GUIDE TO GST
Develop National Market - One Nation One Tax. Avoid cascading effect of various indirect taxes like Central Excise, Central Sales Tax, State Vat and Entry Tax (Octroi). Reduce multiplicity of indirect taxes.
Reduce distinction between goods and services to avoid overlapping of State and Central Tax on same transaction. Remove barriers in inter-State movement of goods to reduce wastage of truck time and wastage of man-hours at check posts.
National Market - about 70% achieved
Avoid cascading effect of taxes - about 60% achieved Problems due to overlapping of VAT and service tax – more or less eliminated
Abolition of check posts (but not abolition of harassment through road checks - Official Highway Robbery)
Concept of IGST is a unique idea - goods move with taxesnowhere else tried in world - it is a game changer GST on supply and not on manufacture or sale. This changes entire structure of tax
Dual structure of GST
Uniform law on goods and services all over India - great achievement
Goods and Services Tax (GST) will be on ‘supply’ of goods or services or both, in India w.e.f. 1-7-2017 (including Jammu and
SAMPLE CHAPTER I-9
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GUIDE TO GST
Develop National Market - One Nation One Tax.
Avoid cascading effect of various indirect taxes like Central Excise, Central Sales Tax, State Vat and Entry Tax (Octroi).
Reduce multiplicity of indirect taxes.
Reduce distinction between goods and services to avoid overlapping of State and Central Tax on same transaction.
Remove barriers in inter-State movement of goods to reduce wastage of truck time and wastage of man-hours at check posts.
National Market - about 70% achieved
Avoid cascading effect of taxes - about 60% achieved
Problems due to overlapping of VAT and service tax – more or less eliminated
Abolition of check posts (but not abolition of harassment through road checks - Official Highway Robbery)
Concept of IGST is a unique idea - goods move with taxesnowhere else tried in world - it is a game changer
GST on supply and not on manufacture or sale. This changes entire structure of tax
Dual structure of GST
Uniform law on goods and services all over India - great achievement
Goods and Services Tax (GST) will be on ‘supply’ of goods or services or both, in India w.e.f. 1-7-2017 (including Jammu and
Kashmir w.e.f. 8-7-2017). Area upto 200 nautical miles inside sea is ‘India’ for purpose of GST.
For supplies within the State or Union Territory - (a) Central tax (Central GST i.e. CGST) will be payable to Central Government and (b) State tax (State GST - SGST) or Union Territory Tax (UTGST - Union Territory GST) will be payable to State Government or Union Territory (as applicable). Area upto 12 nautical miles inside sea is part of State or Union territory which is nearest.
For inter-State supplies (supply from one State or Union Territory to another State or Union Territory), Integrated tax (Integrated GST i.e. IGST) will be payable to Central Government. IGST is payable if supply is beyond 12 nautical miles but upto 200 nautical miles. However, there is no IGST on high seas sale i.e. sale beyond 200 nautical miles or sale before clearance of goods from customs bonded warehouse.
In addition, GST Compensation Cess will be payable on few items like pan masala, tobacco products, coal, aerated waters and motor cars.
Basic customs duty, Social Welfare Cess, IGST and GST Compensation Cess (on goods where Compensation Cess is applicable) will be payable on import of goods.
Distinction between goods and services has been reduced. This has reduced problem of dual taxation which was faced by construction industry, works contract, food related services (like restaurants, canteens and outdoor catering), leasing and hire services and software services.
GST is based on Vat concept of allowing input tax credit of tax paid on inputs, input services and capital goods, for payment of output tax. This will avoid cascading effect of taxes.
GST is consumption based tax i.e. normally, tax is payable in the State where goods or services or both are finally consumed.
The rates of IGST - Nil, 0.25%, 3%, 5%, 12%, 18% and 28%. In case of supply within State, CGST rate will be 50% of IGST Rates and SGST/ UTGST rate for supply within the State or Union Territory will be 50% of IGST rates. Thus, CGST plus SGST/UTGST rates will be equal to IGST Rate.
Though tax is payable to both Central Government and State Government/Union Territory, control will be exercised either by State Government/Union Territory Authorities or Central Government Authorities. This will avoid dual control.
Central Excise duty will continue on petroleum products i.e. petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel. These products are out of GST at present and may be brought under GST later.
Tobacco products will be subject to excise duty plus GST.
Alcoholic liquor will be subject to State duty. This product is out of GST.
GST Council (Goods and Services Tax Council) is Apex Constitutional body which will determine policies of GST.
Note - The terms used in CGST, SGST, UTGST and IGST Acts are ‘Central Tax’, ‘State Tax’, ‘Union Territory Tax’ and ‘Integrated Tax’. However, generally, for sake of brevity, the terms used are CGST, SGST, UTGST and IGST respectively.
Nirmala Sitharaman, Minister of Finance, Government of India, presented Budget 2023-24 on 1-2-2023. Finance Bill, 2023 was also presented. Finance Bill, 2023 was passed by Parliament and became Finance Act, 2023 on 31-3-2023, after receiving assets of President. The changes will be effective from date to be notified. Some changes are w.r.e.f. 1-7-2017 itself.
The major changes made by Finance Act, 2013 are summarized below:
CGST Act, 2017
Supplier of goods can opt for composition scheme even if he is supplying goods through e-commerce operator – amendment to section 10(2)(d) and section 10(2A)(c) of CGST Act.
If the recipient does not make payment to supplier of goods or services, he will pay amount equal to ITC with interest under section 50 of CGST Act – amendment to second and third provisos to section 16(2) of CGST Act.
Proportionate reversal of Input Tax Credit will be required if there is supply of warehoused goods to any person before clearance for home consumption – Explanation to section 17(3) of CGST Act amended. [This transaction is specified in paragraph 8(a) of Schedule III of CGST Act. This activity is not ‘supply’ but still proportionate reversal of ITC is required].
CSR (Corporate Social Responsibility) activities required under section 135 of Companies Act, 2013 not eligible for ITC – insertion of section 17(5)(fa) of CGST Act.
Notwithstanding anything to the contrary contained in section 22(1) or section 24 of CGST Act, the Government may, on the recommendations of the Council, by notification, subject to such conditions and restrictions as may be specified therein, specify the category of persons who may be exempted from obtaining registration under CGST Act – substitution of section 23(2) of CGST Act w.r.e.f. 1-7-2017. Person supplying goods which are not liable to GST or are wholly exempt and an agriculturist is not required to obtain GST Registration, even if he is liable under section 22(1) or section 24 of CGST Act will not require registration even if they are liable under reverse charge, or is Input Service Distributor or is a person supplying through e-commerce operator – section 23 of CGST Act substituted w.r.e.f. 1-7-2017 giving overriding effect.
Any registered taxable person, whose registration is cancelled by the proper officer on his own motion, may apply to such officer for revocation of cancellation of the registration in such manner, within such time and subject to such conditions and restrictions, as may be prescribed – section 30(1) of CGST Act amended vide Finance Act, 2023 from date to be notified. The present words are – ‘in the prescribed manner within thirty days from the date of service of the cancellation order’.
GSTR-1 return cannot be filed after three years from due date, unless specifically permitted by a notification – section 37(5) of CGST Act inserted.
GSTR-3B, GSTR-4, GSTR-5, GSTR-5A, GSTR-6 and GSTR-7 returns cannot be filed after three years from due date, unless specifically permitted by a notification – section 39(11) of CGST Act inserted.
GSTR-9, GSTR-9C returns cannot be filed after three years from due date, unless specifically permitted by a notification – section 44(2) of CGST Act inserted.
GSTR-8 statement cannot be filed after three years from due date, unless specifically permitted by a notification – section 52(15) of CGST Act inserted.
90% of ITC refund on goods exported will be available without excluding amount of ITC provisionally accepted. The amendment is made as provision of self-assessment of ITC has been made and provisional assessment provision omitted – section 54(6) of CGST Act amended.
Mode of calculating interest on delay in refund beyond 90 days will be as prescribed – section 56 of CGST Act amended. Where the taxable person furnishes a valid return within sixty days of the service of the assessment order under section 62(1) of Customs
Act, the said assessment order (of non-filers of return) shall be deemed to have been withdrawn but the liability for payment of interest under section 50(1) of CGST Act or payment of late fee under section 47 of CGST Act will continue – section 62(2) of CGST Act as amended by Finance Act, 2023 from date to be notified. The present limit is 30 days. Where the registered person fails to furnish a valid return within sixty days of the service of the assessment order under section 62(1), he may furnish the same within a further period of sixty days on payment of an additional late fee of one hundred rupees for each day of delay beyond sixty days of the service of the said assessment order and in case he furnishes valid return within such extended period, the said assessment order shall be deemed to have been withdrawn, but the liability to pay interest under section 50(1) of CGST Act or to pay late fee under section 47 of CGST Act shall continue – proviso to section 62(2) of CGST Act as amended by Finance Act, 2023 from date to be notified.
Section 109 of CGST Act (Constitution of Appellate Tribunal and benches thereof) and section 110 of CGST Act (President and Members of Appellate Tribunal, their qualifications etc.) have been completely changed and entirely new provisions have been made by Finance Act, 2013 effective from date to be notified.
Penalty on e-commerce operator if supply procured from unregistered supplier or details not correctly furnished in GSTR-8 – section 122(1B) of CGST Act inserted.
Some offences de-criminalized. Monetary threshold for prosecution increased to two crores except in case of bogus invoices – amendment to section 132(1) of CGST Act.
Provisions relating to composition of offence liberlised and compounding amount reduced - amendment to section 138(1) and 138(2) of CGST Act.
Provision relating to Consent based sharing of information furnished by taxable person introduced to enable recipient and supplier to get specified details of his supplier and recipient for purpose of e-way bill, e-invoice etc. – section 158A of CGST Act inserted.
Following transactions appearing in Schedule III of CGST Act were not ‘supply’ and hence not taxable w.e.f. 1-2-2019 – Paragraph 7. Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India, paragraph 8 (a) Supply of warehoused goods to any person before clearance for home consumption (b) Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the
goods have been dispatched from the port of origin located outside India but before clearance for home consumption. This exclusion will be from 1-7-2017 itself and hence will not be taxable even during period 1-7-2017 to 1-2-2019 – Amendment to Schedule III of CGST Act w.r.e.f. 1-7-2017.
IGST Act
Definition of ‘non-taxable online recipient’ simplified to cover any unregistered person and person liable under TDS only – section 2(16) of IGST Act substituted.
Definition of OIDAR services amended by omitting the words ‘essentially automated and involving minimal human intervention’ – section 2(17) of IGST Act amended.
If both supplier and recipient of services are in India, place of supply will be India even if goods are for exports and are destined out of India. If supplier and recipient of service are in same State, CGST and SGST/ UTGST will be payable and if in different States, IGST will be payable –proviso to section 12(8) of IGST Act omitted.
Section 13(9) of the IGST Act shall be omitted from date to be notified. Thus, in case of transportation of goods, residuary provision under section 13(2) of IGST Act i.e. location of recipient will be place of supply, where location of supplier or location of recipient of service is outside India.
GST Compensation Cess
Schedule to GST (Compensation to States) Act is amended vide Finance Act, 2023 w.e.f. 1-4-2023, to provide for payment of GST Compensation Cess on basis of MRP printed on package, in case of Pan Masala and Tobacco and manufactured tobacco substitutes, including tobacco products.
IGST (Integrated GST) is payable on supply of goods or services or IGST is intermediary tax mainly on B2B (Business to Business) transactions. It is not envisaged as final tax as input tax credit of IGST will be available to recipient in another State. If IGST is paid on B2C transaction (Business to Customer), the State where goods or services or both are consumed will get their share of SGST.
IGST Rate is double the CGST rate and will be uniform all over India.
IGST will ensure that goods or services or both and taxes move together across the country, which will ensure seamless and tax free movement of goods and services within the country.
In view of IGST, there will be no need to claim refund of input taxes, except in case of physical exports and supplies to SEZ. Refund is also permissible in case of inverted duty structure i.e. tax on output is less than tax payable on inputs and input goods (except in few cases).
Exports and supplies to Special Economic Zones (SEZ) are zero rated i.e. input tax credit will be available even if tax is not paid on output. This will make exports and supplies to SEZ really tax free. Supply from SEZ to DTA unit will be treated as ‘import’ by DTA unit and customs duty will be payable.
IGST, concept of ‘supply’ instead of sales and removal of distinction between goods and services are game changers in GST.
IGST is a unique concept nowhere else been tried in the world.
IGST Act is small but very important Act [It can be compared with Central Sales Tax Act].
‘Integrated tax’ means the integrated goods and services tax levied under Integrated Goods and Services Tax Act - section 2(12) of IGST Act [In this write-up, the tax is termed as IGST and Act is termed as IGST Act for sake of brevity].
The IGST Act carries important definitions relating to export and import of goods, export and import of services, location of supplier and recipient of services, taxable territory and zero rated supply [section 2 of IGST Act].
As per Article 246A(2) of the Constitution of India as amended w.e.f. 16-9-2016, Parliament will have exclusive powers to make laws with respect of goods and services tax where the supply of goods, or of services, or both takes place in the course of interState trade or commerce. Under this constitutional authority, section 5(1) of IGST Act imposes tax on inter-State supply.
Section 5(3) of IGST Act make provisions in respect of reverse charge in case of notified services. Section 5(4) of IGST Act provides for reverse charge when supplies are received from specified persons in specified cases.
Parliament may, by law, formulate principles for determining (a) place of supply of goods or services (b) when supply of goods or services or both are in the course of inter-State trade or commerce
- Article 269A(2) of the Constitution of India inserted w.e.f. 16-92016. Under this constitutional authority - (a) Sections 7, 8 and 9 of IGST Act define inter-State and intra-State supply (b) Sections 10 to 13 of IGST Act make provisions of place of supply. IGST and GST Compensation Cess payable on supply of goods by a retail outlet established in the departure area of an international airport, beyond the immigration counters, is exempted w.e.f. 1-72019. The retail outlets are entitled to claim refund of Input Tax Credit.
Section 16 of IGST Act defines exports and supplies to SEZ as ‘zero rated supply’.
As per Article 269A(1) of Constitution of India (inserted w.e.f. 16-9-2016), IGST collected by Union will be apportioned between Union and States as per law made by Parliament on the recommendation of GST Council. Sections 17 and 18 of IGST Act make provisions for such apportionment under this constitutional authority.
Section 20 of IGST Act provides that provisions of CGST Act shall mutatis mutandis apply to IGST Act.
Some States, particularly producing States like Maharashtra, Gujarat, Tamil Nadu, Punjab, Karnataka may lose tax revenue due to abolition of Central Sales Tax. Such States will be paid compensation by Central Government for five years.
To enable Central Government to pay the compensation, a GST Compensation Cess has been levied on supply of goods or services or both within India and also on import of goods and services. Sections 3 to 7 of GST Cess Act provide for mode of calculating compensation payable to States.
Input Tax Credit of GST Compensation Cess will be available, but the input tax credit in respect of GST Compensation Cess can be utilised only towards payment of GST Compensation Cess.
CGST Rules, 2017 will apply to GST Compensation Cess mutatis mutandis apply [except rules 3 to 7 and 117 to 120] - Notification
No. 2/2017-Compensation Cess, dated 1-7-2017.
GST Compensation Cess will continue upto 31-3-2026.
Each State Government has passed its own State GST Act to impose SGST on supply of goods or services or both within the State.
GUIDE TO GST
These State GST Acts are practically copies of CGST Act. The definitions and provisions are identical. There are some variations in transitory provisions and provisions relating to input tax credit, to adapt CGST Act to SGST Act.
Central Sales Tax is continuing to be applicable to petroleum products. In case of procurement of these products, C form can be issued even if the final product is covered under GST.
In case of Union Territories which do not have legislature, UTGST (Union Territory Goods and Services Tax) will be payable. Parliament has passed Union Territory Goods and Services Act, 2017 [UTGST Act] for this purposes.
The Union Territories to which UTGST Act applies are as follows
- (a) Andaman and Nicobar Islands (b) Lakshadweep (c) Dadra and Nagar Haveli, Daman and Diu (d) Chandigarh; and (e) other territory [as amended w.e.f. 26-1-2020 vide Regulations 1 and 2 of 2020 dated 24-1-2020, issued by President of India [Also amended vide Finance Act, 2020].
For the purposes of CGST Act and UTGST Act, each of the territories specified above shall be considered to be a separate Union territory. Thus, IGST will be payable when supply is made from one Union Territory to another.
Delhi, Puducherry and Jammu and Kashmir have their own legislatures and they have their own GST Act.
“Other territory” includes territories other than those comprising in a State and those referred above - section 2(81) of CGST Act. This will cover Exclusive Economic Zone (except territorial waters). Thus, ‘other territory’ means area inside sea between 12 nautical miles to 200 nautical miles. UTGST will apply for supply of goods and services within that area. However, it is not possible to obtain GST registration there, as it is not possible to have ‘fixed establishment’ at that place.
Supply of goods or services or both in the course or furtherance of business is ‘taxable event’ in GST as that event triggers liability to pay GST [section 9(1) of CGST and SGST Act]
Definition of ‘business’ is wide. Even occasional supply can be ‘business’.
Supply covers all forms of supplies like sale, barter, rental, lease, exchange or disposal, made or agreed to be made.
Supply of goods and services for consideration is always taxable. Consideration means something in return. It need not be in form of cash. It can be in any other form.
In case of activities specified in Schedule I of SGST and CGST Act, supply is taxable even if there is no consideration.
Supply by taxable person to related person is subject to GST even if there is no consideration i.e. no amount is charged.
This will cover transactions between group companies (like deputation of persons, supply of goods on loan basis, common facilities shared by group companies), transactions between branches in different States. Even services supplied by taxable person to its branch or division outside the State or within the State with different GSTIN will be subject to GST.
Free gifts to related persons will be subject to GST.
Employer and Employee have been defined as ‘related persons’. Hence, a view is clearly possible that GST may be payable on fringe benefits by employer to employees like transport, meals, telephone etc. provided to employees. PIB Press Release dated 10-7-2017, had stated that GST will not be payable on such fringe benefits to employees. However, that clarification cannot be held as law.
Gifts upto Rs. 50,000 to employees will not be subject to GST, but input tax credit will have to be reversed. The word ‘gift’ has to be interpreted as understood in trade parlance e.g. supply of meals in canteen cannot be termed as ‘gift’.
Supply between two distinct persons in course of business is subject to GST. This will cover inter-State stock transfers, branch transfers, services by Banks and telecom companies in one State to their own branches in another State and the like.
Supply by principal to agent is subject to GST. Thus, GST is payable on supplies to C&F Agents. However, commission agent has to pay GST only on his commission as he does not deal with goods or services.
Import of services from related person or from business establishment outside India is subject to GST even if there is no consideration. Branch/Head Office in India receiving free services from Head Office/outside India will be subject to GST. Lottery, betting and gambling is subject to GST.
Lottery tickets are goods and GST will be payable. GST will also be payable on services relating to betting and gambling. Some services provided by Government (except sovereign activities) and by Local Authority are taxable and mostly will be subject to reverse charge i.e. GST will be payable by taxable person receiving the service from Government or Local Authority.
Alcoholic liquor and petroleum products [petroleum crude, HSD, petrol, natural gas and aviation turbine fuel] are presently outside GST. Petroleum products will be brought in GST at later stage. Petroleum products other than those specified above are subject to GST.
Though tax is payable whether supply is goods or services, distinction has been made in some cases. This is given in Schedule II of CGST and SGST Act.
This distinction is relevant to determine place of supply and time of supply and also for valuation and composition schemes.
Hire purchase of goods and financial lease is ‘goods’. Supply of goods in club is taxable.
Development of software is ‘service’. However, software in physical form will still be ‘goods’, whether as packaged software or tailormade software.
Permanent transfer of Intellectual Property Rights [IPR like patent, copyright, trade marks, designs] are ‘goods’.
Lottery, betting and gambling is taxable as ‘goods’ but any other Actionable Claim is not subject to tax.
Free gifts to non-related persons is not subject to GST, but input tax credit will have to be reversed.
Securities and money are not ‘goods’. However, facilitating or arranging transactions in securities is a service and subject to GST.
Though tax is payable whether supply is goods or services, distinction has been made in some cases. This is given in Schedule II of CGST and SGST Act.
Hire or operating lease of goods is ‘service’.
Renting, leasing of immovable property is ‘service’.
Works contract of immovable property (mainly construction and erection and commissioning related) is ‘service’.
Supply of food by way of or as part of service is ‘service’.
Development of software is ‘service’. However, software in physical form is still be ‘goods’.
Temporary transfer or permitting use or enjoyment of IPR (Intellectual Property Right) like patent, design, copyright is service. Permanent transfer of IPR is ‘goods’.
Job work is ‘service’. GST will be payable on job work charges, unless some specific exemption has been given.
Service (like transport, canteen, telephone, etc.) supplied by employer to employee can be taxed under GST.
Obligation to refrain from act or tolerating an act or situation is ‘service’. This will cover Late Delivery Charges, Penalties for breach of contracts, Notice pay from employees, demurrage.
Some supplies are neither goods nor services. These are given in Schedule III of CGST and SGST Act.
Money is neither goods nor services. Hence, ‘supply of money’ i.e. loan, investments, dividend, profit distribution among partners is not subject to GST. However, interest is for use of money and subject to GST [though exempt except in case of (a) delayed payment (b) credit card]. Thus, interest is ‘exempt supply’.
Securities are neither goods nor services. Hence, ‘supply of securities’ i.e. supply of shares, debentures, bonds, units of mutual fund, derivatives is not subject to GST. However, GST will be payable by stock brokers and mutual fund agents, as they themselves do not supply securities. They only facilitate or arrange supply of securities.
Sale of land or duly and fully constructed building (after possession) is neither goods nor services. Hence, GST is not payable. However, GST is payable on sale of TDR (Transferable Development Rights), transfer of development rights in land and long term lease of immovable property.
Actionable claims like assignment of unsecured loans, securitisation is not subject to GST. However, GST is payable on lottery, betting and gambling.
Services of Court or Tribunal are neither supply of goods nor supply of services.
