Basics of the GST Act

(Relevant part)

Indirect taxes subsumed under GST

Central taxes subsumed under GST:

1. Service Tax
2. Central Excise duty
3. Additional Excise duties
4. Additional Customs Duty, also known as Countervailing Duty (CVD)
5. Special Additional Duty of Customs (SAD)
6. Central Sales Tax (CST)
7. Surcharges
8. Central CESS

State taxes subsumed under GST:

1. Value Added Tax (VAT)

2. Sales tax
3. Entertainment tax not including entertainment tax levied by local bodies
4. Luxury tax
5. Entry tax
6. Taxes on lotteries, betting, and gambling
7. State CESS and Surcharge
8. Octroi

Amendment of Indian Constitution for GST

The Constitution contains the Union List and the State List within which the power to
levy separate taxes is given to the Centre and States respectively. GST was to be levied
in such a way that both the Centre and the States received the power to levy and
collect it. Further, the legislation had to remain consistent across the Centre and the
various State/Union Territory Legislatures. To provide for this, an amendment in the
Constitution was necessary.
Constitution (101st Amendment) Act, 2016

In order to suitably implement the GST legislation, this Act resulted in the insertion,
deletion and amendment of certain Articles of the Constitution. The following matters
were dealt with as a result of these changes:

• The delineation of powers to levy and make laws with respect to GST

• The applicability and scope of the GST law

• The manner of apportionment of revenue from GST among Centre and

States

• The constitution, powers and duties of the GST Council

• The discontinuation of existing taxes to give way for GST

• The manner of providing compensation to States for loss of revenue on

account of the introduction of GST

Article 246A: Special Provision for GST

This Article was newly inserted to give power to the Parliament and the respective
State/Union Legislatures to make laws on GST respectively imposed by each of them.
However, the Parliament of India is given the exclusive power to make laws with
respect to inter-state supplies. The IGST Act deals with inter-state supplies. Thus, the
power to make laws under the IGST Act will rest exclusively with the Parliament.
Further, the article excludes the following products from the scope of GST until a date
recommended by the GST Council:

• Petroleum Crude

• High-Speed Diesel
 • Motor Spirit

• Natural Gas

• Aviation Turbine Fuel

Article 269A: Levy and Collection of GST for Inter-State Supply

While Article 246A gives the Parliament the exclusive power to make laws with respect
to inter-state supplies, the manner of distribution of revenue from such supplies
between the Centre and the State is covered in Article 269A. It allows the GST Council
to frame rules in this regard. Import of goods or services will also be called as inter-
state supplies. This gives the Central Government the power to levy IGST on import
transactions. Import of goods was subject to Countervailing Duty (CVD) in the earlier
scheme of taxation. IGST levy helps a taxpayer to avail the credit of IGST paid on import
along the supply chain, which was not possible before.

Article 279A: GST Council

This Article gives power to the President to constitute a joint forum of the Centre and
States called the GST Council. The GST Council is an apex member committee to
modify, reconcile or to procure any law or regulation based on the context of Goods
and Services Tax in India.

Article 286: Restrictions on Tax Imposition

This was an existing article which restricted states from passing any law that allowed
them to collect tax on sale or purchase of goods either outside the state or in the case
of import transactions. It was further amended to restrict the passing of any laws in
case of services too. Further, the term ‘supply’ replaces ‘sale or purchase’.

Article 366: Addition of Important definitions

Article 366 was an existing article amended to include the following definitions:

• Goods and Services Tax means the tax on supply of goods, services or
both. It is important to note that the supply of alcoholic liquor for human
consumption is excluded from the purview of GST.

• Services refer to anything other than goods.

• State includes Union Territory with legislature.

Compensation to States Under GST

This Act also contains a provision to provide for relief to states on account of the
revenue loss to the states arising due to the implementation of GST. It has a validity
period of five years. The Goods and Services Tax (Compensation to States) Act, 2017
was born as a result.

GST Council: Constitution, Functions and Decision-making

GST council is a governing body to regulate and directs each and every step for the
implementation of goods and service tax in the nation with decisions over tax rates
and further implementation measures. GST council assimilates suggestions and
regulation into one form and improvise the changes formally through notifications and
circulars with its departments and finance ministry.

Cabinet Ministry has given approval for the establishment of the GST Council while the
notification regarding the establishment of the Council was issued on Saturday the
10th day of September 2016 and the provisions came into force on Monday the 12th
day of September 2016. Also, Article 279A having provisions regarding the
establishment of the GST Council was inserted after Article 279 of THE CONSTITUTION
(ONE HUNDRED AND FIRST AMENDMENT) ACT, 2016. The Union Finance Minister is
the head of the GST Council while the First Meeting of the council was held on 22nd
and 23rd September 2016 in New Delhi.

GST Council Constitution

According to Article 279A, it is on the part of the president to give the order to
constitute the council of GST within 60 days from the 12th of September 2016 which
is already notified by the Government.

Following are the designated personnel, who will form the GST Council together:-

• The Union Finance Minister who will be the CHAIRMAN of the council;
• The Union Minister of State in charge of Revenue or Finance who will be the
MEMBER of the council;
• ONE MEMBER from each state who is Minister in charge of Finance or Taxation
or any other Minister and any one of them will be VICE CHAIRMAN of the GST
Council who will be mutually elected by them.

Note

• The Secretary of Revenue Department will work as EX-Officio Secretary to the

GST Council,
• The Chairperson of the Central Board of Excise and Customs will be the
permanent invitee in all the proceedings of the GST Council who will not have
voting rights.

Quorum and Decision-Making

• For a valid meeting of the members of the GST Council, at least 50 per cent of
the total number of members should be present at the meeting.
• Every Decision made during the meeting should be supported by at least 75 per
cent majority of the weighted votes of the members who are present and voting
at the meeting. In “article 279A” a principle is there which divides the total
weighted vote cast between Central Government and State Government:-
o The vote of the Central Government shall have the weight of one-third
of the total votes
o The votes of the State Government shall have the weight of two-thirds
of the total votes, cast in the meeting
 • Any act, decision or proceedings shall not be declared invalid on the basis of
any remaining deficiency at the time of the establishment of the GST Council
i.e.
o if there is any vacancy remaining in the Council
o if there is any defect in the constitution of the Council
o if there is any defect in the appointment of a person as a member of the
Council
o if there is any procedural non-compliance.
Functions of the GST Council

The GST council will be supposed to make the recommendation to the Union and State
on the following matters:-

• principles of levy, model Goods and Services Tax Laws, the appointment of
Goods and Services Tax levied on supplies in the course of Inter-State trade or
commerce under article 269A, and the principles that govern the place of
supply;
• for raising resources during any natural calamity or disaster, or any special rate
or rates for a specified period, to raise additional.
• as the Council may decide, any other matter relating to the goods and services
tax.
• On subsuming various taxes, cess, and surcharges in GST.
• Details of services and goods that will be subjected to GST or which will be
exempted from GST.
• On the Threshold limit below which, services and goods will be exempted from
GST.
• On GST rates including floor rate with bands of GST and any special rate for time
being to arrange resources to face any natural calamity.
• Making special provisions for the following states: Arunachal Pradesh, Assam,
Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura,
Himachal Pradesh and Uttarakhand.
• On model law on GST, Principal of levy of GST and the principals which will
govern the Place of Supply.

Key Facts about GST Council

The mission of the GST Council is to make the GST structure user-friendly, and which
is information technology-driven. GST Council is constituted as per Article 279-A of the
Indian Constitution.

• The GST Council Secretariat is located in New Delhi.

 • The main goal of the GST Council is to ensure to have one uniform tax rate for
Goods and Services across India.
• Union Revenue Secretary is the ex-officio secretary of the GST Council.
• GST Council is responsible for dictating the tax exemption, tax rate, tax laws,
and the due date of forms, keeping in mind the special rates, tax deadlines, and
provisions.

Taxability/ taxable event

SUPPLY: TAXABLE EVENT UNDER GST
Taxable event is very important matter in every tax law. Its determination is most
crucial for the proper implementation of any tax law. Taxable event is that on the
happening of which the charge is fixed. It is that event which on its occurrence creates
or attracts the liability to tax. The taxable event under GST shall be the supply of goods
or services or both made for consideration in the course or furtherance of business.
The taxable events under the existing indirect tax laws such as manufacture, sale, or
provision of services shall stand subsumed in the taxable event known as ‘supply.’

Supply under GST

In the GST system, a taxable event is called a Supply. For an event to be considered

as a supply by the government, it should have the following characteristics.

• Supply should be of goods or services.

• Supply should be taxable.
• Supply should be made by a taxable person.
• Supply should be made within a taxable territory.
• Supply should be made in exchange for cash or reward (consideration).
• Supply should be made in the course of business or in the interest of growing
a business.
Supply of goods or services

When a transaction takes place, if there is a transfer of title of goods, then it is

considered as supply of goods. For example, when you buy a pen from a retailer, the

ownership of the pen is transferred from the retailer to you, the customer.

When there is a transfer of right in goods without transfer of title, it is considered as

supply of service. For example, if you are availing transportation services, then the

right of using the service is transferred to you, while the ownership still stays with

the transportation company.

Supply should be taxable

Supply of goods or 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 a liable

to register, or a person who has voluntarily registered.

Supply between two non-taxable people will not be considered as supply under

GST.

If a person supplies goods or services in different states or has multiple business

verticals, then they are required to register separately for each state or vertical. Each

of these registered entities will be considered as a taxable person.

Supply should be made within a taxable territory

Taxable territory means any place in India 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 as

accepted as a consideration by the government.

According to CGST Act, the following activities that will be treated as supply even if it

is made without consideration.

• When a business permanently transfers or disposes its assets for which input
tax credits have been availed.
• Supply made between two related or separate persons for business purposes.
• Supply of goods by an agent on behalf of the supplier or supply received by an
agent on behalf of a customer.
• When a taxable person imports services from a related person, or from his or
her own business outside of India for business purposes.

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 a

considered as supply under GST, it has to be made for business purposes.

If supplies are made for personal purposes, it will not be considered as a supply

under GST.
Three components of supply under GST

A supply under GST has three attributes that are used to calculate the tax owed for

that transaction: place, value, and time.

• Place of Supply - This component determines whether a transaction is an

intra-state supply, an 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.

Types of supply under GST

Under the GST, supply of goods and/or services can be classified into two major

categories - Taxable supplies and Non-taxable supplies. These are further

classified into different types based on the nature of supply made.

• 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 (in other words, they are eligible for ITC).
o Regular taxable supplies - Whenever you supply an item or service
which attract a GST rate greater than 0% within India, it becomes a
regular taxable supply.
o Nil-rated supplies - Whenever you supply goods which attract 0% GST
by default, such supplies are known as nil rated supplies.
o Zero-rated supplies - Whenever you make 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

• Non Taxable Supplies

o 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.
 o Non-GST supplies - This refers to supply of items which are outside the
purview of the GST law.

Note: 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.

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 one 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.
GST Registration

Under Goods And Services Tax (GST), businesses whose turnover exceeds
the threshold limit of Rs.40 lakh (for Goods) or Rs.20 lakh lakh (for Services) as the
case may be, must register as a normal taxable person. It is called GST registration.
Further, the GST Act provides for, inter-alia, voluntary registration.

GST Composition Scheme

Composition Scheme is a simple and easy scheme under GST for taxpayers. Small
taxpayers can get rid of tedious GST formalities and pay GST at a fixed rate of
turnover. This scheme can be opted by any taxpayer whose turnover is less than Rs.
1.5 crore.

You can know whether a taxpayer opted for a composition scheme or not using
the GST search tool. Enter any GSTIN and check the ‘Taxpayer Type’ column in the
results to know whether the taxpayer is a regular taxpayer or opted for the
composition scheme.

*CBIC has notified the increase to the threshold limit from Rs 1.0 Crore to Rs. 1.5
Crores.

Eligible persons to opt Composition Scheme

A taxpayer whose turnover is below Rs 1.5 crore* can opt for Composition Scheme.
In case of North-Eastern states and Himachal Pradesh, the limit is now Rs 75*
lakh. As per the CGST (Amendment) Act, 2018, a composition dealer can also supply
services to an extent of ten percent of turnover, or Rs.5 lakhs, whichever is higher.
This amendment will be applicable from the 1st of Feb, 2019. Further, GST Council in
its 32nd meeting proposed an increase to this limit for service providers on 10th Jan
2019*. Turnover of all businesses registered with the same PAN should be taken into
consideration to calculate turnover.
*CBIC has notified the increase to the threshold limit from Rs 1.0 Crore to Rs. 1.5
Crores.

The following people cannot opt for the Composition scheme-

• Manufacturer of ice cream, pan masala, or tobacco

• A person making inter-state supplies

• A casual taxable person or a non-resident taxable person

Conditions for availing Composition Scheme:

The following conditions must be satisfied in order to opt for composition scheme:

• No Input Tax Credit can be claimed by a dealer opting for composition

scheme

• The dealer cannot supply goods not taxable under GST such as alcohol.

• The taxpayer has to pay tax at normal rates for transactions under the
Reverse Charge Mechanism

• If a taxable person has different segments of businesses (such as textile,

electronic accessories, groceries, etc.) under the same PAN, they must
register all such businesses under the scheme collectively or opt out of
the scheme.

• The taxpayer has to mention the words ‘composition taxable person’ on

every notice or signboard displayed prominently at their place of
business.

• The taxpayer has to mention the words ‘composition taxable person’ on

every bill of supply issued by him.
 • As per the CGST (Amendment) Act, 2018, a manufacturer or trader can
now also supply services to an extent of ten percent of turnover, or Rs.5
lakhs, whichever is higher. This amendment will be applicable from the
1st of Feb, 2019.

Input Tax Credit under GST

‘Input Tax Credit’ or ‘ITC’ 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.

ITC value can be reduced from the GST payable on the sales by the taxable person
only after fulfilling some conditions. These conditions given under the GST law are
more or less in line with the pre-GST regime, except for a few additional ones such as
GSTR-2B. These rules are direct and maybe stringent in nature.

Conditions to claim an input tax credit under GST

Section 16 of the CGST Act lays down the conditions to be fulfilled by GST registered
buyers to claim ITC. The conditions are summarised as follows-
Such input tax credit is eligible for claims if the goods or services purchased are
further used for business purposes and not personal use.

1. Buyer must hold such tax invoice or debit note or document evidencing
payment towards the purchase.

2. Such tax invoice or debit note is filed by the supplier in Form GSTR-1 and
it appears in the buyer’s Form GSTR-2B.
 3. From 1st January 2022, the benefit of provisional ITC claims is no longer
available as per Section 16(2)(aa). It means the amount of ITC reported
in GSTR-3B will be a total of actual ITC in GSTR-2B.

4. The buyer has received the goods and/or services.

5. The buyer must furnish the GST returns in Form GSTR-3B.

6. Where the goods are received in lots or instalments, ITC will be allowed
to be availed when the last lot or instalment is received.

7. The buyer must pay towards the supply of goods and/or services within
180 days from the invoice date. If they fail to, then the ITC already
claimed will need to be paid to the government, along with interest
payable under Section 50.* The ITC claim can be again made once the
payment is made to the supplier.

8. No ITC will be allowed if depreciation has been claimed on the tax

component of a capital good purchased.

9. ITC on a tax invoice or debit note belonging to a financial year must be

claimed within the time limit given by the GST provisions, explained in
the next section.

10. Common credit of ITC must be identified and split as it is used together
for selling both exempt and taxable supplies, and/or business and non-
business activity.

11. There are certain items listed down that are not eligible for ITC claims
under Section 17(5) of the CGST Act, known as blocked credits under
Section 17(5) of the CGST Act.

*This provision will come into force once notified by the CBIC.