PRINCIPLES OF TAXATION II

Unit 1: Indirect Taxes: An overview:

Introduction to GST:
Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of
goods and services in India. It replaces various indirect taxes like Central Excise Duty,
Service Tax, and Value Added Tax (VAT) with a single, uniform tax across the country. GST
is a consumption-based tax, meaning it is payable in the state where the goods or services are
consumed. It is designed to eliminate the cascading effect of taxes and simplify the taxation
process, making it easier for businesses to comply and for the government to manage. GST is
levied at different rates depending on the type of goods or services and can be categorized
into Central GST (CGST), State GST (SGST), and Integrated GST (IGST) depending on
whether the transaction is within a state or across states.
Here are the key features of GST:
 One Nation, One Tax: GST replaces multiple taxes, creating a uniform tax system across
India to avoid cascading taxes.
 Dual Structure: GST is divided into Central GST (CGST) and State GST (SGST). For
inter-state transactions, Integrated GST (IGST) is applied and distributed between the
central and state governments.
 Destination-based Tax: GST is applied at each step of the supply chain, ensuring value is
added at every stage, ultimately reducing the tax burden on consumers.
 Input Tax Credit (ITC): Businesses can claim credit for tax paid on inputs, avoiding
double taxation and lowering the overall tax liability.
 Threshold Exemption: Small businesses with low turnover are exempt from GST to
reduce their compliance burden.
 Composition Scheme: Small businesses can opt for a simplified GST process, paying a
fixed percentage of their turnover if they fall under prescribed turnover limits.
 Online Compliance: GST compliance is streamlined through the Goods and Services Tax
Network (GSTN) portal, making tax filing easier.
 Anti-Profiteering Measures: Businesses must pass on GST benefits to consumers, and the
National Anti-Profiteering Authority (NAA) ensures this.
 Increased Compliance and Transparency: GST promotes greater transparency,
digitalization, and proper record-keeping, improving tax compliance.
 Sector-specific Exemptions: Certain sectors like health, education, and food grains are
either exempt from GST or have reduced rates to ensure affordability.
 Central Taxes Subsumed: GST replaces several central taxes, including Central Excise
Duty, Additional Duties of Excise, Additional Duties of Customs (Countervailing Duty),
Special Additional Duty of Customs (SAD), Service Tax, and cesses and surcharges
related to the supply of goods or services.
 State Taxes Subsumed: GST also subsumes various state taxes, such as State Sales Tax
(VAT), Central Sales Tax (CST), Purchase Tax, Luxury Tax, Entry Tax, Entertainment Tax
(except for those levied by local bodies), Taxes on Advertisements, Taxes on Lotteries,
Betting, and Gambling, and State Cesses and Surcharges related to the supply of goods or
services.
 Applicability: GST applies to all goods and services except alcohol for human
consumption. Additionally, tax on five specified petroleum products (crude oil, petrol,
diesel, aviation turbine fuel, and natural gas) will be introduced at a later date, as
recommended by the GST Council.
Need for GST:
1. Elimination of Cascading Taxation: Before GST, multiple taxes like VAT, service tax,
excise duty, and CST were levied at different stages of the supply chain, leading to tax-
on-tax or cascading taxation. GST simplifies this by providing a single, unified tax
structure, ensuring that the tax paid at each stage can be credited against the tax payable
on the next stage, eliminating the cascading effect.
2. Unification of Tax System: India had a fragmented tax system with separate state and
central taxes. GST harmonized and subsumed several indirect taxes into one, creating a
unified tax system. This made it easier for businesses to operate across states without
having to deal with multiple tax regimes.
3. Boost to the Economy: GST helps in fostering a "One Nation, One Tax" system that
reduces tax evasion and increases compliance. By bringing businesses into the formal
economy and digitizing the process, GST helps broaden the tax base, which can lead to
higher revenues for the government and better public services.
4. Improvement in Ease of Doing Business: The introduction of GST streamlined the tax
process, making it more transparent, efficient, and easier for businesses to comply with. It
reduces the complexity of filing returns, audits, and maintaining tax records.
5. Encouragement of Interstate Trade: By replacing the Central Sales Tax (CST), which was
a tax on interstate sales, GST promotes smoother interstate trade. The introduction of
Integrated GST (IGST) allows for seamless movement of goods across state borders
without the tax-related hindrances that previously existed.
6. Simplified Taxation for Small Businesses: With provisions like the Composition Scheme,
GST has reduced the compliance burden on small businesses by allowing them to pay a
fixed percentage of tax on their turnover. This makes it easier for small businesses to
manage their taxes without complex procedures.
7. Increased Transparency and Reduced Corruption: GST's online, transparent system
reduces the scope for corruption and discretionary powers exercised by tax authorities.
The real-time tracking of transactions and digital invoicing ensures greater accountability.
Evolution of GST in India:
 2000: The Vajpayee Government initiated discussions on GST by setting up an
Empowered Committee, led by Asim Dasgupta (West Bengal Finance Minister), to design
the GST model.
 2003: The Kelkar Task Force recommended the removal of inefficient and distortionary
taxes for a comprehensive GST based on the “single national tax” principle.
 2005: Union Finance Minister P. Chidambaram proposed GST in his budget speech,
suggesting the inclusion of both the Centre and States in the tax regime. He set April 1,
2010, as the proposed date for GST rollout.
 2006-07: Chidambaram reiterated the proposal for GST in his budget speech.
 2008: The Empowered Committee presented a report titled ‘A Model and Roadmap for
Goods and Services Tax in India’ on April 30.
 2009: The first Discussion Paper on GST was released by the Empowered Committee,
seeking feedback from industry, trade bodies, and the public.
 2011: On March 22, the Constitution (115th Amendment) Bill was introduced in the Lok
Sabha to enable GST and allow both Centre and States to make laws for levying it. The
Bill lapsed with the dissolution of the 15th Lok Sabha.
 2014: The Constitution (122nd Amendment) Bill, 2014, was introduced to address GST-
related issues.
 2015: The Constitution (122nd Amendment) Bill, 2014, was passed by the Lok Sabha on
May 6.
 2016: The Bill passed the Rajya Sabha on August 3 with 9 amendments. The Lok Sabha
passed the modified Bill on August 8.
 After obtaining approval from half the States, the Bill was sent to the President for assent.
 2016 (September 8): The President gave assent to the Constitution (122nd Amendment)
Bill, clearing the way for the GST rollout.
Constitutional Aspects of GST:
The Constitution (One Hundred and First Amendment) Act, 2017, is a significant reform in
the Indian taxation system. This amendment introduced the Goods and Services Tax (GST)
in India.
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.

Art 246A: Special provision with respect to goods and services tax:
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
Art 269A: Levy and collection of goods and services tax in course of inter-State trade or
commerce:
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.
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 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.
Article 270: Distribution of the goods and services tax (GST) between the Centre and the
States:
Article 270 is amended to provide for distribution of the goods and services tax between the
Centre and the States, by order of the President after considering recommendations of the
Finance Commission.
This applies for those tax amounts apportioned or payable to the Central Government for
taxes levied by it under articles 246A(1) and (2) and Clause (1) of 269A.
Art 271: Surcharge on certain duties and taxes for purposes of the Union:
Article 271 provides provisions for the center to levy surcharges on certain taxes and duties.
The entire proceed will go to the center. Article 271 is an exception to Article 269 and Article
270. The imposition and collection of the surcharge are also done by the Union and the State
has no role to play in it.
A surcharge is an extra fee, charge, or tax that is added to the cost of a product or service
after the initial price has been quoted. Surcharges are frequently added to existing taxes and
are not included in the advertised price of the good or service. The fee could indicate
governments' need to raise funds for additional services, a hike to cover the expense of rising
commodity prices, such as a fuel levy, or an additional fee on your Telephone bill for access
to emergency services.
Article 271 has the following key elements:
 Parliament has the power to increase any duty or tax anytime by levying a surcharge
except in the case of GST mentioned under Article 246A.
 All the proceeds obtained from the surcharges will be part of the consolidated fund of
India.
 All the amount from such an increase in tax shall be retained by the parliament and it
is not shared amongst the states.
 Further, no authority has the power to prevent the Parliament from imposing a
surcharge.
Unit 2: GST In India:
Dual GST Model:
The dual GST model or the dual GST structure means levying tax with two different taxation
components. In India, both the Central Goods and Service Tax (or CGST) and the State
Goods and Service Tax (or SGST) are the components levied on a single transaction within a
state due to its federal nature.
In other words, under the dual GST structure, both the central and state governments can
charge and collect taxes through the appropriate legislation.
Also, both the governments are assigned with separate responsibilities and administration, as
given under the division of powers statute of the Indian Constitution. A dual GST structure is
formulated to align with the Indian Constitutional requirements of fiscal federalism.
The dual GST model can be either concurrent or non-concurrent. In the concurrent dual GST
model, the taxes are levied by both the Centre and states simultaneously but independently. It
is based on the place of supply of goods and services. In contrast, the non-concurrent dual
GST model requires the tax on goods to be charged and collected by states while the tax on
services by the Centre.
Types of GST:
We have two types of GST transactions, intra-state and inter-state, 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.
1. Inter-state transactions: This transaction occurs between 2 different states. The Central
Government collects GST in the form of IGST from the taxpayer and further distributes /
allocates the proportionate share to the respective State Governments.
2. Intra-state transaction: This transaction occurs within the same state only. Here the GST is
divided between the Central and the respective State Government as CGST and SGST
Thus, on the basis of the differentiation between interstate and intrastate transactions, it is
determined which type of GST will apply, CGST (Central Goods and Services Tax) or SGST
(State Goods and Services Tax) or IGST (Integrated Goods and Services Tax) or UTGST
(Union Territory Goods and Services Tax).
There are 4 types of GST in India, they are:
1. CGST (Central Goods and Services Tax)
2. SGST (State Goods and Services
3. IGST (Integrated Goods and Services Tax)
4. UTGST (Union Territory Goods and Services Tax)
*To understand the types, one must keep in mind that GST is a destination-based tax and the
burden of tax is on the ultimate consumer. Thus, the GST amount is received by the
destination state i.e. state where the goods are actually consumed and not by the state, where
the goods originated from or were manufactured.
1. CGST (Central Goods and Services Tax): CGST is the tax collected by the Central
Government. It is similar to SGST in the sense that it is also collected on an intrastate
transaction (within the same state). All businesses that are registered under the GST
system must file CGST returns on a regular basis and must include information on their
intra-state transactions in the filings.
For instance: When a businessman from Madhya Pradesh sells items for Rs. 5,000 to a
consumer in Madhya Pradesh, then equal parts of CGST and SGST will apply to the
transaction. If there is an 18% GST charge, it will be split 9% into CGST and 9% to SGST.
In this instance, the supplier would charge total of Rs.5,900 where Rs,5,000 is the taxable
value and Rs.900 is the total GST amount which is equally distributed between the Central
Government as CGST Rs. 450, and similar amount to the State Government as SGST.
2. SGST (State Goods and Services Tax): Similar to CGST, SGST is the tax collected by the
state Government through an intrastate transaction. However, the state imposes SGST
only on any commodities or services that are bought or sold within the state. The money
collected through SGST is claimed and governed only by that state. After the
introduction of the GST system, many state-level indirect taxes were subsumed into the
 SGST, simplifying the tax structure within each state. However, SGST is not a single,
unified tax, and states retain the power to levy certain additional taxes.

For instance: As per the example provided above, GST is split equally between Central and
State Governments in intrastate transactions. The merchant would charge a total of Rs. 5,900,
and the State Government will charge GST in the form of SGST of Rs. 450, similar to the
Central State Government.
3. IGST (Integrated Goods and Services Tax): It is a tax under the GST system that is
imposed on imports, exports, and interstate (between two states) sales of goods and/or
services. The Central Government collects GST in the form of IGST.
For instance: When a businessman from Madhya Pradesh sells items for Rs.5,000 to a
consumer in Uttar Pradesh, then IGST will apply to the transaction. If there is an 18% GST
charge, the merchant would charge a total of Rs.5,900. IGST will be Rs.900 and will be
collected by the Central Government.
Thus, to differentiate between SGST, CGST and IGST; On one hand, CGST and SGST apply
to intrastate transactions (inside the same state) while IGST applies to interstate transactions
(between different states). Further, in intrastate transactions, GST is divided equally between
the Central and State Governments in the form of CGST and SGST, as explained above.
Whereas GST under interstate transactions is collected only by the Central Government in
the form of IGST.
4. UTGST (full form- Union Territory Goods and Services Tax): UTGST is imposed on the
supply of products and/or services in the Union Territories (UTs) of India. In the
Andaman and Nicobar Islands, Chandigarh, Daman Diu, Dadra Nagar Haveli, and
Lakshadweep, products and/or services are subject to the UTGST. The Union Territory
Government is in charge of collecting the UTGST revenues.
It is important to note here that there is no specific SGST, CGST, UTGST, or IGST rate, the
GST rate is fixed at various slabs of 5% GST, 12% GST, 18% GST, and 28% based on the
supply made determined by HSN or SAC. Once the GST is calculated and paid, it is
distributed to the Central, State, and UT depending on the nature of the transaction.
Transition from multiple taxes to one tax regime:
Unit 3 & 4: Concept of Supply under GST:
Concepts of supply including types of supply:
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.

Supply has two important elements:

 Supply is done for a consideration
 Supply is done in course of furtherance of business
If the aforementioned elements are not met with, it is not considered as a sale. However, as
specified in Schedule I of GST Act, certain activities are considered as supply even if it is
made without consideration. Import of services for a consideration whether or not in the
course or furtherance of business.
Consideration is defined to include any payment made or to be made, whether in money or
otherwise, or any act or forbearance, whether or not voluntary, in respect of, in response to,
or for the inducement of the supply of goods or services, whether by the person or by any
other person. As such, consideration received can be in monetary form or in kind or both.
Under Schedule I of the CGST Act, certain transactions are considered a supply without
consideration. Even though no money is exchanged, these activities are still subject to GST.
The key transactions covered in Schedule I include:
1. Permanent Transfer or Disposal of Business Assets: If a business permanently transfers or
disposes of goods that were used in the course of its business, it is considered a taxable
supply, even without consideration. This also includes when business assets are
transferred for personal use.
2. Supply Between Related or Distinct Persons: Any supply of goods or services between
related persons (such as between a parent company and a subsidiary) or distinct persons
(i.e., entities under separate GST registrations but part of the same business structure) is
treated as a supply under GST, even if no money is involved. This ensures that
transactions within a business structure are taxed appropriately.
3. Import of Services for Business: Services imported by a person for the course or
furtherance of business, even without consideration, are treated as taxable supplies under
GST.
4. Gifts: Gifts up to a value of Rs. 50,000 per year by an employer to his employees are
outside the ambit of the new GST Registration. However, the gifts of a value greater than
Rs. 50,000, which are made without consideration, are subject to the GST, when made in
the course or furtherance of business.
5. Principal to Agent and Agent to Principal Transactions: When goods or services are
supplied by the principal to the agent (or vice versa) with no consideration, it is still
considered a supply under GST. The supply is deemed taxable because the agent acts on
behalf of the principal in a business context. This applies when the agent receives goods
or services for resale or further supply.
Schedule II - Activities or Transactions Treated as Supply of Goods or Services:
1. Transfer of Goods:
 Transfer of title in goods is a supply of goods.
 Transfer of rights in goods without title transfer is a supply of services.
 Transfer of title under an agreement with payment due later is a supply of goods.
2. Land and Building:
 Lease, tenancy, or licence to occupy land is a supply of services.
 Lease or letting out of buildings (for business/commercial use) is a supply of services.
3. Treatment or Process:
 Any treatment or process applied to another person's goods is a supply of services.
4. Transfer of Business Assets:
 Transfer or disposal of business assets (whether for consideration or not) is a supply
of goods.
 Using business goods for private use or non-business purposes is a supply of services.
 If a taxable person ceases business, the goods are deemed supplied unless the business
is transferred.
5. Supply of Services:
 Renting of immovable property is a supply of services.
 Construction of a complex/building for sale is a supply of services unless payment is
made post-completion.
 Temporary transfer or use of intellectual property is a supply of services.
 IT software development or customization is a supply of services.
 Agreement to refrain or act is a supply of services.
 Transfer of the right to use goods is a supply of services.
6. Composite Supply:
 Works contracts and supply of food or drinks for human consumption are treated as a
supply of services.
7. Supply of Goods:
 Supply of goods by an unincorporated body to a member for consideration is a supply
of goods.
Activities or transactions not considered sale of goods or services under Schedule III of the
GST Act:
1. Services by employees to employers
2. Funeral, burial, crematorium, or mortuary services, including transportation of the
deceased
3. Services provided by courts or tribunals
4. Duties performed by MPs, MLAs, MLCs, or local body members
5. Duties performed by chairpersons, members, or directors of bodies set up by the
government or local authority
6. Duties performed by persons holding posts under the Constitution
7. Sale of land
8. Sale of buildings (except when part of a construction project sold before completion,
which is treated as a supply of services)
9. Actionable claims (excluding lottery, betting, and gambling)
10.Supply of goods between non-taxable territories without entering India
11.Supply of warehoused goods to any person before clearance for consumption
12.Supply of goods by consignee via endorsement of title documents, before clearance for
home consumption after goods are dispatched from outside India
These transactions are excluded from being treated as taxable supplies under GST.
*Section 7 (3) has given certain powers to issue notification with respect to:
 Determine whether a transactions is a supply of goods
 Determine whether a transaction is a supply of service
 Declare whether a particular transaction is neither a supply of goods nor a supply of
services
Types of Supply:
Supplies under GST are primarily classified into two broad categories:
1. Taxable Supplies
Taxable supplies are those which are subject to GST. Businesses involved in such supplies
must register under GST and comply with related obligations. These supplies can be further
classified into:
1. Regular Taxable Supplies: This is the most common type, encompassing the sale or
transfer of goods or services for a consideration, attracting a standard GST rate.
2. Zero-Rated Supplies: While these supplies are taxable, the applicable GST rate is zero.
This category often includes exports.
3. Reverse Charge Supplies: In certain cases, the recipient of the supply, rather than the
supplier, is liable to pay GST. This mechanism is employed for specific transactions like
job work or imports.
2. Non-Taxable Supplies
 Exempt Supplies: Exempt supplies are those specifically excluded from the purview of
GST. While no GST is levied on these supplies, businesses dealing in exempt supplies
might still need to register under GST if their turnover exceeds the prescribed threshold.
Examples include:
 Agricultural produce
 Certain educational services
  Newspapers
 Non-GST Supplies: These supplies are entirely outside the scope of GST. They are
neither taxable nor exempt. Examples include:
 Sale of immovable property
 Transactions in securities
 Personal use of goods or services
Composite and Mixed Supply:
Specific rates for goods and services have been defined by the GST Council. GST Rate for
each type of goods and services have been defined in the GST Law. So if you are supplying a
particular good or a service rates are easy to identify. However, sometimes supply of a good
and service may be connected or may be done together even though not connect. Say for
example, an AC is supplied and AC installation services are also supplied along with it. The
GST Act defines how such supply must be rated. Therefore, the concept of composite supply
and mixed supply becomes important. It helps to determine the correct GST rate and
provides uniform tax treatment under GST for such supplies.
Under GST, bundled supply refers to two or more goods or services that are naturally
combined and provided together, usually at a single price. The items are typically used
together, and one is considered the principal supply, while others are supplementary.
Composite supply means a supply is comprising two or more goods/services, which are
naturally bundled and supplied in with each other in the ordinary course of business, one of
which is a principal supply. It means that the items are generally sold as a combination. The
items cannot be supplied separately.
A supply of goods and/or services will be treated as composite supply if it fulfils the
following criteria:
 Supply of 2 or more goods or services together; AND
 It is a natural bundle, i.e., goods or services are usually provided together in the normal
course of business.
 They cannot be separated.
The tax rate of the principal supply will apply on the entire supply.
Mixed supply under GST means a combination of two or more goods or services made
together for a single price. Each of these items can be supplied separately and is not
dependent on any other.
Under GST, a mixed supply will have the tax rate of the item which has the highest rate of
tax. For example- A Diwali gift box consisting of canned foods, sweets, chocolates, cakes,
dry fruits, aerated drink and fruit juices supplied for a single price is a mixed supply. All are
also sold separately. Since aerated drinks have the highest GST rate of 28%, aerated drinks
will be treated as principal supply and 28% will apply on the entire gift box.
Unit 5: Charge of GST (Including reverse charge):
The Forward Charge Mechanism (FCM) under GST is the standard method for collecting
tax. In this mechanism, the supplier of goods or services is responsible for charging GST on
the sale and paying it to the government. The buyer, in turn, can claim Input Tax Credit
(ITC) on the tax paid, if eligible.
Example: A manufacturer selling goods to a retailer would charge GST to the retailer, who
will then pass on the tax to the final consumer. The manufacturer remits the collected tax to
the government.
This is the most common method used for tax collection under GST.
Input Tax Credit (ITC) under GST:
ITC allows businesses to reduce the amount of GST they pay on sales by claiming credit for
the tax they have already paid on purchases.
When a business buys goods or services, they pay GST on those purchases (called input tax).
When the business sells the final product, they charge GST on sales (called output tax). ITC
allows the business to subtract the input tax from the output tax, so they only need to pay the
difference to the government.
Example: If a business paid ₹100 GST on purchases and collected ₹200 GST from a
customer on a sale, the business only pays ₹100 to the government ( ₹200 collected - ₹100
paid).
Benefit: ITC prevents double taxation, ensuring businesses don’t pay tax on the same value
multiple times.
Reverse Charge Mechanism:
Typically, the supplier of goods or services pays the tax on supply. Under the reverse charge
mechanism, the recipient of goods or services becomes liable to pay the tax, i.e., the
chargeability gets reversed.
The objective of shifting the burden of GST payments to the recipient is to widen the scope
of levy of tax on various unorganized sectors, to exempt specific classes of suppliers, and to
tax the import of services (since the supplier is based outside India). Only certain types of
business entities are subject to the reverse charge mechanism.
As per section 2(98) of CGST act, “The reverse charge means the liability to pay tax by the
recipient of supply goods /services/both instead of supplier of goods/services/both under
section 9(3) & 9(4) of the act or under section 5(3) & 5(4) of IGST act.
Section 9(3) and 9(4) of Central GST and State GST Acts govern the reverse charge
scenarios for intrastate transactions. Also, sections 5(3) and 5(4) of the Integrated GST Act
govern the reverse charge scenarios for inter-state transactions.
Registration: A person who is required to pay tax under reverse charge has to compulsorily
register under GST and the threshold limit of Rs. 20 lakhs (Rs. 10 lakhs for special category
states except J & K) is not applicable to them.
The Reverse Charge Mechanism is applicable in the case of:
 Imports
 Purchase from an unregistered dealer
 Supply of notified goods and services
Features Of RCM:
Expanded Scope:
In the GST law, the scope of reverse charge is expanded to include goods that may be
notified, even if the supplier is registered.
No Partial Reverse Charge:
Under service tax laws, there was scheme of partial reverse charge of joint charge on
supplier and recipient. In GST, the concept has been discontinued.
Compulsory Registration:
The person who are required to pay tax under reverse charge are required to be registered,
irrespective of the threshold limit specified in section 22(1).
Concessional Composite Rate Not Applicable:
The composition suppliers being recipients of supplies on which tax is payable on reverse
charge basis, will have to remit tax at the applicable rates, and not the concessional
composition rates.
Applicability of Reverse Charge:
1. Supply by Unregistered Dealer (Sec 9(4) of the CGST Act):
In case an unregistered person is selling goods or providing any services to the registered
person, then the liability to pay tax shifts on the registered person i.e. the recipient of
goods/services, where such supply is of taxable supplies. No reverse charge mechanism in
the case of exempted supplies.
The tax will be paid by the registered dealer and all the provisions of the act will be
applicable to him as if he is the supplier of the goods or services The concept behind this is
to prevent tax evasion since it would be almost impossible to collect tax from the
unregistered dealer. It would increase tax compliance and promote transparency. Input credit
will be allowed to the registered dealer for the tax paid by him under the reverse charge
mechanism.
This extra compliance under the Act will force all the registered persons to purchase goods
only from the registered dealers and this is what the new regime aims at.
2. Supply of certain goods and services specified by the CBIC (Sec 9(3) of the CGST Act):
As per the powers conferred in section 9(3) of CGST Acts, the CBIC has issued a list of
goods and services on which reverse charge is applicable.
3. Supply of services through an e-commerce operator (Sec 9(5) of the CGST Act):
All types of businesses can use e-commerce operators as an aggregator to sell products or
provide services. Section 9(5) of the CGST Act states that if a service provider uses an e-
commerce operator to provide specified services, the reverse charge will apply to the e-
commerce operator and he will be liable to pay GST. This section covers the services such
as:
 Transportation services to passengers by a radio-taxi, motor cab, maxi cab and
motorcycle. For example – Ola, Uber.
 Providing accommodation services in hotels, inns, guest houses, clubs, campsites or other
commercial places meant for residential or lodging purposes, except where the person
supplying such service through electronic commerce operator is liable for registration due
to turnover exceeding the threshold limit. For example – Oyo and MakeMyTrip.
 Housekeeping services, such as plumbing and carpentering, except where the person
supplying such services through electronic commerce operators are liable for registration
due to turnover beyond the threshold limit. For example, Urban Company provides the
 services of plumbers, electricians, teachers, beauticians etc. In this case, Urban Company
is liable to pay GST and collect it from the customers instead of the registered service
providers.
Also, suppose the e-commerce operator does not have a physical presence in the taxable
territory. In that case, a person representing such an electronic commerce operator will be
liable to pay tax for any purpose. If there is no representative, the operator will appoint a
representative who will be held liable to pay GST.
The Manner of Payment of GST under the Reverse Charge Mechanism
As per section 49(4) of CGST Act’2017, ITC can be used for payment of output tax only.
Therefore, tax under reverse charge can be paid through cash only without availing the
benefit of ITC. The supplier must mention in his tax invoice whether the tax is payable on
reverse charge.
Input Tax Credit:
The service recipient can avail of Input Tax credit on the Tax amount that is paid under
reverse charge on goods and services. The only condition is that the goods and services are
used or will be used for business or furtherance of business.
If the composite dealer falls under the reverse charge mechanism then the dealer is ineligible
to claim any credit of tax paid. The tax will be paid at the normal applicable rates and not at
the composition rates.
Unit 6: Composition Scheme under GST:
It is, in effect, a tax-paying mechanism offered to the country’s small businesses to impart
benefits like reduced tax compliance and paperwork alongside lower taxation liabilities.
Businesses with a turnover of less than Rs. 1.5 crore can opt for the Composition Scheme
under GST and pay their taxes at a fixed rate of their annual turnover.
For instance, those registering under this scheme can pay their taxes at the rates of 1% to 6%
of their total turnover and file one quarterly and one annual return each year. Alternatively,
those not registered under this scheme need to submit 4 GST returns each year – 3 monthly
and one annual.
This scheme is also applicable to the real estate sector with respect to under-construction,
ready and affordable homes.
The composition scheme is an alternative method of tax levy under GST designed to
simplify compliance and reduce compliance costs for small taxpayers.
The main feature of this scheme is that the business or person who has opted to pay tax
under this scheme can pay tax at a flat %age of turnovers every quarter, instead of paying tax
at a normal rate every month.
Eligibility:
As mentioned before, taxpayers with annual turnover below Rs. 1.5 crore can opt for this
scheme. Further, for Himachal Pradesh and the North-Eastern states, this limit has been
further reduced to Rs. 75 lakh per year. This cap is, however, set solely for manufacturers,
traders and restaurants that do not serve alcohol.
For service providers, the cap is set at Rs. 50 lakh.
One must remember here that the collective turnover of businesses registered under the same
PAN will be taken into account while gauging their eligibility to avail the benefits extended
under GST Composition Scheme.
Who cannot opt for Composition Scheme:
The following people cannot opt for the scheme-
 Manufacturer of ice cream, pan masala, or tobacco.
 A person making inter-state supplies or exempt supplies.
 A casual taxable person (A casual taxable person is an individual who wants GST
registration for a few temporary days. These individuals are usually selling goods for a
particular event) or a non-resident taxable person.
 A person supplying services through an e-commerce operator who is required to collect
TCS under the CGST Section 52.
 A manufacturer of such goods or supplier of such services notified by the Government on
the recommendations of the GST Council.
Conditions for availing Composition Scheme:
To opt for the composition scheme, the following conditions must be met:
1. No Input Tax Credit: Dealers cannot claim ITC under the scheme.
2. No Non-taxable Goods: Alcohol and other non-taxable goods cannot be supplied.
3. Reverse Charge Mechanism: Tax must be paid at normal rates for transactions under
reverse charge.
4. Multiple Business Segments: If the dealer has multiple businesses under the same PAN
(e.g., textiles, electronics), all must be registered under the scheme or none.
5. Display Requirement: The words ‘composition taxable person’ must be displayed on
business notice boards.
6. Bill Requirement: The words ‘composition taxable person’ must appear on every bill of
supply.
7. Supply of Services: As of Feb 1, 2019, a manufacturer or trader can supply services up to
10% of turnover or ₹5 lakhs, whichever is higher.
Unit 7: GST Exemptions: An Overview:
Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of goods
and services in India. However, to ensure fairness and cater to essential services, the
government has provided specific exemptions under GST.
Legal services:
Legal services refer to any service provided by an advocate, law firm, or arbitral tribunal in
relation to legal proceedings or legal consultation. These services include litigation, advisory,
and representational activities.
Legal Provisions Governing GST Exemption for Legal Services: Entry 45 of Notification
No. 12/2017-Central Tax (Rate) exempts services provided by:
 An individual advocate (including a senior advocate)
 A firm of advocates
 An arbitral tribunal
Section 7(2) of the CGST Act, 2017, read with Schedule III, classifies certain legal services
as neither supply of goods nor services.
1. Legal services provided by an arbitral tribunal to the following persons will be exempt
 Any person other than a business entity.
 A business entity with an aggregate turnover upto Rs. 20 lakhs in the preceding
financial year (Rs. 10 lakhs in the case of special category states).
2. Legal services provided by an individual or a firm of advocates to the following persons
will be exempt
  an advocate or partnership firm of advocates providing legal services.
 any person other than a business entity.
 A business entity with an aggregate turnover up to Rs. 20 lakhs in the preceding
financial year (Rs. 10 lakhs in the case of special category states).

3. Legal services provided by a senior advocate to the following will be exempt,

 Any person other than a business entity
 A business entity with an aggregate turnover up to Rs. 20 lakhs in the financial year
(Rs. 10 lakhs in the case of special category states)
Examples of Exempted Legal Services:
 Representation before courts and tribunals by advocates
 Advisory services provided by individual advocates
 Arbitration services by arbitral tribunals
Rationale for GST Exemption on Legal Services
 To ensure access to justice by reducing the cost burden on litigants
 To support independent professionals like advocates who serve the public interest
 To uphold constitutional mandates, such as the right to legal representation
Government services:
Government services cover a broad range of functions provided by Central, State, and Local
governments that are essential for governance and public welfare.
Legal Provisions Governing GST Exemption for Government Services: Entry 6-9 and 61 of
Notification No. 12/2017-Central Tax (Rate) exempts services provided by the Government
or local authority.
Entry 6: Exemption of Services by Government and Authorities
Services provided by the Central Government, State Government, Union Territory, or local
authority are generally exempt, except for the following:
1. Services by the Department of Posts, such as speed post, express parcel post, life
insurance, and agency services provided to anyone other than the Government.
2. Services related to an aircraft or vessel, inside or outside port/airport premises.
3. Transport services for goods or passengers.
4. Any other service provided to business entities, not covered in the above categories.
Entry 7: Exemption of Services by Government to Small Businesses
Services provided by the Central Government, State Government, Union Territory, or local
authority to a business entity with an aggregate turnover of up to ₹20 lakh ( ₹10 lakh for
special category states) in the preceding financial year are generally exempt.
However, the following services are excluded from this exemption:
1. Services by the Department of Posts like speed post, express parcel post, life insurance,
and agency services to non-government entities.
2. Services related to aircraft or vessels, inside or outside port/airport premises.
3. Transport services for goods or passengers.
4. Services related to renting of immovable property.
Entry 8: Exemption of Services Between Government Authorities:
Services provided by the Central Government, State Government, Union Territory, or local
authority to another Central Government, State Government, Union Territory, or local
authority are generally exempt from GST.
However, the following services are excluded from this exemption:
1. Services by the Department of Posts like speed post, express parcel post, life insurance,
and agency services provided to non-government entities.
2. Services related to aircraft or vessels, inside or outside port/airport premises.
3. Transport services for goods or passengers.
Entry 9: Exemption for Low-Value Services by Government Authorities:
Services provided by the Central Government, State Government, Union Territory, or local
authority are exempt from GST when the consideration for such services does not exceed
₹5,000.
However, this exemption does not apply to the following:
1. Services by the Department of Posts like speed post, express parcel post, life insurance,
and agency services provided to non-government entities.
2. Services related to aircraft or vessels, inside or outside port/airport premises.
3. Transport services for goods or passengers.
Additionally, for continuous services (as per Section 2(33) of the CGST Act), the exemption
applies only if the total consideration does not exceed ₹5,000 in a financial year.
Entry 61: Exemption for Certain Government Services:
Services provided by the Central Government, State Government, Union territory or local
authority by way of issuance of passport, visa, driving licence, birth certificate or death
certificate.
Examples of Exempted Government Services
 Issuance of birth and death certificates by municipal corporations
 Tax collection and compliance activities
 Law and order maintenance services by police

Rationale for GST Exemption on Government Services

 To prevent unnecessary tax burden on citizens for services that are part of governance
 To maintain the affordability of essential government services
 To align with constitutional mandates on governance
Health care Services:
Health care services include medical diagnosis, treatment, and preventive care provided by
hospitals, clinics, and medical practitioners. Health care services are classified under public
welfare activities, making them eligible for exemptions
Legal Provisions Governing GST Exemption for Health Care Services: Entry 46 and 74 of
Notification No. 12/2017-Central Tax (Rate).
Entry 46:
Services by a veterinary clinic in relation to health care of animals or birds.
Entry 74: Exemption for Healthcare Services
The following healthcare services are exempt from GST:
1. Health care services provided by a clinical establishment, authorized medical
practitioners, or paramedics.
2. Transportation of a patient in an ambulance (excluding those specified in the first
category).
Examples of Exempted Health Care Services
 Treatments provided by hospitals and clinics
 Diagnostic services such as MRI and blood tests
 Emergency ambulance services
Rationale for GST Exemption on Health Care Services
 To make medical services affordable for the general public
 To encourage preventive and curative health care
 To reduce the financial burden on patients

UNIT 8: Time of Supply

Time of Supply is a fundamental concept in taxation, especially under indirect tax regimes
such as GST (Goods and Services Tax), VAT (Value Added Tax), and Sales Tax. It refers to
the point in time when a transaction is considered taxable, triggering the tax liability. This
determines when a business must account for tax and remit it to the tax authorities.
Provisions under GST India
a. Supply of goods: According to Section 12(1) of the CGST Act, the time of supply
of goods is the earliest of the following:
 Date of invoice: The date when the supplier issues the invoice for the supply.
 Date of delivery or transfer of possession: The date when the goods are
delivered to the recipient or when possession of the goods is transferred.
 Date of payment receipt: The date when the payment for the supply of goods
is received, if it is received before the invoice or delivery.
Example: If goods are delivered on March 15, and the invoice is issued on
March 20, but payment is received on March 18, the time of supply would be
March 15, the date the goods were delivered.
b. Supply of services: Section 13(1) of the CGST Act states that the time of supply of
services is the earliest of:
 Date of invoice: The date on which the invoice is issued for the service.
 Date of completion of service: The date when the service is fully completed
or performed.
 Date of payment receipt: If the payment is received before the invoice is
issued or the service is completed, the time of supply is the date the payment
is received.
Example: A business provides a consultancy service, but the invoice is issued on
January 5, 2025, and the payment is received on December 20, 2024. Since the
payment is received first, the time of supply is December 20, 2024.

Special provisions for time:

 Advance Payment (Prepaid Supplies) - Section 12(2) of the CGST Act
specifies that the time of supply for advance payments is when the advance
payment is received. This is applicable whether or not an invoice is issued.
Example: If a business receives an advance payment for a service or goods,
the tax liability arises on the date of receipt of that advance.
 Reverse Charge Mechanism (RCM) - Under the Reverse Charge
Mechanism (RCM), the recipient of goods or services is liable to pay tax
instead of the supplier. Section 9(3) and 9(4) of the CGST Act states that in
RCM, the time of supply is the earliest of the following:
o The date of receipt of goods/services.
 o The date of payment.
This provision ensures that the recipient accounts for the tax liability on
receiving the goods or services.
c. Imported goods and services: According to Section 12(3) of the CGST Act, the
time of supply for imported goods is the date when the goods are cleared from
customs, i.e., when the goods are released for domestic use. Similarly, for imported
services, the time of supply is determined by the date when the service is received
or completed.
d. Supply in instalments: Section 12(4) of the CGST Act specifies that if the supply
of goods is in installments (e.g., a lease or installment sale), the time of supply for
each installment is determined by the earliest of:
 The date of issue of invoice for that installment.
 The date of delivery for that installment.
 The date of payment receipt for that installment.
This ensures that tax is applied to each part of the installment as and when it is due.
e. Continuous supply of goods and services: Section 12(5) and Section 13(2) of the
CGST Act define continuous supply as any supply of goods or services that occurs
on a regular basis over time, such as services like rental, subscription, or contracts.
The time of supply for continuous supply is:
 The date of payment received.
 If periodic invoices are issued, the date of invoice for each period.
 If no invoice is issued, the date of completion of service (in the case of
services) or the date of delivery (in the case of goods).
Provisions regarding time of supply for specific transactions
a) Sale of Goods Under Bill of Entry (Imports)
 Section 12(5) of the CGST Act provides that the time of supply for the sale of goods
under a bill of entry is the date of the bill of entry or the date when goods are cleared
from customs.
b) Exports of Goods and Services
 Section 13(3) of the CGST Act states that the time of supply for exports is:
1. Date of shipment or dispatch of the goods, or
2. The date of payment.
Exports generally qualify as zero-rated supplies (no tax is levied), but the time of supply
must still be determined for reporting and compliance.
Provision for delayed or non payment:
Non-Payment within Six Months
 Section 12(6) of the CGST Act provides a provision that if payment is not received
within 6 months from the date of supply, the supplier can reverse the tax paid on the
supply. This helps in cases where payment is not received but tax was paid earlier.
Example: If a business supplies goods but does not receive payment within six months, it
may reverse the tax previously paid until the payment is received.