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Law of Taxation

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Law of Taxation ......................................................................................................... 1

Syllabus ..........................................................................................................................3
Unit-IV ............................................................................................................................4
Goods and Services Tax Act, 2017: .................................................................5
Introduction to GST ........................................................................................... 6
Background ........................................................................................................14
Basic Concepts .................................................................................................. 18
Salient features of the Act ..............................................................................24
Kinds of GST ...................................................................................................... 29
Administration officers under this Act ......................................................... 34
Scope of supply ................................................................................................ 36
Tax liability on composite and mixed supplies .......................................... 41
Levy and collection of tax ...............................................................................46
Input tax credit ..................................................................................................52
Eligibility and conditions for taking input tax credit. ................................55

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Syllabus

Unit-I : Constitutional basis of power of taxation — Article 265 of

Constitution of India - Basic concept of Income Tax — Outlines of
Income Tax Law - Definition of Income and Agricultural Income under
Income Tax Act — Residential Status - Previous Year — Assessment
Year — Computation of Income.

Unit-II: Heads of Income and Computation — Income from Salary,

Income from House Property. Profits and Gains of Business or
Profession, Capital Gains and Income from other sources.

Unit-III: Law and Procedure — P.A.N. — Filing of Returns — Payment

of Advance Tax -- Deduction of Tax at Source (TDS) -- Double Tax
Relief — Law and Procedure for Assessment, Penalties, Prosecution,
Appeals and Grievances -- Authorities.

Unit-IV: GST ACT, 2017 – Goods and Services Tax Act, 2017:
Introduction – Background - - Basic Concepts – salient features of the
Act – Kinds of GST - CGST, SGST & IGST – Administration officers under
this Act – Levy and collection of tax – scope of supply – Tax liability on
composite and mixed supplies – Input tax credit – Eligibility and
conditions for taking input tax credit.

Unit-V: GST ACT, 2017:- Registration – persons liable for registration –

persons not liable for registration – procedure for registration –
returns – furnishing details of outward and inward supplies –
furnishing of returns – payment of tax, interest, penalty and other
amounts – tax deducted at source – collection of tax at source –
Demand and Recovery – Advance Ruling – Definitions for Advance
Ruling – Appeals and revision – Appeals to Appellate Authority –
Powers of revisional authority - Constitution of Appellate Tribunal and
benches thereof – offences and penalties.

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Unit-IV

GST ACT, 2017 – Goods and Services Tax Act, 2017: Introduction –
Background - - Basic Concepts – salient features of the Act – Kinds of
GST - CGST, SGST & IGST – Administration officers under this Act –
Levy and collection of tax – scope of supply – Tax liability on
composite and mixed supplies – Input tax credit – Eligibility and
conditions for taking input tax credit.

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Goods and Services Tax Act, 2017:

Goods and Services Tax was introduced to avoid the

cascading effect of indirect tax. India had several erstwhile
indirect taxes such as service tax, Value Added Tax (VAT),
Central Excise, etc., which used to be levied at multiple supply
chain stages. Some taxes were governed by the states and some
by the Centre. There was no unified and centralised tax on both
goods and services. Hence, GST was introduced.
On 1st July, 2017, GST laws were implemented, replacing a
complex web of Central and State taxes. Under the Indian GST,
goods and services are categorized into different tax slabs,
including 5%, 12%, 18%, and 28%. Some essential commodities
are exempted from GST, Gold and job work for diamond attract
low rate of taxation. Compensation cess is being levied on
demerit goods and certain luxury items.
CGST, SGST, and IGST have replaced all the above taxes.
However, certain taxes such as the GST levied for the inter-state
purchase at a concessional rate of 2% by the issue and
utilisation of ‘Form C’ is still prevalent. It applies to certain non-
GST goods such as Petroleum crude; High-speed diesel; Motor
spirit (commonly known as petrol); Natural gas; Aviation turbine
fuel; and Alcoholic liquor for human consumption.
Under the GST regime, the tax is levied at every point of
sale. In the case of intra-state sales, Central GST and State GST
are charged. All the inter-state sales are chargeable to the
Integrated GST.

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Introduction to GST

Goods and Services Tax (GST) is a comprehensive indirect

tax that has replaced several indirect taxes in India, such as the
excise duty, VAT, services tax, etc. GST is a single domestic
indirect tax law for the entire country. It is a consumption-based
tax imposed on products and services nationwide. The GST
attempts to simplify the tax system and guarantee that all
taxpayers pay taxes consistently and openly.
In other words, Goods and Service Tax (GST) is levied on
the supply of goods and services. Goods and Services Tax Law
in India is a comprehensive, multi-stage, destination-based tax
that is levied on every value addition.
As per Article 366(12A) of the Constitution of India, Goods
and Services Tax means a tax on supply of goods or services, or
both, except taxes on supply of alcoholic liquor for human
consumption.
For the time being, GST is not levied on petroleum
products. It is an indirect tax levied on supply of goods and
services, except on exempted goods and services. The word
used in Article 366(12A) is ‘ supply ’ and not ‘ sale ’ . Thus, stock
transfers, branch transfers will also get covered under GST.
GST is payable in the State in which goods and services
are finally consumed. Most of the indirect taxes have merged
into GST. States can levy tax on sale, within the state of
alcoholic liquor for human consumption and on petroleum
products.
Goods and Service Tax is chargeable by a registered
person/tax payer at the prescribed rates until goods and/or

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services reach their final destination, i.e. the consumer. After

reaching the final destination, i.e., the consumer, they are not
further supplied.
Every registered person/tax payer who makes supply of
goods or services or both which were leviable to tax and his
aggregate turnover in a financial year exceeds the prescribed
limit is required to register himself in the State or Union
Territory where he makes a taxable supply.
The Goods and Service Tax Act was passed in the
Parliament on 29th March 2017 and came into effect on 1st July
2017. GST has been introduced with the aim of simplifying the
indirect tax structure, removing cascading effects, and creating a
unified market for goods and services.
Objectives of GST
(1). To achieve the ideology of ‘One Nation, One Tax’: One of
the main objective of GST is to have uniformity of indirect tax
rates throughout the country. GST rates are same throughout
the country. Its motto is One Nation, One Market.
GST has replaced multiple indirect taxes, which were
existing under the previous tax regime. The advantage of having
one single tax means every state follows the same rate for a
particular product or service. Tax administration is easier with
the Central Government deciding the rates and policies.
(ii). To subsume a majority of the indirect taxes in India: GST
is a comprehensive indirect tax. Under GST, all the major
indirect taxes were subsumed into one. It has greatly reduced
the compliance burden on taxpayers and eased tax
administration for the government.

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The taxes which have been subsumed in GST include:

Central Excise Duty (except on petroleum products), Service Tax,
Value Added Tax levied by the State Government, Central Sales
Tax, Additional Customs Duties, Entry Tax, Entertainment Tax,
Luxury Tax, Tax on Lotteries, etc.
(iii). To eliminate the cascading effect of taxes: One of the
primary objectives of GST was to remove the cascading effect of
taxes. Previously, due to different indirect tax laws, taxpayers
could not set off the tax credits of one tax against the other.
Cascading effect of taxes means levy of tax on tax. Goods and
services will cost less due to removal of cascading effect of
taxes.
Under GST, the tax levy is only on the net value added at
each stage of the supply chain. This has helped eliminate the
cascading effect of taxes and contributed to the seamless flow
of input tax credits across both goods and services. Due to
input tax credit, GST would be finally paid by the consumer for
the goods and services purchased.
(iv). To curb tax evasion: GST laws in India are far more
stringent compared to any of the erstwhile indirect tax laws. The
State Government and Central Government has to administer
mainly one indirect tax, i.e., GST. Therefore, administration of
GST will be more effective. As a result, tax evasion is likely to
reduce. Previously, management of indirect taxes was a
complicated tax for the Government.
(v). To increase the taxpayer base: GST has helped in widening
the tax base in India. Previously, each of the tax laws had a
different threshold limit for registration based on turnover. As

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GST is a consolidated tax levied on both goods and services

both, it has increased tax-registered businesses. Besides, the
strict laws surrounding input tax credits have helped bring
certain unorganised sectors under the tax net.
(vi). Online procedures for ease of doing business: Previously,
taxpayers faced a lot of hardships dealing with different tax
authorities under each tax law. Now, GST procedures are carried
out almost entirely online. GST returns are filed online. The
online procedure is simple and easy. Online filing of GST returns
helps in making tax administration corruption free.
(vii). An improved logistics and distribution system: A single
indirect tax system reduces the need for multiple
documentation for the supply of goods. GST minimises
transportation cycle times, improves supply chain and
turnaround time, and leads to warehouse consolidation, among
other benefits. After abolition of octroi and entry tax restriction
on inter statement movement of goods has reduced. This has
increased the productivity of logistics companies.
With the e-way bill system under GST, the removal of
interstate checkpoints is most beneficial to the sector in
improving transit and destination efficiency. Ultimately, it helps
in cutting down the high logistics and warehousing costs.
(viii). To promote competitive pricing and increase
consumption: Uniform GST rates have contributed to overall
competitive pricing across India and on the global front. This
has hence increased consumption and led to higher revenues,
which has been another important objective achieved.

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GST has given a boost to India’s tax to GDP ratio which

helps in promoting economic efficiency and long-term growth.
GST has led to uniform tax law and it has formed a common
national market.
Characteristics of Goods and Services Tax
1. Comprehensive Indirect Tax: GST is a comprehensive
indirect tax. It has subsumed 17 indirect taxes levied by the
State Governments and the Central Government under the
earlier indirect tax regime. GST has integrated various taxes on
goods and services into one unified tax. Thus, GST has brought
about unified tax regime.
2. Consumption or Destination Based Tax: GST is payable in
the state in which goods and services are finally consumed.
Thus, it is a consumption or destination based tax.
3. Same GST Rates throughout the country: The motto of GST
is One Nation One Tax One Market. Under the GST regime, the
GST rates are same throughout the country. Earlier, the rates of
VAT/Sales Tax were different in the States.
4. Tax on Supply of Goods and Services: GST is a tax on
supply of goods and services, or both, except taxes on supply of
alcoholic liquor for human consumption. At present petroleum
products will be out of GST.
5. No Tax on due to Input Tax credit: Goods and Services Tax
belongs to family of Value Added Tax. GST is levied on the
incremental value of the goods. Further, Input Tax Credit (in
short, ITC) is allowed which avoid cascading effect of taxes.
Every registered taxable person who carries on business at any
place in India is entitled to credit of tax on inputs admissible to

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him which will be credited to the electronic credit ledger of

such person in the records of the Government. Thus, there is no
tax on tax.
6. Collection of GST by Registered Person/Tax payer: GST can
be collected only by a person/tax payer who is registered under
the Central Goods and Services tax Act, 2017. The word “Person”
includes:
(a) an individual;
(b) Hindu Undivided Family;
(c) a company;
(d) a firm;
(e) a Limited Liability Partnership;
(f) an association of persons;
(g) any corporation established by or under any Central Act,
State Act or a Government Company;
(h) any body corporate;
(i) a cooperative society;
(j) a local authority;
(k) Central Government or State Government;
(l) trust.
7. GST Collected is Payable to the Government: GST is
collected on supply of goods and services. GST collected on
supply of goods and/or services, after deduction of GST paid on
purchases of good and/or services, is payable to the
Government.
8. Multiple Rate Structure: GST has multiple rate structure. GST
rates for goods include 5%, 12%, 18%, 28% and 3%. GST rates
for services are 5%, 12%, 18% and 28%.

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9. GST belongs to family of Value Added Tax: As stated above,

Input GST can be set-off against output GST. It means that GST
is levied on the incremental value of the goods and/or services.
Thus, it belongs to the family of Value Added Tax.
10. No GST on certain Supplies: GST is not levied on the
following supplies:
(a) Education Services;
(b) Health Services (Consulting only);
(c) Electricity and water services;
(d) Salaries and Wages;
(e) Interest;
(f) Supply of Services to the Government;
(g) Supply to Embassies of other countries; and
(h) Supply to United Nations Organisation.
GST Council reviews, from time to time, the GST rates and
goods and services on which GST is to be levied to be
abolished.
11. No GST on Advance to Suppliers and from Customers:
GST is not charged when advance is received from customers
for supply of goods or services. Similarly, GST is not paid on
advance given to the suppliers for purchase of goods or services.
Legal Provisions Regarding Alcoholic Liquor, Tobacco
Products And Petroleum Products
(a) Manufacture of alcoholic liquor for human consumption has
been kept out of GST. States would continue to levy State Excise
Duty and Sales Tax/VAT on alcoholic liquor for human
consumption.

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(b) On tobacco and tobacco products the Central Government

would continue to levy Central Excise Duty in addition to GST.
GST has been levied on most of the tobacco products at the
highest tax bracket of 28%. Further, Cess has also been imposed
on most of the tobacco products.
(c) At present, petroleum products are out of GST. The specified
petroleum products are as follows:
(i) Crude Petroleum
(ii) Diesel (i.e. High Speed Diesel);
(iii) Petrol (motor spirit);
(iv) Natural Gas; and
(v) Aviation Turbine Fuel
All other fuels and petroleum products other than these
five would be covered under GST.
Basic Customs Duty on Imports, Stamp Duties and Motor
Vehicles Taxes would continue even after implementation of
GST. Entertainment Tax can be imposed by Municipality,
Panchayat, Regional Council and District Council.
GST has mainly removed the cascading effect on the sale
of goods and services. Removal of the cascading effect has
impacted the cost of goods. Since the GST regime eliminates
the tax on tax, the cost of goods decreases. Thus, GST simplifies
taxation process and helps in ease of doing business.
Also, GST is mainly technologically driven. All the activities
like registration, return filing, application for refund and
response to notice needs to be done online on the GST portal,
which accelerates the processes.

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Background

Tax Laws before GST

In the earlier indirect tax regime, there were many indirect
taxes levied by both the State and the Centre. States mainly
collected taxes in the form of Value Added Tax (VAT). Every
state had a different set of rules and regulations.
Inter-state sale of goods was taxed by the centre. CST
(Central State Tax) was applicable in case of inter-state sale of
goods. The indirect taxes such as the entertainment tax, octroi
and local tax were levied together by state and centre. These
led to a lot of overlapping of taxes levied by both the state and
the centre.
For example, when goods were manufactured and sold,
excise duty was charged by the centre. Over and above the
excise duty, VAT was also charged by the state. It led to a tax
on tax effect, also known as the cascading effect of taxes.
The following is the list of indirect taxes in the pre-GST regime:
 Central Excise Duty
 Duties of Excise
 Additional Duties of Excise
 Additional Duties of Customs
 Special Additional Duty of Customs
 Cess
 State VAT
 Central Sales Tax
 Purchase Tax, Luxury Tax, Entertainment Tax, Entry Tax
 Taxes on advertisements,
 Taxes on lotteries, betting, and gambling

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Major defects in the earlier structure of indirect taxes

The major defects in the earlier structure of indirect taxes are:
 Central Sales Tax was payable for every movement of goods
from one state to another. Even in case of stock transfers
and branch transfers, there was incident of tax and input tax
credit was not fully available. Thus, cascading effect of taxes
could not be avoided due to Central Sales Tax.
 Millions of man-hours and truck-hours used to be lost at
check costs.
 The Central Government could not impose tax on goods
beyond manufacturing level. Central Sales Tax was collected
by the Central Government and retained by the State
Government only.
Evolution of GST in India
The idea of a nationwide GST in India was first proposed
by the Kelkar Task Force on Indirect taxes in 2000. The objective
was to replace the prevailing complex and fragmented tax
structure with a unified system that would simplify compliance,
reduce tax cascading, and promote economic integration. The
Constitution Amendment Bill was introduced in 2011 but faced
challenges regarding compensation to States and other issues.
After years of deliberation and negotiations between the
Central and State Governments, the Constitution (122nd
Amendment) Bill, 2014, was introduced in the Parliament. The
Bill aimed to amend the Constitution to enable the
implementation of GST. The Constitution Amendment Bill was
passed by the Lok Sabha in May, 2015. The Bill with certain

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amendments was finally passed in the Rajya Sabha and

thereafter by the Lok Sabha in August, 2016.
Further, the Bill has been ratified by the required number
of States and has since received the assent of the President on
8th September, 2016 and has been enacted as the 101st
Constitution Amendment Act, 2016. On 1st July 2017, the GST
Law came into force.
The GST Council was notified w.e.f. 15th September, 2016.
GST Council was constituted to fix the rates of Goods and
Services Tax. The GST Council, consisting of the Union Finance
Minister and representatives from all States and Union
Territories, was established to make decisions on various aspects
of GST, including tax rates, exemptions, and administrative
procedures.
GST and Centre-State Financial Relations
The implementation of GST has brought about a
fundamental shift in the financial relations between the Central
Government and the State Governments in India. GST is a
unified tax system that replaced multiple indirect taxes levied by
both the Central and State Governments. Under GST, both the
Central and State Governments share the authority to levy and
collect taxes on goods and services. This has led to greater
harmonization and uniformity in the tax structure across States,
promoting economic integration.
In terms of revenue distribution, the GST Council plays a
crucial role. It is a joint forum consisting of the Union Finance
Minister and representatives from all States and Union
Territories. The Council makes decisions on various aspects of

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GST, including tax rates, exemptions, and revenue sharing

between the Central and State Governments.
To ensure a smooth transition to the GST regime and
address any revenue losses incurred by the States, a
compensation mechanism was established. The Central
Government was committed to providing compensation to the
States for any revenue shortfall during the initial years of GST
implementation. This compensation was meant to bridge the
gap between the expected revenue growth and the actual
revenue collected by the States.
It has fostered greater coordination, reduced tax barriers,
and streamlined the tax system, leading to improved efficiency
and competitiveness in the Indian economy. The successful
implementation of GST relies on a cooperative and consensus-
based approach between the Central and State Governments. It
has transformed financial relations, ensuring greater
coordination and efficiency in the Indian tax system.
Since its implementation, the Indian GST has undergone
various amendments and refinements based on feedback from
businesses and the evolving economic scenario. While the GST
implementation initially posed challenges for businesses in
terms of understanding the new compliance requirements and
adapting to the changes, it has gradually settled into the Indian
tax landscape.
It can be said that the history of GST in India showcases a
monumental shift in the country's tax structure, aiming to create
a more unified, efficient, and transparent indirect tax regime for
the benefit of businesses and the economy as a whole.

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Basic Concepts

The goods and services tax (GST) is an indirect federal

sales tax that is applied to the cost of certain goods and
services. The business adds the GST to the price of the product,
and a customer who buys the product pays the sales price
inclusive of the GST. The GST portion is collected by the
business or seller and forwarded to the government.
Goods that are part of every kind of movable property
other than money and securities. GST also includes crops,
actionable claims, and things attached to or forming part of the
land agreed to be severed before. Some goods not included
fruits, vegetables, food grains, milk, eggs, curd, cotton used
khadi yarn, handloom, postal items like an envelope, postal
cards etc.
Services in GST means anything other than goods, money
or securities. It comprises activities relating to the use of money
or activities related to its conversation by cash or by different
modes. This modification contains one form of currency or
denomination to another. Services not included under GST
include services by RBI, SEBI, etc.
The GST concept has removed the complication of tax
cascading. The central concept of GST was to bring once
country one tax regime. It simplified the tax collection in the
country and increased the tax revenue. The GST concept mainly
relies on levying taxes on goods and services which are
consumable.
GST is a multi-stage, destination-oriented tax imposed on
every value addition, replacing multiple indirect taxes, including

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VAT, excise duty, service taxes, etc. Under GST, both the Central
and State Governments share the authority to levy and collect
taxes on goods and services.
The GST system follows a dual structure, comprising
Central GST (CGST) and State GST (SGST), levied concurrently by
the Central and State governments, respectively. Additionally, an
Integrated GST (IGST) is levied on interstate supplies and
imports, which is collected by the Central Government but
apportioned to the destination state.
There are three taxes applicable under this system: CGST,
SGST & IGST.
 CGST: It is the tax collected by the Central Government on
an intra-state sale;
 SGST: It is the tax collected by the state government on an
intra-state sale;
 IGST: It is a tax collected by the Central Government for an
inter-state sale.
Role of GST in Price Reduction
During the pre-GST regime, every purchaser, including the
final consumer paid tax on tax. This condition of tax on tax is
known as the cascading effect of taxes.
GST has removed the cascading effect. Tax is calculated
only on the value-addition at each stage of the transfer of
ownership.
The indirect tax system under GST will integrate the
country with a uniform tax rate. It will improve the collection of
taxes as well as boost the development of the Indian economy
by removing the indirect tax barriers between states.

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Salient Features of GST:

Goods and Services Tax (GST) is a comprehensive indirect
tax levied on the supply of goods and services in India. Here are
some of the salient features of GST:
(1). One Nation, One Tax:
GST has brought about the concept of “One Nation, One
Tax, ” which means that a uniform tax rate is applicable across
the country. GST replaced multiple indirect taxes levied by the
Central and State Governments, such as excise duty, service tax,
value-added tax (VAT), and others. It brought uniformity in the
tax structure across India, eliminating the cascading effect of
taxes. This has helped in creating a unified market, reducing
compliance costs, and increasing the ease of doing business.
(2). Dual Structure:
GST operates under a dual structure, comprising the
Central GST (CGST) levied by the Central Government and the
State GST (SGST) levied by the State Governments. That is, both
the Central and State governments have the power to levy GST.
The GST Council, which is headed by the Union Finance Minister
and comprises the Finance Ministers of all the states, determines
the tax rates and other modalities of the GST.
In the case of Inter-state transactions, Integrated GST
(IGST) is applicable, which is collected by the Central
Government and apportioned to the respective State. Import of
goods or services would be treated as inter-state supplies and
would be subject to IGST in addition to the applicable customs
duties.

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(3). Destination-based Tax:

GST is a destination-based tax, levied at each stage of the
supply chain, from the manufacturer to the consumer. It is
applied to the value addition at each stage, allowing for the
seamless flow of credits and reducing the tax burden on the
end consumer.
(4). Input Tax Credit (ITC):
GST allows for the utilization of input tax credit, wherein
businesses can claim credit for the tax paid on inputs used in
the production or provision of goods and services. This helps
avoid double taxation and reduces the overall tax liability.
However, the ITC is subject to certain conditions, such as the
possession of valid tax invoices, timely filing of returns, and
payment of taxes by the suppliers.
(5). Threshold Exemption:
Small businesses with a turnover below a specified
threshold (currently, the threshold is Rs. 20 lakhs for supplier of
services/both goods & services and Rs. 40 lakhs for supplier of
goods (Intra – Sate) in India) are exempt from GST. For some
special category states, the threshold varies between Rs. 10-20
lakhs for suppliers of goods and/or services except for Jammu &
Kashmir, Himachal Pradesh and Assam where the threshold is Rs.
20 lakhs for supplier of services/both goods & services and Rs.
40 lakhs for supplier of goods (intra–Sate).
This exemption has been provided to reduce the
compliance burden on small businesses and encourage
entrepreneurship.

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(6). Composition Scheme:

The composition scheme is available for small taxpayers
with a turnover below a prescribed limit (currently Rs. 1.5 crores
and Rs. 75 lakhs for special category state). Under the
Composition Scheme, taxpayers can pay a fixed percentage of
their turnover as GST, without having to maintain detailed
records or filing regular returns. However, taxpayers under the
Composition Scheme are not eligible for ITC and cannot charge
GST on their supplies.
(7). Anti-Profiteering Measures:
To ensure that the benefits of GST are passed on to the
consumers, the government established the National Anti-
Profiteering Authority (NAA). The NAA monitored and ensured
that businesses do not engage in unfair pricing practices and
profiteering due to the implementation of GST. All GST anti-
profiteering complaints are now dealt by the Competition
Commission of India (CCI) from 1st December, 2022.
(8). Increased Compliance and Transparency:
GST aims to enhance tax compliance by bringing more
businesses into the formal economy. The transparent nature of
the tax system, with the digitization of processes and electronic
records, helps in curbing tax evasion and increasing
transparency.
GST introduced an online portal, the Goods and Services
Tax Network (GSTN), for registration, filing of returns, payment
of taxes, and other compliance-related activities. It streamlined
the process and made it easier for taxpayers to fulfill their
obligations.

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(9). Sector-specific Exemptions:

Certain sectors, such as healthcare, education, and basic
necessities like food grains, are given either exempted from GST
or have reduced tax rates to ensure affordability and
accessibility.
(10). Reverse Charge Mechanism
Under the Reverse Charge Mechanism (RCM), the recipient
of goods or services is required to pay the tax instead of the
supplier. RCM is applicable to certain specified goods and
services, and it ensures that tax is collected even from
unregistered suppliers. The RCM has been introduced to prevent
tax evasion and ensure that the tax base is widened.
(11). HSN Code
GST has introduced the use of Harmonized System of
Nomenclature (HSN) code for the classification of goods and
services. The HSN code is a globally recognized system for the
classification of goods, and it helps in the identification and
taxation of goods and services. The HSN code has been
introduced to ensure uniformity in the classification of goods
and services and reduce disputes related to classification.
GST is a landmark tax reform that has brought about
significant changes in the indirect tax system in India. The
salient features of GST such as the dual GST system, one nation,
one tax, multiple tax slabs, input tax credit, and composition
scheme have had a positive impact on various stakeholders.
The impact of GST such as the reduction in tax burden,
increased transparency, and boost to the economy has been
widely acknowledged.

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Salient features of the Act

 The Central Goods and Services Tax Act was passed in the
Parliament on 29th March, 2017, and came into effect on 1st
July, 2017.
 The Act allows for the levying and collection of taxes on the
intra-State provision of Goods and services.
 The Act contains 174 Sections arranged in 21 Chapters,
along with 3 schedules.
 The Act extends to the whole of India.
 CGST shall be applied on all forms of supply, viz., all forms of
supply of goods and services or both, such as sale, transfer,
barter, exchange, licence, rental, lease or disposal agreed to
by two parties.
 The Act broadens the scope of input tax credit, ensuring that
taxes paid on the supply of goods and services are available
for offset.
 Taxpayers can self-assess and determine the taxes they owe
under CGST.
 In the event of taxpayer default, CGST has mechanism for
recovering tax arrears, including detaining and restriction of
goods and property.
 Provisions within CGSR allow for imposing penalties or fines
in cases of non-compliance by taxpayers.
 CGST reduces the overall tax burden on various consumer
goods and services.
 CGST eliminates multiple taxes, reduces costs, simplifies
interstate business, and prevents cascading taxes.

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Objective of CGST Act, 2017:

 To levy tax on all intra-State supplies of goods or services or
both
 To broaden the base of the input tax credit by making it
available in respect of taxes paid on supply of goods or
services or both used or intended to be used in the course
or furtherance of business;
 To impose obligation on electronic commerce operators to
collect tax at source, at such rate not exceeding one per cent
of the value of taxable supplies(net), out of payments to
suppliers supplying goods or services through their portals;
 To provide for self assessment of the taxes payable by the
registered person;
 To provide for conduct of audit of registered persons in
order to verify compliance with the provisions of the Act;
 To provide for recovery of arrears of tax using various modes
including detaining and sale of goods, movable and
immovable property of defaulting taxable person;
 To provide for powers of inspection, search, seizure and
arrest to the officers;
 To establish the GST Appellate Tribunal by the Central
Government for hearing appeals against the orders passed
by the Appellate Authority or the Revisional Authority;
 To make provision for penalties for contravention of the
provisions of the proposed Legislation;
 To provide for an anti-profiteering clause in order to ensure
that business passes on the benefit of reduced tax incidence
on goods or services or both to the consumers; and

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 To provide for elaborate transitional provisions for smooth

transition of existing taxpayers to goods and services tax
regime.
Definitions
Section 2 of the Act defines terms such as actionable claim,
address of delivery, adjudicating authority, agent, aggregate
turnover, agriculturist, assessment, audit, etc.
According to section 2(1) of the Act, the term actionable
claim shall have the same meaning as assigned to it in section 3
of the Transfer of Property Act, 1882. Actionable claim is a claim
to a debt that entitles a ground of relief to the beneficiary.
According to section 2(4), adjudicating authority means
any authority appointed or authorised to pass any order or
decision under this Act, but does not include the Central Board
of Indirect Taxes and Customs, the Revisional Authority, the
Authority for Advance Ruling, the Appellate Authority, and the
Appellate Tribunal.
According to Section 2(6), Aggregate turnover means the
aggregate value of all taxable supplies (excluding the value of
inward supplies on which tax is payable by a person on reverse
charge basis, exempt supplies, exports of goods or services or
both, and inter-state supplies of persons having the PAN, to be
computed on all India basis but excludes central tax, State tax,
Union Territory Tax, Integrated Tax and cess.
According to section 2(11), assessment means
determination of tax liability under the Act, and includes self
assessment, re-assessment, provisional assessment, summary
assessment, and best judgment assessment.

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According to section 2(13), audit means the examination

of records, returns and other documents maintained or
furnished by the registered person under this Act, or the rules
made thereunder or under any other law for the time being in
force to verify the correctness of turnover declared, taxes paid,
refund claims and input tax credit availed, and to assess his
compliance with the provisions of this Act or the rules made
thereunder.
According to Section 2(30), composite supply means a
supply that consists of two or more supplies that are naturally
bundled and supplied in conjunction with one another.
According to section 2(47), exempt supply means supply
of any goods or services or both which attracts nil rate of tax or
which may be wholly exempt from tax, and includes non taxable
supply.
According to section 2(59), input means any goods other
than capital goods used or intended to be used by a supplier in
the course or furtherance of business. Section 2(60) states that
input service means any service used or intended to be used by
a supplier in the course or furtherance of business.
Input tax, according to section 2(62), means the central tax,
state tax, integrated tax or Union territory tax, charged on any
supply of goods or services or both made to a registered
person.
According to section 2(67), inward supply shall mean
receipt of goods or services or both whether by purchase,
acquisition or any other means with or without consideration.

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According to section 2(74), mixed supply means two or

more individual supplies of goods or services, or any
combination thereof, made in conjunction with each other by a
taxable person for a single price where such supply does not
constitute a composite supply.
According to section 2(78), non taxable supply means a
supply of goods or services or both which is not leviable to tax
under this Act or the IGST Act.
According to section 2(82), output tax in relation to a
taxable person, means the tax chargeable under this Act on
taxable supply of goods or services or both made by him or by
his agent but excludes tax payable by him on reverse charge
basis.
According to section 2(83), outward supply means supply
of goods or services or both, whether by sale, transfer, barter,
exchange, licence, rental, lease or disposal or any other mode,
made or agreed to be made by such person in the course of
furtherance of business;
According to Section 2(98), reverse charge means the
liability to pay tax by the recipient of supply of goods or
services or both instead of the supplier of such goods or
services or both.
According to section 2(102), services means anything other
than goods, money and securities, but includes activities relating
to the use of money or its conversion by cash or by any other
mode, from one form, currency or denomination, to another
form, currency or denomination for which a separate
consideration is charged.

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Kinds of GST

The Goods and Services Tax (GST) is a comprehensive

indirect tax provision on the supply of goods and services
across India. GST is a destination-based tax, collected at the
point of consumption instead of the point of origin.
Types of GST transactions:
There are two types of GST transactions, to ensure
equitable tax distribution between the Central and State
Government while simplifying tax compliance for businesses,
promoting economic unity, and streamlining the taxation of
goods and services across India.
(i). Inter-State transactions: This transaction takes place within
two different states where the GST is divided between the
Central government and the state consuming the goods or
utilising the service. That is, the Central Government collects
GST in the form of IGST from the taxpayer and further
distributes or allocates the proportionate share to the respective
State Governments.
(ii). Intra-State transactions: Transaction carried out within the
state is known as intra-state transaction where the GST is
divided between the central government and the state within
which the transaction happens. That is, the GST is divided
between the Centre and the respective State Government as
CGST and SGST.
Thus, on the basis of the differentiation between interstate
and intra state transactions, it is determined which type of GST
will apply.

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Introduction to CGST, SGST and IGST

The Four Different Types of GST Tax in India are:
 Integrated Goods and Services Tax (IGST)
 State Goods and Services Tax (SGST)
 Central Goods and Services Tax (CGST)
 Union Territory Goods and Services Tax (UTGST)
Additionally, the government has fixed different taxation
rates under each, which will be applicable to the payment of tax
for goods and/or services rendered.
1. Integrated Goods and Services Tax (IGST):
As per Article 269A(1) of the Constitution of India, there
will be Integrated Goods and Services Tax (IGST) on supply of
goods and services from one State to another State or from one
State to Union Territory or one Union Territory to another Union
Territory or from one Union Territory to State.
The Integrated Goods and Services Tax or IGST is a tax
under the GST regime that is applied on the interstate (between
2 states) supply of goods and/or services as well as on imports
and exports. In short, IGST is levied on supply in case of
interstate trade or commerce.
The levy and collection of IGST will be governed by the
IGST Act, 2017, as amended from time to time. Under IGST, the
body responsible for collecting the taxes is the Central
Government. After the collection of taxes, it is further divided
among the respective states by the Central Government. Further,
IGST is also levied on import of goods or services or both.
Revenue from IGST will be apportioned among the Centre and
the States on the basis of recommendation of the GST Council.

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2. State Goods and Services Tax (SGST):

The State Goods and Services Tax or SGST is a tax under
the GST regime that is applicable on intrastate (within the same
state) transactions. In the case of an intrastate supply of goods
and/or services, both State GST and Central GST are levied.
However, the State GST or SGST is levied by the state on
the goods and/or services that are purchased or sold within the
state. Therefore, levy and collection of SGST are governed by
the respective state’s SGST Act, 2017 as amended from time to
time. After the introduction of the SGST, all the state taxes such
as the value-added tax, entertainment tax, luxury tax, entry tax,
etc. were merged under SGST.
As per Article 246A of the Constitution of India, there will
be State Goods and Services Tax (SGST) and Central Goods and
Services Tax (CGST).
3. Central Goods and Services Tax (CGST)
The Central Goods and Services Tax of CGST is a tax under
the GST regime that is applicable on intrastate (within the same
state) transactions. The levy and collection of CGST are
governed by the provisions of the CGST Act, 2017 as amended
from time to time. The revenue earned from CGST is collected
by the Central Government.
Together with CGST, an equal value of SGST will also be
levied on the same intrastate supply but will be governed by
the particular state government. It is clearly mentioned in
Section 8 of the CGST Act that the taxes be levied on all
intrastate supplies of goods and/or services but the rate of tax
shall not be exceeding 14%, each.

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4. Union Territory Goods and Services Tax (UTGST)

The Union Territory Goods and Services Tax or UTGST is
the counterpart of State Goods and Services Tax (SGST) which is
levied on the supply of goods and/or services in the Union
Territories (UTs) of India. The revenue earned from UTGST is
collected by the Union Territory government.
The UTGST is applicable on the supply of goods and/or
services in Andaman and Nicobar Islands, Chandigarh, Daman
Diu, Dadra, and Nagar Haveli, and Lakshadweep. The UTGST is
governed by the UTGST Act.
It is governed by the UTGST Act, 2017 as amended from
time to time and is levied together with CGST.
Difference Between Types of GST
Type Benefiting Collecting Priority Transactions
Authority Authority of Tax which are
credit use applicable
CGST Central Central CGST, Within a single
Government Government IGST state (intrastate)
IGST Central Central IGST, Between two
Government Government CGST, different states
and State SGST. or a state and a
Government Union Territory,
i.e. interstate
SGST State State SGST, Within a single
Government Government IGST state (intrastate)
UTGST Union Union UTGST, Within a single
Territory Territory IGST Union Territory
Government Government (UT)

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CGST is the revenue of the Central Government. SGST is

the revenue of the respective State Government and Union
Territory having Legislature. UTGST is the revenue of the Union
Territory not having Legislature. IGST is levied on inter-State
supply of goods and services. It is collected by the Centre.
Current Application of the Different Types of GST
The current application of the different types of GST
percentage in India is as follows:
Type Applicable On Collected By Rate
SGST Intra-state supply of goods State 0%-28%
and services within a state Government (varies
across
states)
CGST Intra-state supply of goods Central 0%-28%
and services within a state Government
IGST Inter-state supply of goods Central 0%-28%
and services between Government
different states or Union
Territories
UTGST Intra-state supply of goods Union Territory 0%-28%
and services within a Union Government
Territory

The introduction of types of GST has made India's taxation

structure more simplified and effective. GST has raised
government revenue while lowering the burden of compliance
on businesses. Additionally, the various types of GST percentage
have ensured that the country's tax system is unified, making it
more straightforward for taxpayers to conduct business.

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Administration officers under this Act

Sections 3 to 6 of the Act, deals with the provisions

relating to Administration. According to Section 3 of the CGST
Act, 2017, the Government shall, by notification, appoint the
following classes of officers for the purposes of this Act, namely:
(a) Commissioner of State tax,
(b) Special Commissioner of State tax,
(c) Additional Commissioners of State tax,
(d) Deputy Commissioners of State tax,
(e) State Tax Officers,
(f) Assistant State Tax Officers,
(g) State Tax Inspectors, and
(h) any other class of officers as it may deem fit:
Appointment of officers (Section 4)
In case of the Central GST Act, the Board may, in addition
to the officers as may be notified under section 3, appoint such
persons as it may think fit to be the officers under this Act. The
Board may authorise any officer referred to in Sec. 3 of the Act,
to appoint officers of Central tax below the rank of Assistant
Commissioner of Central Tax for the administration of this Act.
In SGST Act, the Government shall similar powers to
appoint officers. The Commissioner shall have the jurisdiction
over the whole of the State. The Special Commissioner and an
Additional Commissioner, in respect of all or any of the
functions assigned to them, shall have the jurisdiction over the
whole of the State or where the State Government directs. All
other officers shall have jurisdiction over the whole of the State
or over such local areas as the Commissioner may specify.

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Powers of officers (Section 5)

Subject to such conditions and limitations as the Board
may impose, an Officer of Central Tax may exercise the powers
and discharge duties conferred or imposed on him under this
Act. An officer of Central tax may exercise the powers and
discharge duties conferred or imposed on him under this Act.
The commissioner may delegate his powers to any other
officer who is subordinate to him. An Appellate Authority shall
not exercise powers and discharge duties conferred or imposed
on any other officer of central tax.
In the SGST Act, the Commissioner shall be vested with
powers similar to those of the Board in CGST.
Authorization of of central tax as proper officer
The officers appointed under the SGST Act or the UTGST
Act are authorised to be proper officers under the CGST Act.
Whereas the officers appointed under the CGST Act are
authorised to be the proper officers under the SGST Act.
Where any proper officer issues an order under the CGST
Act, he shall also issue an order under the SGST Act, and vice
versa, under intimation to the jurisdictional officer of State tax
or Union Territory Tax, or central tax, as the case may be.
Where a proper officer under GST Act has initiated any
proceedings on a subject matter, no proceedings shall be
initiated by the proper officer on the same subject matter.
Any proceedings for rectification, appeal and revision,
wherever applicable, of any order passed by an officer
appointed under the GST Act.

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Scope of supply

Under the erstwhile indirect tax regime, there was no

concept of Supply. The stage at which indirect taxes were levied
varied under different tax laws. The ‘excise duty’ was charged on
goods manufactured when they were taken out of the factory.
‘ Service Tax ’ was levied based on certain rules known as the
‘point of taxation’ rules, for services rendered. A VAT would arise
on the value of the sale of goods or provision of services. The
present system has merged all taxes to maintain a single taxable
event.
In the GST system, a taxable event is called a supply. The
expression “supply” simply means all forms of supply of goods/
services.
Supply includes sale, transfer, exchange, barter, license,
rental, lease and disposal. If a person undertakes either of these
transactions during the course or furtherance of business for
consideration, it will be covered under the meaning of Supply
under GST.
Goods means every kind of movable property other than
money and securities but includes actionable claim, growing
crops, grass and things attached to or forming part of the land
which are agreed to be served before supply or under a
contract of supply.
Services means anything other than goods, money and
securities but includes activities relating to use of money or its
conversion by cash or by any other mode, from one form of,
currency or denomination, to another form, currency or
denomination for which a separate consideration is charged.

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Section 7: Scope of supply.

Section 7 of the Act deals with the Scope of Supply. It
reads thus:
(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, license, 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
(b) such activities or transactions undertaken by the Central
Government, a State Government or any local authority in which
they are engaged as public authorities, as may be notified by
the Government on the recommendations of the Council, shall
be treated neither as a supply of goods nor a supply of services.
(3) Subject to the provisions of sub-sections (1) and (2), the
Government may, on the recommendations of the Council,
specify, by notification, the transactions that are to be treated
as—
(a) a supply of goods and not as a supply of services; or
(b) a supply of services and not as a supply of goods.

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Characteristics
 Supply should be of goods or services: When a transaction
takes place, if there is transfer of title of goods, then it is
considered as supply of goods, and when there is a transfer
of right in goods without transfer of title, it is considered as
supply of service.
 Supply should be taxable: Supply of goods and services can
either be taxable or tax-exempt. Taxable supplies are goods
and services that attract GST. Tax-exempt supplies include
supply of goods or services that belong to a specific
category mentioned in the GST Act.
 Supply should be made by a taxable person: A taxable
person is defined as a person who is registered under the
GST, or is liable to register, or a person who has voluntarily
registered.
 Supply should be made within a taxable territory: Taxable
territory means any place in India to except the State of
Jammu and Kashmir.
 Supply should be made in exchange for consideration:
Consideration can be defined as a barter of goods or
services, or payment made for a supply in money, or in kind.
A prepayment or deposit toward a supply is also accepted as
a consideration by the government.
 Supply should be made in the course of business or in the
interest of growing a business: GST is applicable only on
business transactions. Hence, for a transaction to be
considered as supply under GST, it has to be made for
business purposes.

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Components of supply
A supply under GST has three components as follows:
 Place of supply: This component determines whether a
transaction is an intra-state supply, inter-state supply, or an
external trade, which determines the type of GST that will be
associated with it.
 Value of supply: This component decides the taxable value
of supply made, and thus the amount of tax that needs to
be paid for it.
 Time of supply: This component determines when the
associated taxes and GST returns are due.
Intra-state Supply And Inter-state Supply
Under the GST law, the central government will collect
CGST and SGST or only IGST depending upon whether the
transaction is intrastate or interstate, respectively.
(i). Intra-State Supply: Supply of goods and/or services is
termed as intra-State supply if the location of the supplier and
the place of supply are in the same State or Union Territory.
In Intrastate transactions, a seller has to collect both CGST
and SGST from the buyer. The CGST gets deposited with the
Central Government and SGST gets deposited with the State
Government.
(ii). Inter-state Supply: Supply of goods and/or services is
termed as inter-State supply if the location of the supplier and
the place of supply are in two different states, or in two
different union territories, or in one state and another union
territory. In an interstate transaction, a seller has to collect IGST
from the buyer.

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Types of supply under GST

Under the GST, supply of goods and/or services can be
classified into two: Taxable supplies and Non-taxable supplies.
(1). Taxable Supplies: These refer to supply of goods and/or
services that are taxable under GST. Registered taxpayers can
claim refunds on tax paid during purchases.
(i). Regular taxable supplies: Whenever an item or service
supplied attracts a GST rate greater than 0% within India, it
becomes a regular taxable supply.
(ii). Nil-rated supplies: Whenever goods supplied attract 0%
GST by default, such supplies are known as nil rated supplies.
(iii). Zero-rated supplies: Whenever a seller makes exports,
supplies to a SEZ unit or deemed exports, the GST associated
with the items or services involved becomes 0 even though the
same would attract a GST rate greater than 0% when sold within
India. Such supplies are deemed as zero rated supplies
(2). Non Taxable Supplies
(i). Exempt Supplies: The supply of exempt goods or services
do not attract GST even though they are within the purview of
GST. That said, the registered taxpayer cannot claim ITC on
inputs used for making such supplies.
(ii). Non-GST supplies: This refers to supply of items which are
outside the purview of the GST law.
The following transactions must neither be considered as a
supply of goods nor services: Supply of goods from one non-
taxable territory to another without entering India. Supply of
warehoused goods to a buyer before they pass clearance for
home consumption. Supply of goods related to high sea sales.

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Tax liability on composite and mixed supplies

The taxable event under GST is supply of goods or

services or both. GST will be payable on every supply of goods
or services or both unless otherwise exempted. Normally, goods
or services are supplied separately and these are taxed at the
rate specified for each such identifiable goods or services.
However, when two or more goods are sold in
combination it becomes difficult to identify the rate of tax to be
levied in such cases. It is for this reason, that the GST Act
identifies composite supplies and mixed supplies and provides
certainty in respect of tax treatment under GST for such supplies.
According to Section 8, the tax liability on a composite or
a mixed supply shall be determined in the following manner,
namely:
(i). a composite supply comprising two or more supplies, one of
which is a principal supply, shall be treated as a supply of such
principal supply;
(ii). a mixed supply comprising two or more supplies shall be
treated as a supply of that particular supply which attracts the
highest rate of tax.
Section 8 prescribes the method of determination of tax
liability on composite supply and mixed supply. In case of
composite supply, such supply shall be treated as supply of
principal supply and tax applicable to such principal supply
would apply to composite supply. However, in the case of mixed
supply, it should be treated as supply of goods or service
attracting highest rate of tax.

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Supplies where there are more than one goods and/or

services involved
Any supply of goods and/or services made under GST will
be classified as either wholly goods or wholly services
depending on the primary item or service supplied according to
Schedule II of the GST law. This also applies to those cases
where the supply made involves both goods and services.
While goods and services can be supplied individually, one
can also supply them as a bundle or a set using any of the
following methods of supply:
 If the goods and services supplied together are a natural
bundle (wherever it makes more sense to provide them
together than to sell them individually), then it is known as a
composite supply.
 If the goods and services supplied together are not naturally
bundled together (they are not interdependent and can also
be sold separately), then such a supply is known as mixed
supply.
Supply includes 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. It also includes import of services for a consideration
whether or not in the course or furtherance of business.
Where certain activities or transactions constitute a supply,
they shall be treated either as supply of goods or services.
Import of goods/services with consideration is considered as
supply whether for personal or business use.

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Classification of supply:
There are a few supplies which are made together with
two or more items. Such supplies are further classified into
Composite Supply and Mixed Supply.
Composite supply
A supply comprising of two or more goods/services, which
are necessarily supplied in conjunction with each other as per
frequent business practices followed in that area.
In other words, these items cannot be supplied individually.
There is a principal supply and a secondary supply in the whole
transaction. In such cases, the tax rate on principal supply will
apply to the entire supply.
E.g. Buying a Dry Fruit Gift Box for Diwali. It includes dry
fruits, a box, and a wrapper. Box and wrapper cannot be sold
individually without the main content which is dry fruit. This is a
composite supply.
Mixed Supply
A supply comprising of two or more goods/services,
wherein the supplies are independent of each other and are not
necessarily required to be sold together is called a mixed supply.
The first condition to be met for mixed supply is that ‘ it
should not be a composite supply ’ . In such cases, the tax rate
that is higher of the two supplies will be applicable to the entire
supply.
E.g Buying A Diwali gift box consisting of canned foods, sweets,
chocolates, cakes, dry fruits, aerated drink and fruit juices, etc.
Each of these items can be sold separately and are not
dependent on each other. This is a mixed supply.

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Differences between Composite Supply and Mixed Supply

Particulars Composite Supply Mixed Supply
Definition Composite supply A mixed supply is
means a supply supply of two or
made by a taxable more individual
person to a goods or services,
recipient comprising or combination
of two or more thereof, made in
goods/services or conjunction with
both, or any each other by a
combination taxable person for a
thereof, which are single price where
naturally bundled such supply does
and supplied in with not constitute a
each other in the composite supply.
ordinary course of
business, one of
which is a principal
or main supply.
Naturally Bundled Supplies are Supplies are not
naturally bundled naturally bundled
Principal Supply One of the supplies None of the
involved is Principal supplies involved is
Supply principal supply
Single Price Single Price is not Single Price is
the significant the significant
factor in a factor in a mixed
composite supply supply

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Availability of Supplies involved Supplies

Individual Supplies are not available involved are
individually available individually
Tax Treatment A Composite Supply A Mixed Supply
shall be treated as shall be treated as a
a principal supply particular supply
which attracts the
higher rate of tax
Item with highest
Main item Principal item
tax rate
Tax rate of principal Highest tax rate of
Tax rate applicable
item all the items

Time of supply in Composite and Mixed Supply

If the principal supply is a service, then the composite
supply will be treated as a supply of services. The provisions
relating to time of supply of services will apply. Similarly, in the
case of purchasing and transporting the goods, the supply of
goods is the principal supply. The composite supply will qualify
as supply of goods and the provisions relating to time of supply
of goods will apply.
If the highest tax rate belongs to a service then the mixed
supply will be treated as the supply of services. The provisions
relating to time of supply of services would be applicable.
Similarly, if the highest tax rate belongs to goods then the
mixed supply will be treated as supply of goods. The provisions
relating to time of supply of services would be applicable.

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Levy and collection of tax

Power to levy any tax is derived from the Constitution of

India. As per article 265 of The Constitution of India, no tax shall
be imposed or collected except by the authority of any Law. The
very basic for the charge of tax in any taxing statute is taxable
event, i.e. the point of time when tax will be imposed. Under
pre-GST regime, each indirect taxes has separate taxable event.
The Goods and Services Tax (GST) has been a significant
reform in India's tax system, replacing many indirect taxes and
creating a comprehensive value-added tax system.
Under the GST regime, the taxable event is supply of
goods or services or both. The levy and collection of GST are
done through two components, Central GST and State GST, and
Integrated GST in inter-state transactions. GST is levied on the
taxable value of goods and services, including transaction value,
taxes, duties, and other charges. The tax is collected from
customers by registered suppliers and deposited with the
government.
Under CGST Act, the CGST shall be levied on all intra-State
supplies of goods or services or both, except on the supply of
alcoholic liquor for human consumption.
CGST along with SGST / UTGST is leviable on intra-state
supplies. The maximum rate at which the Government can levy
CGST is 20%. Alcoholic liquor for human consumption is outside
the ambit of GST. Further petroleum crude, high speed diesel,
motor spirit, natural gas, and aviation turbine fuel is also kept
outside GST for the time being, but can be brought under its
regime from such date as may be notified.

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Section 9 of CGST Act, 2017

Section 9 of the CGST Act deals with levy and collection of
GST. Section 9 reads thus:
(1) Subject to the provisions of sub-section (2), there shall be
levied a tax called the central goods and services tax on all
intra-State supplies of goods or services or both, except on the
supply of alcoholic liquor for human consumption, on the value
determined under section 15 and at such rates, not exceeding
twenty per cent., as may be notified by the Government on the
recommendations of the Council and collected in such manner
as may be prescribed and shall be paid by the taxable person.4
(2) The central tax on the supply of petroleum crude, high
speed diesel, motor spirit (commonly known as petrol), natural
gas and aviation turbine fuel shall be levied with effect from
such date as may be notified by the Government on the
recommendations of the Council.
(3) The Government may, on the recommendations of the
Council, by notification,5 specify categories of supply of goods
or services or both, the tax on which shall be paid on reverse
charge basis by the recipient of such goods or services or both
and all the provisions of this Act shall apply to such recipient as
if he is the person liable for paying the tax in relation to the
supply of such goods or services or both.
The central tax in respect of the supply of taxable goods or
services or both by a supplier, who is not registered, to a
registered person shall be paid by such person on reverse
charge basis as the recipient and all the provisions of this Act
shall apply to such recipient as if he is the person liable for

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paying the tax in relation to the supply of such goods or

services or both.
(4) The Government may, on the recommendations of the
Council, by notification,7 specify a class of registered persons
who shall, in respect of supply of specified categories of goods
or services or both received from an unregistered supplier, pay
the tax on reverse charge basis as the recipient of such supply
of goods or services or both, and all the provisions of this Act
shall apply to such recipient as if he is the person liable for
paying the tax in relation to such supply of goods or services or
both.
(5) The Government may, on the recommendations of the
Council, by notification,3 specify categories of services the tax
on intra-State supplies of which shall be paid by the electronic
commerce operator if such services are supplied through it, and
all the provisions of this Act shall apply to such electronic
commerce operator as if he is the supplier liable for paying the
tax in relation to the supply of such services:
Provided that where an electronic commerce operator
does not have a physical presence in the taxable territory, any
person representing such electronic commerce operator for any
purpose in the taxable territory shall be liable to pay tax:
Provided further that where an electronic commerce
operator does not have a physical presence in the taxable
territory and also he does not have a representative in the said
territory, such electronic commerce operator shall appoint a
person in the taxable territory for the purpose of paying tax and
such person shall be liable to pay tax.

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Levy or Charging of GST

The following are the provisions regarding levy of GST in
summarised form:
1. Levy by registered supplier of goods and/or services: GST
is levied, i.e. charged by the supplier of goods or services, or
both, who is registered under the GST Act. It is levied each time
when the goods or services, or both, are supplied and at the
prescribed rate of GST.
2. On intra-State Supply: When the supply is intra-state, both
CGST and SGST are charged at half the prescribed rate. For
example, if the GST rate is 18%, then both CGST and SGST will
be charged @ 9% each.
3. On inter-State supply: When the supply is inter-state i.e.
outside the State, IGST is charged at the prescribed rate. For
example, if GST rate is 18%, then IGST will be charged at 18%.
4. Value on which GST is charged: When goods are sold, GST
is levied by the seller of the goods at the prescribed rate on the
net sale value after adjusting trade discount and also cash
discount, if any, given at the time of sale.
5. Input GST and Output GST: Input GST is paid on Inward
Supply. Inward Supply, in relation to a person, means receipt of
goods or services or both whether by purchase, acquisition or
any other means with or without consideration. Inward supply
may be good (inputs or capital goods) or of input services. In
simple words, Input GST is the GST paid by the purchaser of
goods or services or both on the purchases.
Input GST is paid on Outward Supply. Outward Supply, in
relation to a taxable person, means supply of goods or services

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or both, whether by sale, transfer, barter, exchange, licence,

rental, lease or disposal or any other mode, made or agreed to
be made by such person in the course or furtherance of
business. In simple words, Output GST is the GST levied and
collected by the seller of goods or services or both for and on
behalf of the Government.
Levy and Collection of GST Under IGST Act. (Section 5)
The provisions under section 5 of the IGST Act are similar
to section 9 of CGST Act except the following:
 The word CGST has been substituted by IGST under IGST Act.
 Under IGST Act, tax called integrated tax is to be levied on
all inter State supplies and on goods imported into India.
 Maximum rate under section 5(1) of the IGST Act is 40% (i.e.
20% CGST +20% UTGST)
Levy and Collection of GST Under UTGST Act. (Section 7)
The provisions under section 7 of the UTGST Act are
similar to section 9 of CGST Act, except the following:
 the word CGST has been substituted by the word UTGST
under the UTGST Act.
 under UTGST Act, tax called UT tax is be levied on all intra-
State supplies,
 maximum rate 7(1) of UTGST Act is 20%.
Composition levy.
A registered person, whose aggregate turnover in the
preceding financial year did not exceed Rs. 50 lakhs may opt to
pay, in lieu of the tax payable by him, an amount calculated at
such rate as may be prescribed, but not exceeding,-
(a) 1% of the turnover in State in case of a manufacturer,

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(b) 2.5% of the turnover in State in case of persons engaged in

making supplies referred to in clause (b) of paragraph 6 of
Schedule II, and
(c) 0.5% of the turnover in State in case of other suppliers.
However, the Government may increase the said limit of
Rs. 50 lakhs to such higher amount, not exceeding Rs. 1 crore,
as may be recommended by the Council.
The registered person shall be eligible to opt, if—
(a) he is not engaged in the supply of services other than
supplies referred to in clause (b) of paragraph 6 of Schedule II;
(b) he is not engaged in making any supply of goods which are
not leviable to tax under this Act;
(c) he is not engaged in making any inter-State outward
supplies of goods;
(d) he is not engaged in making any supply of goods through
an electronic commerce operator who is required to collect tax
at source under section 52; and
(e) he is not a manufacturer of such goods as may be notified
by the Government on the recommendations of the Council:
Where more than one registered person are having the
same PAN, the registered person shall not be eligible to opt for
such scheme unless all such registered persons opt to pay tax.
The levy and collection of GST under the GST regime have
brought significant changes to India's tax system. Its effective
implementation and continuous improvement are crucial for
achieving the government's objectives of simplifying the tax
structure, reducing the burden on taxpayers, and promoting
economic growth.

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Input tax credit

The Input Tax Credit (In short, ITC) is the tax paid by the
buyer on purchase of goods and/or services which is used to
reduce his tax liability on the sale of goods and/or services.
Thus, businesses can reduce their tax liability on sale of goods
and/or services by claiming credit to the extent of GST paid on
purchases. It means the Goods and Services Tax (GST) paid by a
taxable person on any purchase of goods and/or services that
are used or will be used for business.
Under GST, the tax paid on purchases and business
expenses are allowed as a credit against the output tax liability.
In simple words, a business can claim the tax paid on its
purchases and business expenses as a credit against the tax
liability on its sales. This is known as Input Tax Credit (ITC).
Who can claim ITC?
ITC can be claimed by a person registered under GST only
if he fulfils all the conditions as prescribed:
 The dealer should be in possession of tax invoice
 The said goods/services have been received
 Returns have been filed.
 The tax charged has been paid to the government by the
supplier.
 When goods are received in installments ITC can be claimed
only when the last lot is received.
 No ITC will be allowed if depreciation has been claimed on
tax component of a capital good
 A person registered under composition scheme in GST
cannot claim ITC.

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Cases where Input Tax Credit is not available:

GST paid is not allowed to be set-off against Output GST
in some cases. In other words, Input Tax Credit is not allowed in
certain cases. Where Input Tax Credit is not allowed, GST paid is
not treated as Input GST. GST paid debited to Expense Account
or capitalised, depending on the circumstances.
In the following cases, Input Tax Credit is not allowed:
(a) Motor Vehicle for transportation of persons having approved
seating capacity of not more than 13 persons (including driver),
except when they are used for making the following taxable
supplies:
(i) further supply of such motor vehicles; or
(ii) transportation of passenger; or
(iii) imparting training on driving such motor vehicles.
(b) Vessels and aircraft except when they are used for a purpose
similar to those mentioned in (a) (i), (a) (ii) and (a) (iii) above.
(c) Services of general insurance.
(d) Servicing, repair and maintenance insofar as they relate to
motor vehicles referred to in point (a) or vessels and aircraft
referred to in point (b).
(e) Food and beverages
(f) Outdoor catering
(g) Beauty treatment
(h) Health Services
(i) Cosmetic and health surgery
(j) Leasing of motor vehicles, vessels and aircraft referred to in
point (a) except when used for the purposes mentioned (a) (i),
(a) (ii) and (a) (iii).

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(k) Life insurance and health insurance.

(l) Membership of clubs.
(m) Membership of health and fitness centres.
(n) Travel benefits extended to employees on vacation such as
leave or home travel
Reversal of Input Tax Credit
ITC can be availed only on goods and services for business
purposes. If they are used for non-business (personal) purposes,
or for making exempt supplies ITC cannot be claimed. Apart
from these, there are certain other situations where ITC will be
reversed.
ITC will be reversed in the following cases-
1) Non-payment of invoices in 180 days
2) Credit note issued to ISD by seller
3) Inputs partly for business purpose and partly for exempted
supplies or for personal use
4) Capital goods partly for business and partly for exempted
supplies or for personal use.
5) ITC reversed is less than required- This is calculated after the
annual return is furnished. If total ITC on inputs of exempted/
non-business purpose is more than the ITC actually reversed
during the year then the difference amount will be added to
output liability. Interest will be applicable.
Under GST, taxpayers can claim an input tax credit only on
invoices uploaded by their respective suppliers. This way, the
chances of claiming input tax credits on fake invoices are
minimal. The introduction of e-invoicing has further reinforced
this objective.

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Eligibility and conditions for taking input tax credit.

Section 16 of the CGST Act lays down the eligibility and

conditions to be fulfilled by GST registered buyers to claim ITC.
Every registered person shall be entitled to take credit of
input tax charged on any supply of goods or services or both to
him which are intended to be used in the course or furtherance
of his business and the said amount shall be credited to the
electronic credit ledger of such person.
In simple, a registered taxable person under GST Act who
is paying tax in the due course or furtherance of business can
claim and avail ITC credited in electronic ledger.
No registered person shall be entitled to the credit of any
input tax in respect of any supply of goods or services or both
to him, unless
 He is in possession of a tax invoice or debit note issued by a
supplier or such other tax paying documents as prescribed;
 He has received the goods or services or both
 The details of the input tax credit in respect of the said
supply communicated to such registered person
 The tax charged in respect of such supply has been actually
paid to the Government, either in cash or through utilization
of input tax credit admissible in respect of the said supply;
 He has furnished the return under section 39.
However, where the goods against an invoice are received
in lots or installments, the registered person shall be entitled to
take credit upon receipt of the last lot or installment.
Where a recipient fails to pay to the supplier of goods or
services or both, other than the supplies on which tax is payable

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on reverse charge basis, the amount towards the value of

supply along with the tax payable thereon within a period of
180 days from the date of issue of invoice by the supplier, an
amount equal to the input tax credit availed by the recipient,
shall be added to his output tax liability, along with interest.
Where the registered person has claimed depreciation on
the tax component of the cost of capital goods and plant and
machinery, the input tax credit on the said tax component shall
not be allowed.
Where the goods or services or both are used by the
registered person partly for the purposes of any business and
partly for any other purposes, the amount of credit shall be
restricted to so much of the input tax as is attributable to the
purposes of his business.
Conditions for taking Input Tax Credit (ITC)
1. Timely Filing of GST Returns: A business can claim ITC only
if it has furnished all the GST returns required under the law.
Delay in filing GST returns can lead to the rejection of the claim.
2. Invoicing Requirements: Under GST, proper invoicing is
crucial for claiming ITC. The following are the invoicing
requirements for claiming ITC:
a. The tax invoice issued by the supplier must contain all the
details required under the law, such as the name, address, and
GSTIN of the supplier and the recipient, the description, quantity,
and value of goods or services, the rate and amount of GST
charged, etc.
b. The recipient must verify the details of the supplier and the
goods or services received before claiming the ITC.

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c. The recipient must possess a valid tax invoice or debit note or

any other prescribed document to claim ITC.
3. Matching of Invoices: Matching of invoices is a critical
condition for claiming ITC under GST. The recipient must ensure
that the details of the invoices match with the details furnished
by the supplier in his GST returns. In case of any mismatch, the
ITC claim can be rejected.
4. Reversal of ITC: A business has to reverse the ITC claimed
earlier in case of the following scenarios:
a. If the goods or services are used for non-business purposes.
b. If the recipient fails to make payment to the supplier within
180 days from the date of issue of invoice.
c. If the supplier fails to pay the tax collected to the government.
d. If the supplier has issued a tax invoice incorrectly/fraudulently.
Example:
For instance, a business buys raw materials worth Rs.
1,00,000, and the GST rate on the same is 18%. The business
will pay Rs. 18,000 as GST on the purchase. Now, when the
business sells the finished goods, it charges GST from the
customer. If the sale value is Rs. 1,50,000, and the GST rate on
the same is 18%. The GST liability on the sale will be Rs. 27,000.
In this case, the business can claim ITC of Rs. 18,000 against the
output tax liability of Rs. 27,000. The net tax liability will be Rs.
9,000 (Rs. 27,000 - Rs. 18,000).
ITC is an essential aspect of GST, and businesses can
reduce their tax burden by claiming ITC. However, the eligibility
and conditions for claiming ITC are stringent, and businesses
have to comply with them to avoid rejection of ITC claims.

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