(1) Those who were not liable to be registered under the existing law:
For example a person availing SSI exemption under C. Excise
law (turnover not exceeding Rs. 1.5 Crores) might not be
registered. Such a person might be holding closing stock as on
30th of June and GST would be payable on the supplies made
after that date. Such persons are allowed to avail credit on the
said closing stock. If the person was registered under VAT
but not registered under Central Excise/ Service Tax, he
would claim only CENVAT credits. He should not claim
credit of VAT under this table because the VAT credit would
form part of his VAT return and the closing balance is to be
claimed. In table 5 (b). Of course if a person was not
registered under both the laws he would be entitled to claim
credit of both the taxes.
(3) Those who were providing ‘works contract’ service with abatement
(under Service Tax law): Under the existing law such persons
were not allowed to avail credit on inputs. Under GST law.
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Chapter 15 Transition to GST
(4) The 1st stage or 2nd stage dealer, importer, depot of manufacturer
registered under C. Excise law: although these persons were
registered, their returns did not have any reason to indicate
the opening or closing balances of credits. Therefore, it was
not possible to transfer these credits through table 5 (a).
Situations Covered: Credits have been allowed in all the four cases
discussed above. Two situations are envisaged in each case:
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Conditions for allowing credit under section 140 (3): The above
credits are allowed only if all of the following conditions are
satisfied:
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(v) The supplier of services is not eligible for any abatement under
this Act: the person would be eligible to avail credit on the
opening stock of inputs if
The following chart explains the structure of the table 7. We have yet
not discussed the table 7 (b). The same is discussed later.
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Chapter 15 Transition to GST
Part A - Duty
paying document Full Credit as per
available documents
7(a) Central
Excise, CVD,
SAD
Part B - Duty Credit = 40% or
paying document 60% of CGST paid
not available (also file TRAN-2)
Table 7
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Chapter 15 Transition to GST
Credit
Input Used for Credit Transfer Balance of
dutiable/ Credit Taken return -
taxable in return Through
output Table 5.
Declare the
Used for
Credit not stock and
exempted
taken claim in
output
Table 7
There could be cases where the goods or services are received in the
month of July, on payment of Central Excise duty or service tax. For
instance, the inputs removed on 27th of June 2017 under a C. Excise
Invoice might have been received in July. The question is how to get
credit against such document. The GST law allows the credit on such
inputs and input services (but not ‘capital goods’).
Inputs/ Input
Duty/ Tax paid
Services received in
under pre-GST law
July (latest by 30th)
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ii. The inputs removed under invoice dated 27th June were
received in our factory in July (on or before 30th July). We
record the receipt in our account books and claim the
credit through table 7 (b).
iii. The inputs were removed under a Tax Invoice dated 1st
July, 2017 issued under GST law. This credit is taken
directly in the e-Credit Ledger. The supplier uploads the
invoice data and we approve the same in our GSTR-2.
We may note that this provision does not take care of delay in
receiving documents. Thus, for instance, this provision won't help if
the goods were received in June itself, but the invoice was not
available to the excise section of the company person before filing of
the ER-1 for June. In fact, in such cases and the only way for the
recipient appears to make a claim for refund.
Further, the provision uses the words input and input services.
Therefore, it does not cover capital goods. This may have been an
inadvertent error in drafting the law, but we have to presume that
use of the words is deliberate; and that it was intention of the
lawmaker to not allow credit on capital goods in transit.
This section allows credit on the opening stocks held as on 1st July
2017 to a person who was either paying tax at a fixed rate or paying a
fixed amount in lieu of the tax payable under the existing law. For
example, under Central Excise law there was a method of payment of
duty based on production capacity. Based on capacity of the
machines installed, these persons were required to pay a fixed
amount every month. Similarly, there were products where the duty
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Chapter 15 Transition to GST
was payable on the basis of quantity and not on the basis of value.
For instance, a duty of Rs. 2 per litre on certain goods (irrespective of
its value) is the case of tax at fixed rate.
(iv) The duty paying document should not be older than one
year (i.e. it should have been issued on or after 1st July 2016).
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Chapter 15 Transition to GST
This provision applies when the service was received before 1st July,
but the invoice was received in the GST regime. The ISD can
distribute the credit even if the invoices are received on or after 1st
July 2017. For distributing the credit as credit under CGST Act, the
ISD needs to be registered under GST law. To summarise:
Sec 140 (8) provides that the person having centralised registration
can transfer the credit to e-Credit Ledger of any of his registrations
under GST. The transfer is to be effected through entry in table 8. Off
course, if the Centralised Registration and the GST Registration are in
3Transitional provisions of CGST Act have been adopted by IGST Act as well vide
section 20 (xxiv).
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Chapter 15 Transition to GST
the same state, then there is no need to use table 8. The credit should
then be transferred through table 5 (a).
a. The return for the period ending June 2017 should be filed
within three months (i.e. by September 2017). If this return is
revised, and the revision results in reduction of the credit
then only the reduced credit can be transferred. If it results in
increased credit, only the credit shown in the original return
can be transferred. The excess credit amount can be claimed
only through refund application under the Service Tax law.
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Chapter 15 Transition to GST
Under Cenvat Credit Rules, 2004 4 the person availing service tax
credit was required to reverse the credit taken by him if he fails to
pay the service provider within three months of the date of the
invoice. Sec 140 (9) allows him to re-claim this credit if he pays the
consideration to the service provider by September 2017.
Job-work provisions existed in the pre-GST law and they also exist
under the GST regime. Under the GST regime the time limit to bring
the goods back has been enhanced to one year (one year for inputs
and three years for capital goods).
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Chapter 15 Transition to GST
In all the cases the stocks lying with the job-worker are required to be
declared by the principal as well as the job-worker (by those who are
registered).
a. Where ‘B’ is not registered under GST: If the person, who wishes
to return the goods (‘B’), is not registered under GST, he can
return without payment of any tax. The recipient ‘A’ (the
original supplier) would be entitled to claim refund of the tax
paid earlier. Following conditions need to be satisfied.
• The goods should not have been removed (by ‘A’) earlier
than January 2017 (i.e. the removal should have been
during the period from January, 2017 to June 2017).
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There can be a situation where the price of goods (supplied before 1st
July) is revised later. If the price is revised upwards the supplier
should issue a supplementary invoice or debit note within 30 days of
such revision. It will be deemed that the supplementary invoice or
the debit note has been issued in respect of an outward supply made
under GST law. Once it is so deemed, then the tax payable under the
supplementary invoice or the debit note would be GST and its credit
would become admissible in terms of ITC provisions.
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Chapter 15 Transition to GST
the parties re-negotiated the prices and as a result the total value of
Rs. 10 lakh was revised to Rs. 11 lakh.
5Section 11B (2) also provides exceptions where the principal of unjust enrichment
would not apply.
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Chapter 15 Transition to GST
List of matters that are to be disposed in accordance with the existing law:
i. Refer Sec 142 (3): Refund claims for refund of Cenvat Credit,
duty, tax, interest or any other amount paid under the existing
law. This applies to the claims filed before, on or after 1st July.
ii. Refer Sec 142 (4): Claim for refund of any duty or tax paid under
existing law in respect of the goods or services exported. For
example, if goods removed for export on 25th of June 2017 on
payment of Central Excise duty were exported on 3rd August
2017, the refund of the duty would be disposed under Central
Excise Law. Thus,
iii. Refer Sec 142 (5): Claim for refund of Service Tax on the ground
that services not provided.
6 Off course his right to appeal/ revision against rejection of refund claim remains
intact. He can file appeal/ revision applications, as provided under the existing law. But
if he ultimately loses the matter, he cannot claim the credit back.
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Chapter 15 Transition to GST
iv. Refer Sec 142 (6): Proceedings relating to CENVAT credit: (appeal,
review or reference relating to a claim for CENVAT credit): This
is irrespective of whether the proceedings were initiated before,
on or after 1st July 2017. If the assessee succeeds in appeal, the
amount of credit would be refunded to him in cash. As noted
earlier the refund would not be allowed if the balance credit has
been carried forward to GST.
vii. Refer Sec 142 (9): Return, furnished under the existing law (such
as C. Excise/ Service Tax/ VAT Returns), and revised after 1st
July
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Chapter 15 Transition to GST
Supply in GST regime would attract GST even if the contract was
entered into before 1st July, 2017 [Sec 142 (10)]
‘Save as’ means ‘except as’. Analysis of the above would show that:
ii. The contract for supply is entered into before 1st July.
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Chapter 15 Transition to GST
Supplies made after 30th June, where VAT or Service Tax or both
were leviable before 30th June
8It is notable that the provision does not speak of C. Excise duty. GST is not payable to
the extent VAT was leviable. C. Excise duty was in any case leviable only on the date of
removal of the goods.
9 Once the tax became leviable in June, it becomes payable – even if it is payable or paid
after June. Thus, service tax leviable in June was payable by 6 th July. If there is a delay,
interest under service tax law would be payable. Yet, the tax to be paid would be
‘Service Tax’ and not GST.
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Chapter 15 Transition to GST
(c) where tax was paid on any supply both under the Value Added
Tax Act and under Chapter V of the Finance Act, 1994, tax shall
be leviable under this Act and the taxable person shall be entitled
to take credit of value added tax or service tax paid under the
existing law to the extent of supplies made after the appointed
day and such credit shall be calculated in such manner as may be
prescribed.
10 Section 13 of CGST Act, 2017 fixes the ‘Time of Supply’ for services.
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Chapter 15 Transition to GST
Where VAT as well as Service Tax was paid, but supply is made in GST
regime:
Take a case of works contract which is partly executed till 30th June
2017 and part thereafter. Till 30th June VAT and Service Tax both
were payable. Cenvat Credit was not available on the inputs. Credit
has been allowed not only on the inward supplies received in GST
regime, but also on the opening stocks as on 1st July. Here also, it is
possible that the supply is made in the GST regime but VAT/ Service
Tax has already been paid as per the existing law. Here, we are
required to re-calculate the amount of GST payable and adjust the
amounts of tax paid under the existing law. Let’s understand this by
way of an example. Please see the example given at the next page. It
deals with a works contract where part of the supply was made
before 1st July, 2017.
Please note that so far as the supply was made before 1st July, the tax
liability is not to be re-calculated. GST would apply only to that
portion of supply which is made on or after 1st July.
Also note that the clause (c) does not have any overriding effect over
sections 12 and 13. It means that so far such supplies are concerned,
the Time of Supply would be determined in accordance with CGST
Act.
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Chapter 15 Transition to GST
Sec 142 (11) (a) Sec 142 (11) (b) Sec 142 (11) (c)
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Chapter 15 Transition to GST
a. The goods had been sent for approval during the period 1st
January 2017 to 30th June 2017.
b. The goods are rejected or not approved by the buyer and are
returned to the seller during the period from 1st July 2017 to
31st December, 2017.
Where the goods were returned before 1st July, the same would have
been accounted in the pre-GST stock. The 2nd and the 3rd proviso to
sec 142 (12) may please be noted:
Provided also that tax shall be payable by the person who has sent
the goods on approval basis if such goods are liable to tax under this
Act, and are not returned within a period specified in this sub-
section.
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Chapter 15 Transition to GST
Thus, where the goods are returned beyond December 2017 (or
beyond the extended period, if any) then the customer who is
returning the goods would be liable to pay GST. He will have to
prepare Tax Invoice and charge GST. However, if the goods are not
returned at all, then tax would be payable by the seller.
The practical way would be that the seller first raises Tax Invoice,
pays GST and the customer takes credit. Subsequently the customer
can raise another Tax Invoice or debit note and returns the goods to
the seller on payment of GST.
We may note that the concept of sale on approval would also apply
to goods sent under regular GST regime. Section 31 (7) contains the
provision for issuance of invoice in such cases.
Thus, TDS will not be deducted again under GST Act merely because
the payment is made under GST regime.
Goods of Principal lying with Agent [Sec 142 (14) of State GST
Acts – Table 10]
This provision allows the agent to avail credit of VAT paid on the
goods lying with him as on 30th June 2017 (opening stock). The
provision is contained in the state GST Acts (not under CGST Act).
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Chapter 15 Transition to GST
The credit is allowed on the goods sent for sale as well as on capital
goods. The agent shall be entitled to take credit if the following
conditions are fulfilled:
(ii) The agent should declare the details of stock lying with
him on behalf of the principal (closing stock of 30th June
2017) in Table 10 (a) of TRAN-1. If the agent is holding
stock of several principals, he should declare the stock for
each of the principal separately. GSTIN of the principal
should be mentioned in the first column of the table.
(iii) The principal should declare the details of stock lying with
his agent (closing stock of 30th June 2017) in Table 10 (b) of
TRAN-1. If the stocks are lying with more than one agent,
he should declare the stock with each of the agents
separately. GSTIN of the agent should be mentioned in the
first column of the table11.
11Heading of the first column in the format of table 10 (b) provided under the rule is
“GSTIN of the principal”. It’s a typographical error. It should be “GSTIN of the agent”.
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Chapter 15 Transition to GST
Legal Provisions:
Sec 16 to 21: contains the basic provisions governing Input Tax Credit
Sec 140: allows transfer of credits of C. Excise Duty, Service Tax, VAT
etc. as ITC under GST.
Sec 141 deals with materials sent out for job-work and lying with the
job-workers.
395
Appendices
Index
6. About registration
7. Sample Documents:
o Tax Invoice
o Bill of Supply
o Job-Work Challan
o Receipt Voucher
o Refund Voucher
o Payment Voucher
Central Taxes
4. Service Tax
State Taxes
1. State VAT
3. Purchase Tax
4. Luxury Tax
5. Entry Tax
7. Taxes on Advertisements
397
Appendices
398
Appendices
• transportation of
passengers; or
• imparting training on
driving, flying,
navigating such
vehicles or
conveyances;
• Health services,
399
Appendices
• Travel benefits
extended to
employees on vacation
such as leave or home
travel concession.
400
Appendices
401
Appendices
Section 74 relates to
demand of tax which was
not paid by recourse to
fraud, or any wilful-
misstatement or
suppression of facts to
evade tax,
402
Appendices
403
Appendices
404
Appendices
or
(e) any body
corporate
established, by or
under any law; or
(f) any partnership
firm whether
registered or not
under any law
including
association of
persons; or
(g) any casual
taxable person
located in the
taxable territory
3. Services supplied by an An Any business entity
individual advocate individual located in the
including a senior advocate taxable territory
advocate or by a firm of including a
advocates, by way of legal senior
services, to a business advocate or
entity. firm of
advocates
4. Services supplied by an An arbitral Any business entity
arbitral tribunal to a tribunal located in the
business entity. taxable territory
5. Services provided by way Any person A body corporate or
of sponsorship to a body partnership firm
corporate or partnership located in the
firm. taxable territory.
6. Services supplied by the Central Any business entity
Central Government, Government, located in the
State Government, Union State taxable territory.
405
Appendices
406
Appendices
Note: Local Authority has been defined vide Sec 2 (69) of the CGST
Act, 2017.
407
Appendices
- Determine HSN Code/ SAC of each item. For this, you have
to describe the goods or the service in question. For example
‘staff welfare’ does not describe whether it was purchase of
food, or a bus was hired for picnic, or a medical camp was
organised for their family members.
• If the inward supply is used partly for taxable and partly for
exempted outward supply (or for business and non-business
purpose), then common credits will have to be apportioned.
408
Appendices
Compute Tax
What is HSN/
Is it taxable? (rate,
SAC?
exemption)
1That is to say the goods and services notified under Sec 9 (3) of the CGST Act or under
Sec 5 (3) of the IGST Act. In these cases, the tax is payable by recipient of the supply
even if the supplier is registered.
409
Appendices
Registration
Some Important Facts
1. While in most states registration is required to be obtained
only if the aggregate turnover exceeds Rs. 20 lakh in a
financial year, there are 11 states where the limit is only Rs. 10
lakh. These are the States of Arunachal Pradesh, Assam,
Jammu and Kashmir, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim, Tripura, Himachal Pradesh and
Uttarakhand.
410
Appendices
411
Appendices
Sample Documents
412
Appendices
ABC Limited
_______________________(address)________________________
Tel : ________, Fax: _______Email :_________
Original for Recipient
GSTIN: PAN: CIN: .
TAX INVOICE
Invoice under Section 31 of CGST Act, 2017
k
Item 1 1804 20 g 1000 20,000
Less: Discount 200
Add: Packing Charges 200
Add: Transport Charges 454
Taxable Value 20,454 28% 2,863.56 2,863.56 0.00
413
Appendices
Authorised Signatory
Principal Place of Business: 12, Priyadarshini Business Park, GB Pant Road, Mumbai - 400321
Please see rule 49 of CGST Rules, 2017 for list of the information required to
be contained in a Bill of Supply. Even the following documents would be
treated as a Bill of Supply. But it should contain all the information required
under rule 49.
- A Tax Invoice issued under CGST Act, or
- Any other similar document issued under any other Act.
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Appendices
TAX INVOICE
Invoice under Section 31 of CGST Act, 2017
Total 20,000.00
Total Invoice Amount: CGST @ 9% 1,800.00
SGST @ 9% 1,800.00
Amount received in advance: IGST@ 18%
Receipt Voucher No. Date Total 23,600.00
Amount (Value + Tax):
For ABC Ltd.
Terms: ______________________
Authorised Signatory
Note: In general, a service invoice will not have column for quantity. In the
above invoice, the job-worker wanted to show the quantity details. Hence
he has added the column.
415
Appendices
Authorised Signatory
Registered Office: 115, Lotus Corporate Park, Lodhi Road, New Delhi - 110 003
416
Appendices
PQR Ltd.
ORIGINAL FOR CONSIGNEE
____________________________
Tel : ___________; Fax : ___________; E-mail : __________
M/s. Date :
Place of Supply:
HSN Rate of
Sr. No. Description of the Goods Value Quantity
Code Tax
Authorised Signatory
417
Appendices
ABC Ltd.
ORIGINAL FOR CONSIGNEE
____________________________
Tel : ___________; Fax : ___________; E-mail : __________
Delivery Challan
Under rule 55 of CGST Rules, 2017
M/s. Date :
Place of Supply:
HSN Rate of
Sr. No. Description of the Goods Value Quantity
Code Tax
Authorised Signatory
If extra copies are prepared, the same should be marked as EXTRA COPY.
418
Appendices
ABC Ltd.
Principal Place of Business: 12, Priyadarshini Business Park, GB Pant Road, Mumbai -
400321
Tel: __________ Fax: __________ E-mail: __________
GSTIN: __________ PAN: __________ CIN: __________
Receipt Voucher
[Under sec 31 (3) (d) of CGST Act, 2017; and rule 50 of the CGST Rules, 2017]
Rate Total
Description of Goods/ HSN Taxable of Amount
Service Codes Value Tax CGST SGST IGST paid
Total
Authorised Signatory
Registered Office: 115, Lotus Corporate Park, Lodhi Road, New Delhi - 110 003
419
Appendices
ABC Ltd.
Principal Place of Business: 12, Priyadarshini Business Park, GB Pant Road, Mumbai -
400321
Tel: __________ Fax: __________ E-mail: __________
GSTIN: __________ PAN: __________ CIN: __________
Refund Voucher
[Under sec 31 (3) (d) of CGST Act, 2017; and rule 51 of the CGST Rules, 2017]
Rate Total
Description of Goods/ HSN Taxable of Amount
Service Codes Value Tax CGST SGST IGST paid
Total
Authorised Signatory
Registered Office: 115, Lotus Corporate Park, Lodhi Road, New Delhi - 110 003
420
Appendices
ABC Ltd.
Principal Place of Business: 12, Priyadarshini Business Park, GB Pant Road, Mumbai -
400321
Tel: __________ Fax: __________ E-mail: __________
GSTIN: __________ PAN: __________ CIN: __________
Payment Voucher
[Under sec 31 (3) (g) of CGST Act, 2017; and rule 52 of the CGST Rules, 2017]
Rate Total
Description of Goods/ HSN Taxable of Amount
Service Codes Value Tax CGST SGST IGST paid
Total
Total Amount paid (In words): ABC Ltd.
Authorised Signatory
Registered Office: 115, Lotus Corporate Park, Lodhi Road, New Delhi - 110 003
421
Appendices
GUARANTEE BOND
(To be used by approved Scheduled Banks)
To,
The President of India
422
Appendices
423
Appendices
due and payable and the bank of its own shall pay to the Government of
India notwithstanding (1) that the period of the guarantee or renewal or (2)
the period of the guarantee to the renewal or renewal thereof, has already
expired or (3) that the above Agreement is still pending.
For ______________________
424