Module 6- GENERAL SALES TAX – GST AND INTERNATIONAL TAX LAWS

1GENERAL SALES TAX – GST AND INTERNATIONAL TAX LAWS

2. Structure of GST (SGST, CGST, UTGST & IGST)
3. GST Council
4. State Mechanism – Registration, Levy and collection of GSTS
5 Valuation for GST, Valuation rules
6. Exemption from GST: Small supplies and Composition Scheme
7. Classification of Goods and Services: Composite and Mixed Supplies.
8. International Tax Law: International Tax Agreements and Treaties
9. Double Taxation – UN Model Convention on Double Taxation – OECD – Guidelines.
10. Policy challenges of taxation in developing countries; Taxation of E-Commerce
Transactions; Anti-Avoidance Measures; Tax Havens and Their Impact on the Indian Tax
Economy
GENESIS OF GST IN INDIA
In the year 2000, the then Prime Minister mooted the concept of GST and set up a committee
to design a Goods and Services Tax (GST) model for the country. In 2003, the Central
Government formed a task force on Fiscal Responsibility and Budget Management, which in
2004 strongly recommended fully integrated ‘GST’ on national basis.
Subsequently, the then Union Finance Minister, Shri P. Chidambaram, while presenting the
Union Budget (2006-2007), announced that GST would be introduced from April 1, 2010.
Since then, GST missed several deadlines and continued to be shrouded by the clouds of
uncertainty.
The talks of ushering in GST, however, gained momentum in the year 2014 when the NDA
Government tabled the Constitution (122nd Amendment) Bill, 2014 on GST in the Parliament
on 19th December, 2014. The Lok Sabha passed the Bill on 6th May, 2015 and Rajya Sabha
on 3rd August, 2016. Subsequent to ratification of the Bill by more than 50% of the States,
Constitution (122nd Amendment) Bill, 2014 received the assent of the President on 8th
September, 2016 and became Constitution (101st Amendment) Act, 2016, which paved the way
for introduction of GST in India.
In the following year, on 27th March, 2017, the Central GST legislations - Central Goods and
Services Tax Bill, 2017, Integrated Goods and Services Tax Bill, 2017, Union Territory Goods
and Services Tax Bill, 2017 and Goods and Services Tax (Compensation to States) Bill, 2017
were introduced in Lok Sabha. Lok Sabha passed these bills on 29th March, 2017 and with the
receipt of the President’s assent on 12th April, 2017, the Bills were enacted. The enactment of

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the Central Acts was followed by the enactment of the State GST laws by various State
Legislatures. Telangana, Rajasthan, Chhattisgarh, Punjab, Goa and Bihar were among the first
ones to pass their respective State GST laws. By 30th June, 2017, all States and Union
Territories had passed their respective SGST and UTGST Acts except Jammu and Kashmir.
With effect from 1st July, 2017, the historic indirect tax reform – GST was introduced. GST
law was extended to Jammu and Kashmir on 8th July, 2017.
VAT and GST are often used inter-changeably as the latter denotes comprehensiveness of VAT
by coverage of goods and services. France was the first country to implement VAT/GST in
1954. Presently, more than 160 countries have implemented VAT/GST in some form or the
other because this tax has the capacity to raise revenue in the most transparent and neutral
manner. Most of the countries follow unified GST i.e., a single tax applicable throughout the
country. However, in federal polities like.
Figure 1 GENESIS OF GST IN INDIA

CONCEPT OF GST
Before we proceed with the finer nuances of Indian GST, let us first understand the basic
concept of GST.
value added tax
GST is a value added tax levied on supply i.e., manufacture or sale of goods and provision of
services
continuous chain of tax credits

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GST offers comprehensive and continuous chain of tax credits from the producer's
point/service provider's point upto the retailer's level/consumer’s level thereby taxing only the
value added at each stage of supply chain.
Burden Borne by Final Consumer
The supplier at each stage is permitted to avail credit of GST paid on the purchase of goods
and/or services and can set off this credit against the GST payable on the supply of goods and
services to be made by him. Thus, only the final consumer bears the GST charged by the last
supplier in the supply chain, with set-off benefits at all the previous stages.
No-cascading of taxes
Since, only the value added at each stage is taxed under GST, there is no tax on tax or cascading
of taxes under GST system.
NEED FOR GST IN INDIA
Figure 2 Need for GST in India

Deficiencies in the Value-Added Taxation Systems

Under the earlier indirect tax regime, despite the introduction of the principle of taxation of
value added in India – at the Central level in the form of CENVAT (Central Excise) and at the
State level in the form of State VAT - its application always remained piecemeal and fragmented
on account of the following reasons:
▪ Certain transactions were subject to double taxation and were taxed as both goods and
services, since under the earlier regime, distinction between goods and services was
often blurred.
▪ CENVAT did not include chain of value addition in the distributive trade after the stage
of production. Similarly, in the State-level VAT, CENVAT load on the goods was not
removed. This lead to the cascading of taxes.
▪ Though CENVAT and State-Level VAT were essentially value added taxes, set off of
one against the credit of another was not possible as CENVAT was a central levy and
State-Level VAT was a State levy.
▪ There were several taxes in the States, such as, Luxury Tax, Entertainment Tax, etc.
which were not subsumed in the VAT. Hence for a single transaction, multiple taxes in
multiple forms were required to be paid.

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 ▪ VAT on goods was not integrated with tax on services, at the State level, to remove the
cascading effect of service tax. With service sector being the fastest growing sector in
the economy, the exclusion of services from the tax base of the States potentially eroded
their tax- buoyancy.
▪ CST was another source of distortion in terms of its cascading nature since it was non-
VATABLE. Being an origin-based tax, CST was also against one of the basic principles
of consumption taxes that tax should accrue to the jurisdiction where consumption takes
place.
Figure 3 Deficiencies in the Value-Added Taxation Systems

GST-A Cure of ills of existing Indirect Tax Regime

A comprehensive tax structure covering both goods and services viz. Goods and Services Tax
(GST) addresses most of the above stated issues. Simultaneous introduction of GST at both
Centre and State levels has integrated taxes on goods and services for the purpose of set-off
relief and ensures that both the cascading effects of CENVAT and service tax are removed and
a continuous chain of set-off from the original producer’s point/ service provider’s point upto
the retailer’s level/ consumer’s level is established.
In the GST regime, the major indirect taxes have been subsumed in the ambit of GST. The
erstwhile concepts of manufacture or sale of goods or rendering of services are no longer
applicable since the tax is now levied on “Supply of Goods and/or services”.

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STRUCTURE of GST or FRAMEWORK OF GST AS INTRODUCED IN INDIA
Dual GST:
India has adopted a Dual GST model in view of the federal structure of the country.
Consequently, Centre and States simultaneously levy GST on taxable supply of goods or
services or both, which takes place within a State or Union Territory. Thus, tax is imposed
concurrently by the Centre and States, i.e. Centre and States simultaneously tax goods and
services. Now, the Centre also has the power to tax intra-State sales & States are also
empowered to tax services. GST extends to whole of India including the State of Jammu and
Kashmir.
CGST/SGST/UTGST/IGST
GST is a destination- based tax applicable on all transactions involving supply of goods and
services for a consideration subject to exceptions thereof. GST in India comprises of Central
Goods and Services Tax (CGST) - levied and collected by Central Government, State Goods
and Services Tax (SGST) - levied and collected by State Governments/Union Territories with
Legislatures and Union Territory Goods and Services Tax (UTGST) - levied and collected by
Union Territories without Legislatures, on intra-State supplies of taxable goods and/or services.
As a general rule, where the location of the supplier and the place of supply of goods or services
are in the same State/Union territory, it is treated as intra-State supply of goods or services
respectively.
Further, where the location of the supplier and the place of supply of goods or services are in
(i) two different States or (ii) two different Union Territories or (iii) a State and a Union
territory, it is treated as inter-State supply of goods or services respectively. Inter-State supplies
of taxable goods and/or services are subject to Integrated Goods and Services Tax (IGST).
IGST is the sum total of CGST and SGST/UTGST and is levied by Centre on all inter-State
supplies.

Legislative Framework

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There is single legislation – CGST Act, 2017 - for levying CGST. Similarly, Union Territories
without Legislatures [i.e., Andaman and Nicobar Islands, Lakshadweep, Ladakh, Dadra and
Nagar Haveli & Daman and Diu and Chandigarh] are governed by UTGST Act, 2017 for
levying UTGST. States and Union territories with their own legislatures [i.e., Delhi, Jammu
and Kashmir and Puducherry] have their own GST legislation for levying SGST.
Though there are multiple SGST legislations, the basic features of law, such as chargeability,
definition of taxable event and taxable person, classification and valuation of goods and
services, procedure for collection and levy of tax and the like are uniform in all the SGST
legislations, as far as feasible. This is necessary to preserve the essence of dual GST.
Classification of goods and services
HSN (Harmonised System of Nomenclature) is used for classifying the goods under the GST.
Chapters referred in the Rate Schedules for goods are the Chapters of the First Schedule to the
Customs Tariff Act, 1975.
A new Scheme of Classification of Services has been devised wherein the services of various
descriptions have been classified under various sections, headings and groups. Each group
consists of various Service Codes (Tariff).
Registration
Every supplier of goods and/ or services is required to obtain registration in the State/UT from
where he makes the taxable supply if his aggregate turnover exceeds the threshold limit during
a FY. Different threshold limits have been prescribed for various States and Union Territories
depending upon the fact whether the supplier is engaged exclusively in supply of goods, or
exclusively in supply of services or in supply of both goods and services. The threshold limit
prescribed for various States/UTs are as follows.

Composition Scheme
In GST regime, tax (i.e. CGST and SGST/UTGST for intra-State supplies and IGST for inter-
State supplies) is payable by every taxable person and in this regard, provisions have been
prescribed in the law.
However, for providing relief to small businesses, manufacturers, service providers, suppliers
of food articles, traders, etc., making intra-State supplies, a simpler method of paying taxes is
prescribed, known as composition levy.

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Exemptions
Apart from providing relief to small-scale business, the law also contains provisions for
granting exemption from payment of tax on essential goods and/or services.
Seamless flow of credit
Since GST is a destination-based consumption tax, revenue of SGST ordinarily accrues to the
consuming States. The inter-State supplier in the exporting State is allowed to set off the
available credit against the IGST payable on inter-State supply made by him (order of
utilisation of credit is explained in brief below).
The buyer in the importing State is allowed to avail the credit of IGST paid on inter-State
purchases made by him.
Thus, unlike the earlier scenario where the credit chain used to break in case of inter-State sales
on account of non-VATable CST, under GST regime there is a seamless credit flow in case of
inter-State supplies too
The revenue of inter-State sale does not accrue to the exporting State and the exporting State
transfers to the Centre the credit of SGST/UTGST used in payment of IGST.
The Centre transfers to the importing State the credit of IGST used in payment of
SGST/UTGST.
Order of utilization of credit - There is a specified order in which ITC should be utilized.
First, IGST credit should be utilized towards IGST payment, and then towards payment of
CGST and SGST/UTGST in any order and in any proportion.
After entire ITC of IGST is utilized, ITC of CGST should be utilized for payment of CGST
and IGST in that order. Thereafter, ITC of SGST /UTGST should be utilized for payment of
SGST/UTGST and IGST in that order.
It may be noted that ITC of CGST cannot be utilized for payment of SGST/UTGST and
vice versa. Also, ITC of SGST/UTGST should be utilized for payment of IGST, only after ITC
of CGST has been utilized fully.
GST Common Portal
Before GST, since the Centre and State indirect tax administrations worked under different
laws, regulations, procedures and formats, their IT infrastructure and systems were also
independent of each other. Integrating them for GST implementation was complex since it
required integrating the entire indirect tax ecosystem so as to bring all the tax administrations
(Centre, State and Union Territories) to the same level of IT maturity with uniform formats and
interfaces for taxpayers and other external stakeholders.
Besides, GST being a destination-based tax, the inter-State trade of goods and services (IGST)
needed a robust settlement mechanism amongst the States and the Centre. A Common Portal
was needed which could act as a clearing house and verify the claims and inform the respective
Governments to transfer the funds. This was possible only with the help of a strong IT
Infrastructure.

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Resultantly, Common GST Electronic Portal – www.gst.gov.in – a website managed by Goods
and Services Network (GSTN) [a company incorporated under the provisions of section 8 of
the Companies Act, 2013] is set by the Government to establish a uniform interface for the tax
payer and a common and shared IT infrastructure between the Centre and States.
The GST portal is accessible over Internet (by taxpayers and their CAs/Tax Advocates etc.)
and Intranet by Tax Officials etc. The portal is one single common portal for all GST related
services.
A common GST system provides linkage to all State/ UT Commercial Tax Departments,
Central Tax authorities, Taxpayers, Banks and other stakeholders. The eco-system consists of
all stakeholders starting from taxpayer to tax professional to tax officials to GST portal to Banks
to accounting authorities.
The functions of the GSTN include
▪ facilitating registration;
▪ forwarding the returns to Central and State authorities;
▪ computation and settlement of IGST;
▪ matching of tax payment details with banking network;
▪ providing various MIS reports to the Central and the State Governments based on the
taxpayer return information;
▪ providing analysis of taxpayers' profile.
GSPs/ASPs
GSTN has selected certain Information Technology, Information Technology enabled Services
and financial technology companies, to be called GST Suvidha Providers (GSPs). GSPs have
access to GST System and have the capability to develop applications to be used by taxpayers
for interacting with the GSTN.
GSP develops applications having features like return filing, reconciliation of purchase register
data with auto populated data for acceptance/rejection/modification, dashboards for taxpayers
for quick monitoring of GST compliance activities. They may also provide role-based access
to divide various GST related activities like uploading invoice, filing returns etc., among
different set of users inside a company (medium or large companies will need it), applications
for tax professional to manage their client’s GST compliance activities, integration of existing
accounting packages/ERP with GST System, etc.
GSP is an additional channel being made available for facilitating the taxpayers for performing
some of the functions and use of their services is optional. GSPs may take the help of
Application Service Providers (ASPs) who act as a link between taxpayers and GSPs.
Compensation Cess
A GST Compensation Cess at specified rate has been imposed under the Goods and Services
Tax (Compensation to States) Cess Act, 2017 on the specified luxury items or demerit goods,
like pan masala, tobacco, aerated waters, motor cars etc., computed on value of taxable supply.
Compensation cess is leviable on intra-State supplies and inter-State supplies with a view to
provide for compensation to the States for the loss of revenue arising on account of

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implementation of the GST. Compensation is to be provided to a State for a period of 5 years
from the date on which the State brings its SGST Act into force.
GST – A tax on goods and services
GST is levied on all goods and services, except alcoholic liquor for human consumption and
petroleum crude, diesel, petrol, ATF and natural gas.
Alcoholic liquor for human consumption: is outside the realm of GST. The
manufacture/production of alcoholic liquor continues to be subjected to State excise duty and
inter-State/intra-State sale of the same is subject to CST/VAT respectively.
Petroleum crude, diesel, petrol, ATF and natural gas: As regards petroleum crude, diesel,
petrol, ATF and natural gas are concerned, they are not presently leviable to GST. GST will be
levied on these products from a date to be notified on the recommendations of the GST Council.
Till such date, central excise duty continues to be levied on manufacture/production of
petroleum crude, diesel, petrol, ATF and natural gas and inter-State/intra-State sale of the same
is subject to CST/ VAT respectively.
Tobacco: Tobacco is within the purview of GST, i.e. GST is leviable on tobacco. However,
Union Government has also retained the power to levy excise duties on tobacco and tobacco
products manufactured in India. Resultantly, tobacco is subject to GST as well as central
excise duty.
Opium, Indian hemp and other narcotic drugs and narcotics: Opium, Indian hemp and
other narcotic drugs and narcotics are within the purview of GST, i.e., GST is leviable on them.
However, State Governments have also retained the power to levy excise duties on such
products manufactured in India. Resultantly, Opium, Indian hemp and other narcotic drugs
and narcotics are subject to GST as well as State excise duties.
Further, real estate sector has been kept out of ambit of GST, i.e., GST will not be levied on
sale/purchase of immovable property.

Taxes Subsumed in GST

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The various central, State and local levies were examined to identify their possibility of being
subsumed under GST. While identifying, the following principles were kept in mind:
Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the
supply of goods or on the supply of services.
Taxes or levies to be subsumed should be part of the transaction chain which commences with
import/ manufacture/ production of goods or provision of services at one end and the
consumption of goods and services at the other.
The subsuming of taxes should result in free flow of tax credit in intra and inter-State levels.
The taxes, levies and fees that were not specifically related to supply of goods & services would
not be subsumed under GST.
Revenue fairness for both the Union and the States individually would need to be attempted.
Taking the above principles into account, following taxes were subsumed in the GST:
Figure 4 Taxes Subsumed in GST

BENEFITS OF GST
GST is a win-win situation for the entire country. It brings benefits to all the stakeholders of
industry, Government and the consumer. The significant benefits of GST are discussed
hereunder:
Benefits to economy

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Creation of unified national market: GST aims to make India a common market with
common tax rates and procedures and remove the economic barriers thus paving the way for
an integrated economy at the national level.
Boost to ‘Make in India' initiative: GST gives a major boost to the ‘Make in India' initiative
of the Government of India by making goods and services produced in India competitive in the
national as well as international market. This will create India as a manufacturing hub.
Enhanced investment and employment: The subsuming of major Central and State taxes in
GST, complete and comprehensive set-off of input tax on goods and services and phasing out
of Central Sales Tax (CST) reduces the cost of locally manufactured goods and services and
increases the competitiveness of Indian goods and services in the international market and thus,
gives boost to investments and Indian exports. With a boost in exports and manufacturing
activity, more employment will be generated and GDP will increase.
Simplified tax structure
Ease of doing business: Simpler tax regime with fewer exemptions along with reduction in
multiplicity of taxes under GST has led to simplification and uniformity in tax structure. The
uniformity in laws, procedures and tax rates across the country makes doing business easier.
Certainty in tax administration: Common system of classification of goods and services
across the country ensures certainty in tax administration across India.
Easy tax compliance
Automated procedures with greater use of IT: There are simplified and automated
procedures for various processes such as registration, returns, refunds, tax payments. All
interaction is primarily through the common GSTN portal, therefore, less public interface
between the taxpayer and the tax administration.
Reduction in compliance costs: The compliance cost is lesser under GST as multiple record-
keeping for a variety of taxes is not needed, therefore, there is lesser investment of resources
and manpower in maintaining records. The uniformity in laws, procedures and tax rates across
the country goes a long way in reducing the compliance cost.
Advantages for trade and industry
Benefits to industry: GST has given more relief to industry, trade and agriculture through a
more comprehensive and wider coverage of input tax set-off and service tax set-off, subsuming
of several Central and State taxes in the GST and phasing out of CST. The transparent and
complete chain of set-offs which results in widening of tax base and better tax compliance also
leads to lowering of tax burden on an average dealer in trade and industry.
Mitigation of ill effects of cascading: By subsuming most of the Central and State taxes into
a single tax and by allowing a set-off of prior-stage taxes for the transactions across the entire
value chain, it helps in mitigating the ill effects of cascading, improving competitiveness and
improving liquidity of the businesses.
Benefits to small traders and entrepreneurs: GST has increased the threshold for GST
registration for small businesses. Further, single registration is needed in one State. Small
businesses have also been provided the additional benefit of composition scheme. With the

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creation of a seamless national market across the country, small enterprises have an opportunity
to expand their national footprint with minimal investment.
Constitutional amendment – GST vis-à-vis earlier tax laws
CONSTITUTIONAL PROVISIONS
India has a three-tier federal structure, comprising the Union Government, the State
Governments and the Local Government.
The power to levy taxes and duties is distributed among the three tiers of Governments, in
accordance with the provisions of the Indian Constitution. The Constitution of India is the
supreme law of India.
It consists of a Preamble, 25 parts containing 448 Articles and 12 Schedules. Power to levy and
collect taxes whether, direct or indirect emerges from the Constitution of India. In case any tax
law, be it an act, rule, notification or order is not in conformity with the Constitution, it is called
ultra vires the Constitution and is illegal and void.
Thus, a study of the basic provisions of the Constitution is essential for understanding the
genesis of the various taxes being imposed in India.
The significant provisions of the Constitution relating to taxation are:
Article 265: Article 265 of the Constitution of India prohibits arbitrary collection of tax. It
states that “no tax shall be levied or collected except by authority of law”. The term
“authority of law” means that tax proposed to be levied must be within the legislative
competence of the Legislature imposing the tax.
Article 245: Part XI of the Constitution deals with relationship between the Union and States.
The power for enacting the laws is conferred on the Parliament and on the Legislature of a
State by Article 245 of the Constitution. The said Article provides as under:
▪ Subject to the provisions of this Constitution, Parliament may make laws for the whole
or any part of the territory of India, and the legislature of a State may make laws for the
whole or any part of the State.
▪ No law made by the Parliament shall be deemed to be invalid on the ground that it
would have extra-territorial operation.
Article 246: It gives the respective authority to Union and State Governments for levying tax.
Seventh Schedule to Article 246: It contains three lists which enumerate the matters under
which the Union and the State Governments have the authority to make laws.
Entries 82 to 91 of List I enumerate the subjects where the Central Government has power to
levy taxes. Entries 45 to 63 of List II enumerate the subjects where the State Governments have
the power to levy taxes. Parliament has a further power to make any law for any part of India
not comprised in a State even if such matter is included in the State List.

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Income tax is levied by virtue of Entry 82 - Taxes on income other than agricultural income
and customs duty vide Entry 83 - Duties of customs including export duties of the Union List.
Constitution (101st Amendment) Act, 2016
Power to levy Goods and Services Tax (GST) has been conferred by Article 246A of the
Constitution which was introduced by the Constitution (101st Amendment) Act, 2016. Before
discussing the significant provisions of the Constitution (101st Amendment) Act, 2016, let us
first understand why there arose a need for such constitutional amendment.
Need for the constitutional amendment
The Constitutional provisions hitherto had delineated separate powers for the Centre and the
States to impose various taxes. Whereas the Centre levied excise duty on all goods produced
or manufactured in India, the States levied Value Added Tax once the goods entered the stream
of trade upon completion of manufacture.
In the case of inter-State sales, the Centre had the power to levy a tax (the Central Sales Tax),
but the tax was collected and retained entirely by the States (from where the movement of
goods start). Services were exclusively taxed by the Centre together with applicable cesses, if
any. Besides, there were State specific levies like entry tax, Octroi, luxury tax, entertainment
tax, lottery and betting tax, local taxes levied by Panchayats etc.
With respect to goods imported from outside the country into India, Centre levied basic customs
duty and additional duties of customs together with applicable cesses, if any
Introduction of the GST required amendment in the Constitution so as to enable integration of
the central excise duty, additional duties of customs, State VAT and certain State specific taxes
and service tax into a comprehensive Goods and Services Tax and to empower both Centre and
the States to levy and collect it.
Consequently, Constitution (101st Amendment Act), 2016 (hereinafter referred to as
Constitution Amendment Act) was passed. It has 20 sections. Newly inserted Article 279A
empowering President to constitute GST Council was notified on 12.09.2016. Remaining
provisions were notified with effect from 16.09.2016.
Significant provisions of Constitution (101st Amendment) Act, 2016
Significant amendments made by Constitution Amendment Act are discussed below.

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Article 246A: Power to make laws with respect to Goods and Services Tax
Newly inserted Article 246A
(1) Notwithstanding anything contained in Articles 246 and 254, Parliament, and, subject to
clause (2), the Legislature of every State, have power to make laws with respect to goods and
services tax imposed by the Union or by such State.
(2) Parliament has exclusive power to make laws with respect to goods and services tax where
the supply of goods, or of services, or both takes place in the course of inter-State trade or
commerce.
Explanation. —The provisions of this article, shall, in respect of goods and services tax referred
to in clause (5) of article 279A, take effect from the date recommended by the Goods and
Services Tax Council.
▪ This article grants power to Centre and State Governments to make laws with respect
to GST imposed by Centre or such State.
▪ Centre has the exclusive power to make laws with respect to GST in case of inter-State
supply of goods and/or services.
▪ However, in respect to the following goods, the aforesaid provisions shall apply from
the date recommended by the GST Council:

▪ The provisions of Article 246A are notwithstanding anything contained in Articles 246
and 254. Article 254 deals with the supremacy of the laws made by Parliament.
Article 269A: Levy and collection of GST on inter-State supply
▪ Article 269A stipulates that GST on supplies in the course of inter-State trade or
commerce shall be levied and collected by the Government of India and such tax shall
be apportioned between the Union and the States in the manner as may be provided by
Parliament by law on the recommendations of the Goods and Services Tax Council.
▪ In addition to above, import of goods or services or both into India will also be deemed
to be supply of goods and/ or services in the course of Inter-State trade or Commerce.
▪ This will give power to Central Government to levy IGST on the import transactions
which were earlier subject to Countervailing duty under the Customs Tariff Act, 1975.
▪ Where an amount collected as IGST has been used for payment of SGST or vice versa,
such amount shall not form part of the Consolidated Fund of India. This is to facilitate
transfer of funds between the Centre and the States.
▪ Parliament is empowered to formulate the principles regarding place of supply and
when supply of goods, or of services, or both occurs in inter-State trade or commerce.

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Definitions of ‘Goods and Services Tax’, ‘Services’ and ‘State’ incorporated under Article
366
The terms Goods and Services Tax, services and State have been defined under respective
clauses of Article 366 as follows:
Article 366(12)
Goods and services tax means any tax on supply of goods, or services or both except taxes on
the supply of the alcoholic liquor for human consumption. Consequently, GST can be levied
on supply of all goods and services except alcoholic liquor for human consumption.
Article 366(26A): Services means anything other than goods.
Definition of “goods”: The term goods has already been defined under clause (12) of Article
366 in an inclusive manner to provide that “goods include all materials, commodities, and
articles”
GST Council: Article 279A
Article 279A of the Constitution empowers the President to constitute a joint forum of the
Centre and States namely, Goods & Services Tax Council (GST Council).
▪ The provisions relating to GST Council came into force on 12th September, 2016.
President constituted the GST Council on 15th September, 2016.
▪ The Union Finance Minister is the Chairman of this Council and Ministers in charge of
Finance/Taxation or any other Minister nominated by each of the States & UTs with
Legislatures are its members. Besides, the Union Minister of State in charge of Revenue
or Finance is also its member.
▪ The function of the Council is to make recommendations to the Union and the States
on important issues like tax rates, exemptions, threshold limits, dispute resolution etc.
▪ It shall recommend the special provisions with respect to the Special Category States.
There are 11 Special Category States, namely, States of Arunachal Pradesh, Assam,
Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura,
Himachal Pradesh and Uttarakhand. Special threshold limits for registration,
composition, exemptions, etc. have been recommended for some or all of these States.
▪ GST Council shall also recommend the date on which GST be levied on petroleum
crude, high speed diesel, motor spirit, natural gas and aviation turbine fuel. 
▪ Every decision of the GST Council is taken by a majority of not less than three-fourths
of the weighted votes of the members present and voting. Vote of the Centre has a
weightage of one-third of total votes cast and votes of all the State Governments taken
together has a weightage of two-thirds of the total votes cast, in that meeting.
GST Council: An Overview
The Goods and Services Tax (GST) Council is a crucial decision-making body in India
responsible for formulating, implementing, and maintaining the GST system. It ensures
uniform taxation across the country while addressing the needs of states and the central
government. Established under Article 279A of the Indian Constitution, the GST Council plays
a significant role in shaping the country’s indirect tax structure.
What is the GST Council?
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The GST Council is a constitutional body chaired by the Union Finance Minister and comprises
the finance ministers or other nominated members from all states and Union Territories (UTs).
Its primary purpose is to make recommendations on various aspects of GST, ensuring seamless
taxation across India.
The Council works on the principle of cooperative federalism, fostering collaboration
between the central and state governments to achieve consensus on tax-related issues.
Composition of the GST Council
The GST Council comprises the following members:
1. Chairperson: The Union Finance Minister.
2. Members:
o The Union Minister of State for Revenue or Finance.
o The Finance Ministers or any other nominated ministers from each state and
UT.
This structure ensures representation from all parts of the country, making the GST Council a
platform for inclusive decision-making.
Functions of the GST Council
The GST Council performs several critical functions, including:
1. Determining Tax Rates: The Council decides the GST rates for various goods and
services, divided into slabs like 0%, 5%, 12%, 18%, and 28%.
2. Recommending Exemptions: It identifies goods and services that are exempt from
GST to support economic and social welfare.
3. Resolving Disputes: The Council addresses disputes between states or between states
and the central government concerning GST.
4. Simplifying Compliance: It recommends measures to simplify GST compliance for
businesses, such as easing return filing processes or introducing new schemes.
5. Revising Laws and Rules: The Council suggests changes to the GST Act and its rules
to align with economic realities and stakeholder needs.
6. Ensuring Revenue Distribution: It monitors the distribution of GST revenue between
the central and state governments, ensuring financial stability for both.
Decision-Making Process in the GST Council
The GST Council emphasizes consensus in its decision-making process. However, when voting
is required:
• The central government has a one-third vote weightage.
• All states and UTs together have a two-thirds vote weightage.

16
For a decision to pass, it must receive at least 75% of the weighted votes. This ensures
balanced decision-making, considering both national and regional interests.
Significant Decisions of the GST Council
Since its inception, the GST Council has made several landmark decisions that have shaped the
taxation landscape:
1. Tax Rate Rationalization:
o The Council has periodically revised tax rates to ensure affordability and
economic growth. For instance, GST on certain essential items has been reduced
from 18% to 12% or 5%.
2. Introduction of the Composition Scheme:
o Aimed at small businesses, this scheme allows them to pay a lower, fixed rate
of GST, simplifying compliance.
3. E-Way Bill System:
o The Council introduced the e-way bill system for tracking goods movement,
reducing tax evasion, and streamlining logistics.
4. Exemptions and Relief Measures:
o Exemptions were granted on essential items like vaccines and masks during the
COVID-19 pandemic.
5. GST on Real Estate:
o To boost the real estate sector, the GST Council reduced tax rates on under-
construction properties and affordable housing.
Challenges Faced by the GST Council
Despite its achievements, the GST Council has faced several challenges:
1. Revenue Shortfalls:
o States have often expressed concerns over revenue losses after the
implementation of GST. The Council must ensure adequate compensation to
states.
2. Rate Rationalization:
o Balancing revenue generation with taxpayer affordability remains a challenge.
Frequent rate changes can cause uncertainty.
3. Dispute Resolution:
o Conflicts between states or between states and the center on revenue-sharing or
policy matters require delicate handling.
4. Complex Compliance Procedures:

17
 o Although efforts are made to simplify GST processes, businesses, especially
small ones, often find compliance cumbersome.
5. Political Differences:
o Political disagreements can sometimes hinder decision-making in the Council.
Achievements of the GST Council
The GST Council has played a vital role in the successful implementation and evolution of
GST in India. Some of its key achievements include:
1. Uniform Taxation:
o It has created a single, unified tax system across the country, replacing multiple
indirect taxes.
2. Fostering Cooperative Federalism:
o The Council has provided a platform for collaboration and consensus among
states and the center.
3. Supporting Economic Growth:
o By rationalizing tax rates and simplifying procedures, the Council has promoted
business and economic activities.
4. Addressing Stakeholder Concerns:
o The Council has been proactive in addressing the concerns of various
stakeholders, from businesses to consumers.
Future Directions for the GST Council
To ensure the continued success of GST in India, the GST Council must focus on:
1. Rate Rationalization:
o Simplify the tax structure by reducing the number of tax slabs and addressing
anomalies.
2. Improving Compliance Systems:
o Enhance digital platforms and processes to make compliance easier for
businesses.
3. Boosting Revenue Collection:
o Focus on reducing tax evasion and broadening the tax base.
4. Strengthening Dispute Resolution Mechanisms:
o Establish efficient mechanisms to resolve conflicts swiftly.
5. Promoting Stakeholder Engagement:
o Involve industries, businesses, and consumers in the decision-making process
to address their concerns effectively.
18
IMPORTANT DEFINITIONS
Important definitions – Consideration, Continuous supply of goods, Continuous supply of
services, goods, Central Tax, Integrated Tax, State Tax, Input, Input Service, Input Tax, Input
Tax Credit, Intra-state supply of goods, Intra-state supply
Business: [Section 2(17)] includes –

CONSIDERATION
The dictionary meaning of word ‘consideration’ is payment. Consideration need not always be
in the form of money. It can be in money or in kind. It covers anything which might be possibly
done, given or made in exchange for something else. Further, a consideration need not always
flow from the recipient of the supply. It can also be made by a third person.
However, any subsidy given by the Central Government or a State Government is not
considered as consideration.
A deposit given in respect of the supply of goods or services or both shall not be considered as
payment made for such supply unless the supplier applies such deposit as consideration for the
said supply.
Consideration: in relation to the supply of goods or services or both includes:
▪ any payment made or to be made, whether in money or otherwise, in respect of, in
response to, or for the inducement of, the supply of goods or services or both, whether
by the recipient or by any other person but shall not include any subsidy given by the
Central Government or a State Government,
▪ the monetary value of any act or forbearance, in respect of, in response to, or for the
inducement of, the supply of goods or services or both, whether by the recipient or by
any other person but shall not include any subsidy given by the Central Government or
a State Government.

19
However, a deposit given in respect of the supply of goods or services or both shall not be
considered as payment made for such supply unless the supplier applies such deposit as
consideration for the said supply. [Section 2(31)]

Goods
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 severed before supply or under a contract of supply [Section 2(52)]

Services
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.
Explanation. ––For the removal of doubts, it is hereby clarified that the expression “services”
includes facilitating or arranging transactions in securities [Section 2(102)].

20
Central tax: means the central goods and services tax levied under section 9 of the CGST Act
[Section 2(21)].
Integrated tax: means the integrated goods and services tax levied under the Integrated Goods
and Services Tax Act [Section 2(58)].
State tax: means the tax levied under any State Goods and Services Tax Act [Section 2(104)].
Supplier: in relation to any goods or services or both, shall mean the person supplying the said
goods or services or both and shall include an agent acting as such on behalf of such supplier
in relation to the goods or services or both supplied [Section 2(105)].
Taxable supply: means a supply of goods and/or services which is leviable to tax under CGST
Act [Section 2(108)].
Non-taxable supply: means a supply of goods or services or both which is not leviable to tax
under CGST Act or under IGST Act [Section 2(78)].
Taxable person: means a person who is registered or liable to be registered under section 22
or section 24 of the CGST Act [Section 2(107)].
It is important to note that a person who is liable to be registered but does not take a registration
and remains an unregistered person shall be construed as a taxable person. Similarly, a person
not liable to be registered, but has taken voluntary registration and got himself registered is
also a taxable person.
Section 22 enumerates the persons liable to be registered under CGST Act and section 24 lists
the persons liable to be registered compulsorily under the GST law.
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 under section 11, or under section 6 of the Integrated
Goods and Services Tax Act, and includes non-taxable supply [Section 2(47)].
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

21
same Permanent Account be computed on all India basis but excludes central tax, State tax,
Union territory tax, integrated tax and cess [Section 2(6)].
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 under section 9(3)/9(4), or
under section 5(3)/5(4) of the IGST Act [Section 2(98)].
Supplier
Supplier in relation to any goods or services or both, shall mean the person supplying the said
goods or services or both and shall include an agent acting as such on behalf of such supplier
in relation to the goods or services or both supplied [Section 2(105)].

Money
Money means the Indian legal tender or any foreign currency, cheque, promissory note, bill of
exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic
remittance or any other instrument recognised by the Reserve Bank of India when used as a
consideration to settle an obligation or exchange with Indian legal tender of another
denomination but shall not include any currency that is held for its numismatic value [Section
2(75)].

22
Input
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(59)].
Input service
Input service means any service used or intended to be used by a supplier in the course or
furtherance of business [Section 2(60)].
Input tax
Input tax in relation to a registered person, means the central tax, State tax, integrated tax or
Union territory tax charged on any supply of goods or services or both made to him and
includes—
(a) the integrated goods and services tax charged on import of goods;
(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;
(c) the tax payable under the provisions of sub-section (3) and (4) of section 5 of the IGST Act;
(d) the tax payable under the provisions of sub-section (3) and sub-section (4) of section 9 of
the respective State Goods and Services Tax Act; or
(e) the tax payable under the provisions of sub-section (3) and sub-section (4) of section 7 of
the Union Territory Goods and Services Tax Act,
but does not include the tax paid under the composition levy [Section 2(62)].
Input tax credit
Input tax credit means the credit of input tax [Section 2(63)].
Zero-rated supply
Zero-rated supply means any of the following supplies of goods or services or both, namely: –
– (a) export of goods or services or both; or (b) supply of goods or services or both to a Special
Economic Zone (SEZ) developer or a Special Economic Zone unit [Section 16(1) of the IGST
Act].
2) Levy and collection of tax
a) Scope of supply
b) Levy and collection of tax
c) Tax liability on composite and mixed supplies
SUPPLY UNDER GST
INTRODUCTION
A taxable event is any transaction or occurrence that results in a tax consequence. Before
levying any tax, taxable event needs to be ascertained. It is the foundation stone of any taxation
system; it determines the point at which tax would be levied.

23
Under the earlier indirect tax regime, the framework of taxable event in various statutes was
prone to catena of interpretations resulting in litigation since decades. The controversies largely
related to issues like whether a particular process amounted to manufacture or not, whether the
sale was pre-determined sale, whether a particular transaction was a sale of goods or rendering
of services etc.
The GST laws resolve these issues by laying down one comprehensive taxable event i.e.,
“Supply” - Supply of goods or services or both. Various taxable events namely manufacture,
sale, Taxable Event rendering of service, purchase, entry into a territory of State etc. have been
done away with in favour of just one event i.e., Supply.
GST Law, by levying tax on the ‘supply’ of goods and/or services, departs from the historically
understood concepts of ‘taxable event’ under the State VAT Laws, Excise Laws and Service
Tax Law i.e., sale, manufacture and service respectively.
In the GST regime, the entire value of supply of goods and/or services is taxed in an integrated
manner, unlike the earlier indirect taxes, which were charged independently either on the
manufacture or sale of goods, or on the provisions of services.
CONCEPT OF SUPPLY [SECTION 7 OF THE CGST ACT]
The concept of ‘supply’ is the key stone of the GST architecture. The provisions relating to
meaning and scope of supply are contained in Chapter III of the CGST Act read with various
Schedules given under the said Act. Following sections and schedules shall be discussed in this
chapter to understand the concept of supply:
▪ Section 7- Meaning and scope of supply
▪ Section 8-Taxability of composite and mixed supplies
▪ Schedule I-Activities to be treated as supply even if made without consideration
▪ Schedule II-Activities or transactions to be treated as supply of goods or as supply of
services
▪ Schedule III- Activities or transactions which shall be treated neither as supply of
goods nor as supply of services.
STATUTORY PROVISIONS
Section 7 Meaning and Scope of Supply
Sub-section Clause
(1) Supply includes -
(a) all forms of supply of goods or services or both such
as sale, transfer, barter, exchange, licence, rental, lease
or disposal made or agreed to be made for a
consideration by a person in the course or furtherance
of business

24
 (b) importation of services, for a consideration whether or
not in the course or furtherance of business, and
© the activities specified in Schedule I, made or agreed
to be made without a consideration,
(1A) where certain activities or transactions, constitute a supply in accordance
with the provisions of sub-section (1), they shall be treated either 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 sub-sections (1), (1A) & (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.

ANALYSIS
The definition of ‘supply’ as contained in section 7 is an inclusive definition and does not define
the term exhaustively. It defines the scope of supply in an inclusive manner. Clause (a) of sub-
section (1) illustrates the forms of supply, but the list is not exhaustive. This is substantiated by
the use of words ‘such as’ in the definition.
The meaning and scope of supply in terms of section 7 can be understood in terms of following
parameters:
1. Supply should be of goods or services. Supply of anything other than goods or services
like money, securities etc. does not attract GST.

25
 2. Supply should be made for a consideration.
3. Supply should be made in the course or furtherance of business
Aforesaid parameters describe the concept of supply. However, there are a few exceptions to
2nd and 3rd parameters [the requirement of supply being made for a consideration and in the
course or furtherance of business] in the GST law. Few exceptions have been carved out where
a transaction is deemed to be a supply even without consideration [contained in Schedule
I]. Similarly, the condition of supply to be made in the course or furtherance of business has
been relaxed in case of import of services [Import of services for a consideration, whether
or not in the course or furtherance of business, is treated as supply].
Further, there are also cases where a transaction is kept out of scope of supply despite the
existence of the above parameters, i.e., there is a list of activities which are treated neither as
supply of goods nor as supply of services. In other words, they are outside the scope of GST.
GST law has classified certain activities/transactions either as supply of goods or as supply
of services. Government is also empowered to notify transactions that are to be treated as a
supply of goods and not as a supply of services, or as a supply of services and not as a supply
of goods.

26
Supply for Consideration in The Course or Furtherance of Business
SUPPLY SHOULD BE OF GOODS OR SERVICES OR BOTH
The definition of supply begins with the term ‘Supply includes’, thus making it clear that CGST
Act intends to give an extensive meaning to the term ‘supply’. Supply includes all forms of
supply of goods or services or both. Supply of anything other than goods or services does not
attract GST. The terms goods and services as defined under the Act have been analysed by way
of a diagram on next page. Anything supplied other than goods and services is outside the
scope of supply.

27
Supply Includes Specified Forms of Supply, Should Be for Consideration and Should Be
in Course or Furtherance of Business.
The first part of section 7 [Clause (a) of sub-section (1)] includes 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 consideration in the course or furtherance of business.
Thus, the forms of supply as contemplated in this first part have two pre-requisites:
✓ the supply should be for a consideration; and
✓ the supply should be in the course or furtherance of business.
We shall now discuss the various forms of supply as illustrated in section 7(1)(a) in detail:

FORMS OF SUPPLY
Various forms of supply contemplated in section 7(1)(a) are sale, transfer, barter, exchange,
licence, rental, lease or disposal. These forms of supply are only illustrative and not exhaustive.
However, none of these terms have been defined under the Act. In order to understand their
meaning, we have taken recourse to their dictionary meaning or otherwise and have explained
them as follows:
Sale and Transfer: The dictionary meaning of term ‘sale’ is the act of selling; specifically: the
transfer of ownership of and title to property from one person to another for a price.
As per the Sale of Goods Act, 1930, a contract of sale of goods is a contract whereby the seller
transfers or agrees to transfer the property in goods to the buyer for a price. Further, the term
‘transfer’ has been defined in the Black’s Law dictionary as to convey or remove from one
place, person, etc., to another; pass or hand over from one to another; specifically, to make over
the possession or control of.
Barter and Exchange: The dictionary meaning of term ‘barter’ is to exchange goods or
services for other goods or services instead of using money. Black’s Law dictionary defines the
term ‘exchange’ as an act of giving or taking one thing for another. While barter deals with a
transaction which only includes an exchange of goods/services, exchange may cover a situation
where the goods are paid for partly in goods and partly in money. When there is a barter of
goods or services, same activity constitutes supply as well as consideration.
Licence, lease, rental and disposal: The dictionary meaning of the term ‘licence’ is a
permission granted by competent authority to engage in a business or occupation or in an
activity otherwise unlawful. Black’s law dictionary defines disposal as the sale, pledge, giving
away, use, consumption or any other disposition of a thing.

28
The dictionary meaning of ‘rental’ is an arrangement to rent something, or the amount of money
that you pay to rent something5 and that of ‘lease’ is to make a legal agreement by which money
is paid in order to use land, a building, a vehicle, or a piece of equipment for an agreed period
of time.
Under GST, such licenses, leases and rentals of goods with or without transfer of right to use
are covered under the supply of service because there is no transfer of title in such supplies.
Such transactions are specifically treated as supply of service in Schedule II of CGST Act.
CONSIDERATION
The dictionary meaning of word ‘consideration’ is payment. Consideration need not always be
in the form of money. It can be in money or in kind. It covers anything which might be possibly
done, given or made in exchange for something else. Further, a consideration need not always
flow from the recipient of the supply. It can also be made by a third person.
A deposit given in respect of the supply of goods or services or both shall not be considered as
payment made for such supply unless the supplier applies such deposit as consideration for the
said supply.

The said definition has been depicted in the form of a diagram as follows:
Let us examine the existence of consideration in the following two scenarios:
1. Donations received by charitable institutions from individual donors, without quid pro quo
2. Art works sent by artists to galleries for exhibition.
Donations received by charitable institutions from individual donors, without quid pro
quo
An important feature of consideration is quid pro quo [something for something]. Donations
received by the charitable organisations are treated as consideration only if there exists, quid
pro quo, i.e., there is an obligation on part of recipient of the donation or gift to do anything
(supply a service).
Generally, institutions such as religious institutions, charitable organisations, schools,
hospitals, orphanages, old age homes etc. receive financial help or any other support in the
form of donation or gift from the individual donors. In order to express the gratitude towards

29
such help/support, the recipient institutions place a name plate or similar such
acknowledgement in their premises.
When the name of the donor is displayed in recipient institution’s premises, in such a manner,
which can be said to be an expression of gratitude and public recognition of donor’s act of
philanthropy and is not aimed at giving publicity to the donor in such manner that it would be
an advertising or promotion of his business, then it can be said that there is no supply of service
for a consideration (in the form of donation). In other words, there is no obligation (quid pro
quo) on part of recipient of the donation or gift to do anything (supply a service). Therefore,
there is no GST liability on such consideration.
Thus, GST is not leviable where all the following three conditions are satisfied namely:

Art works sent by artists to galleries for exhibition is not a supply as no consideration
flows from the gallery to the artists
Artists give their work of art to galleries where it is exhibited for supply. However, no
consideration flows from the gallery to the artist when the art works are sent to the gallery for
exhibition and therefore, the same is not a supply.
It is only when a buyer selects a particular art work displayed at the gallery, that the actual
supply takes place and applicable GST would be payable at the time of such supply.
Another parameter to qualify as supply of goods and/or services is that a supply is made in
course or furtherance of business. This parameter has been expounded in the following paras.
IN COURSE OR FURTHERANCE OF BUSINESS
GST is essentially a tax only on commercial transactions. Hence, only those supplies that are
in the course or furtherance of business qualify as supply under GST. Resultantly, any supplies
made by an individual in his personal capacity do not come under the ambit of GST unless they
fall within the definition of ‘business’.
Meaning of supply made in the course or furtherance of business: Any activity undertaken
in course/ for furtherance of business would constitute a supply. In order to understand the term
‘in the course or furtherance of business’, we need to first understand the term ‘businesses.
Business as defined under section 2(17), inter alia, includes any trade, commerce, manufacture,
profession, vocation etc. whether or not undertaken for a monetary benefit.
The definition of business has been summarised in the diagram below:

30
Thus, business includes any activity/transaction which is incidental or ancillary to any trade,
commerce, manufacture, profession, vocation, adventure, wager [bet] or any other similar
activity. In addition, any activity undertaken by the Central Government or a State Government
or any local authority in which they are engaged as public authority shall also be construed as
business. For any trade, commerce, or any other similar activity to qualify as business,
frequency, volume, continuity or regularity of such transaction is not a pre-requisite.
Importation of services for a consideration whether or not in the course or furtherance of
business
The connotation of ‘supply’ gets expanded significantly through the second part of section 7
i.e., 7(1)(b) which brings within the ambit of ‘supply’, the importation of services for a
consideration whether or not in the course or furtherance of business. This is the only
exception to the condition of supply being made in course or furtherance of business.
Activities To without Consideration- Deemed Supply.
STATUTORY PROVISIONS
Schedule-I Activities to be treated as supply even if made without
consideration
Para No. Particulars
1 Permanent transfer or disposal of business assets where input
tax credit has been availed on such assets
2 Supply of goods or services or both between related persons
or between distinct persons as specified in section 25, when
made in the course or furtherance of business.
Provided that gifts not exceeding fifty thousand rupees in
value in a financial year by an employer to an employee shall
not be treated as supply of goods or services or both.
3 Supply of goods —

31
 (a) by a principal to his agent where the agent undertakes to
supply such goods on behalf of the principal; or
(b) by an agent to his principal where the agent undertakes to
receive such goods on behalf of the principal.
4 Import of services by a person from a related person or from
any of his other establishments outside India, in the course or
furtherance of business

ANALYSIS
There are instances where an activity or transaction is treated as supply, even if the same is
made without consideration. These are specifically mentioned in Schedule I appended to the
CGST Act. The same has been discussed in the subsequent paras:
In the past regime, in every tax statute, “consideration” played the most important role for
levying taxes. For instance, if any service was provided for free to a person, such service was
not subject to service tax. However, under GST, the importance of consideration has been
diluted in certain cases – this is an important departure from the earlier indirect tax regime.
As per Schedule I, in the following four cases, activities made without consideration will be
treated as supply under section 7:
Permanent Transfer/Disposal of Business Assets [Para 1 of Schedule I]:
Any kind of disposal or transfer of business assets made by an entity on permanent basis even
though without consideration qualifies as supply. However, it is important to note that this
provision would apply only if input tax credit has been availed on such assets.
Therefore, in order to qualify as supply under this para, following conditions need to be
satisfied:
❖ There must be a disposal or transfer of business assets
❖ Transfer/disposal must be permanent.
❖ ITC must have been availed on such business assets.
In view of the last condition stipulated above, permanent transfer/disposal of following
business assets, without consideration, will not be covered within this para and thus will not be
deemed as supply:
(i) Business assets on which ITC is blocked/not available under GST.
(ii) Business assets though eligible for ITC, ITC has not been availed by the registered
person.
Supply between related person or distinct persons [Para 2 of Schedule I]: Supply of goods
or services or both between ‘related persons’ or between ‘distinct persons’ as specified in
section 25, will qualify as supply even if made without consideration provided it is made in
the course or furtherance of business.

32
Let us understand the terms ‘related persons’ and ‘distinct persons.
Related persons: A person who is under influence of another person is called a related person
like members of the same family [See definition of family under ‘Relevant Definitions’] or
subsidiaries of a group company etc. Under GST law, various categories of related persons
have been specified. The term ‘related person’ has been defined in explanation to section 15.
The said definition has been depicted by way of a diagram as follows:

Distinct Persons specified under section 25: Before we go through the statutory provisions
of ‘distinct persons’, let us first have an overview of the registration provisions for better
understanding of the concept of distinct persons.
Under GST law, a supplier is required to obtain State-wise registration. He has to obtain
registration in every State/UT from where he makes a taxable supply provided his aggregate
turnover exceeds a specified threshold limit. Thus, he is not required to obtain registration from
a State/UT from where he makes a non-taxable supply.
Since registration in GST is PAN based, once a supplier is liable to register, he has to obtain
registration in each of the States/UTs in which he operates [and makes a taxable supply] under
the same PAN. Further, he is normally required to obtain single registration in a State/UT.
However, where he has multiple places of business in a State/UT, he has the option either to
get a single registration for said State/UT or to get separate registrations for each place of
business in such State/UT.
Now, let us understand the concept of distinct persons in simple terms:
The establishments of a person with separate registrations whether within the same State/UT
or in different States/UTs are considered as distinct persons. Where a person having one
registered establishment in a State/UT has another establishment in a different State/UT [not
necessarily registered], these establishments are considered as establishments of distinct
persons.

33
Statutory provisions relating to ‘distinct persons’ are contained in subsections (4) and (5) of
section 25. They have been discussed as follows:
A person who has obtained/is required to obtain more than one registration, whether in one
State/Union territory or more than one State/Union territory shall, in respect of each such
registration, be treated as distinct persons [Section 25(4)].

Further, where a person who has obtained or is required to obtain registration in a State or
Union territory in respect of an establishment, has an establishment in another State or Union
territory, then such establishments shall be treated as establishments of distinct persons
[Section 25(5)].

Stock transfers or branch transfers qualify as supply: It is a common practice in business

that one branch supplies services to another branch of same entity without consideration.
Similarly, goods are transferred among different units of same entity free of cost, for instance,
distribution of samples manufactured in a factory to different branches or transfer of goods
from factory to depot/showroom for sale therefrom, from one warehouse to another warehouse,
from one branch to another branch where the demand of the goods is higher. These transactions
are termed as self-supplies. Under GST, these transactions undertaken, without consideration,
will also qualify as supply, provided the transfer of goods or services is between:
(i) different locations (with separate GST registrations) of same legal entity as these
are transactions between distinct persons, or
(ii) establishments of distinct persons.

However, transfer between two units of a legal entity under single registration (apparently
within same State) will not be considered as supply.

34
Supply of goods or services or both between an employer and employee: In terms of the
definition of related person given above, employer and employee are related persons. However,
services provided by an employee to the employer in the course of or in relation to his
employment are not treated as supply [Schedule III of CGST Act].
Further, proviso to Para 2 of Schedule I provides that gifts up to Rs 50,000 in value in a financial
year by an employer to an employee shall not be treated as supply of goods or services or both.
However, gifts of value more than Rs 50,000 made without consideration are supply and are
subject to GST, when made in the course or furtherance of business.
Principal – Agent [Para 3 of Schedule I]: Supply of goods by a principal to his agent, without
consideration, where the agent undertakes to supply such goods on behalf of the principal is
considered as supply. Similarly, supply of goods by an agent to his principal, without
consideration, where the agent undertakes to receive such goods on behalf of the principal is
considered as supply.
Points which merit consideration, in this regard, are as follows:
▪ Only supply of goods and not supply of services is covered here.
▪ Supply of goods between principal and agent without consideration is also supply.
Thus, the supply of services between the principal and the agent and vice versa would therefore
require “consideration” to be considered as supply and thus, to be liable to GST.
In order to determine whether a particular principal-agent relationship falls within the ambit of
the Para 3 of Schedule I as discussed above or not, the deciding factor is whether the invoice
for the further supply of goods on behalf of the principal is being issued by the agent or
not? In other words, the crucial point is whether or not the agent has the authority to pass or
receive the title of the goods on behalf of the principal.
▪ Where the invoice for further supply is being issued by the agent in his name then,
any provision of goods from the principal to the agent would fall within the fold of
Para 3 above.
▪ However, where the invoice is issued by the agent to the customer in the name of
the principal, such agent shall not fall within the ambit of Para 3 above.
▪ Similarly, where the goods being procured by the agent on behalf of the principal are
invoiced in the name of the agent then further provision of the said goods by the agent
to the principal would be covered by Para 3 above [Circular No. 57/31/2018 GST dated
04.09.2018].

35
Importation of services [Para 4 of Schedule I]: Import of services by a person from a related
person or from his establishments located outside India, without consideration, in the course or
furtherance of business shall be treated as “supply”.
Clarification on Sales promotion schemes:
A number of sales promotion schemes are commonly employed by the businesses to increase
sales volume or to encourage the use or trial of a product or service so that new customers get
attracted towards their products. For instance, certain sections of trade and industry, such as,
pharmaceutical companies often provide drug samples to their stockists, dealers, medical
practitioners, etc., or sometimes, companies announce offers like ‘Buy One, Get One free’ -
buy one soap and get one soap free or get one tooth brush free along with the purchase of tooth
paste.
As we have already seen that as per section 7(1)(a), the goods or services which are supplied
free of cost (without any consideration) shall not be treated as “supply” except in case of
activities mentioned in Schedule I. In view of the same, few sales promotion schemes have
been examined as under:
Free samples and gifts: Samples which are supplied free of cost, without any consideration,
do not qualify as “supply” under GST 17, except where the activity falls within the ambit of
Schedule I.
Buy one get one free offer: It may appear at first glance that in case of offers like “Buy One,
Get One Free”, one item is being “supplied free of cost” without any consideration. In fact, it
is not an individual supply of free goods, but a case of two or more individual supplies where
a single price is being charged for the entire supply. It can at best be treated as supplying two
goods for the price of one.
Taxability of such supply will be dependent upon as to whether the supply is a composite
supply or a mixed supply and the rate of tax shall be determined accordingly.
Activities or transactions to be treated as supply of goods or as supply of services:
Section 7(1A) classifies certain activities/ transactions constituting supply, either as supply of
goods or supply of services. Schedule II to the CGST Act contains the list of activities or
transactions which have been classified either as supply of goods or supply of service. This
helps in mitigating the ambiguities which existed in earlier laws
The matters listed out in Schedule II are primarily those which had been entangled in litigation
in the earlier regime owing to their complex nature and susceptibility to double taxation.
Para No Activity/ Transaction Type Nature of Supply
1 Transfer Any transfer of title in goods Supply of Goods
Any transfer of right in goods/ Supply of Services
undivided share in goods without
transfer of title thereof.
Any transfer of title in goods Supply of Goods
under an agreement which

36
 stipulates that property in goods
shall pass at a future date upon
payment of full consideration as
agreed
2 Land and Building Any lease, tenancy, easement, Supply of Services
licence to occupy land
Any lease or letting out of Supply of Services
building including a commercial,
industrial or residential complex
for business or commerce,
wholly or partly.
3 Treatment or Process Any treatment or process which Supply of Services
is applied to another person’s
goods
4 Transfer of Business Goods forming part of business Supply of Goods
Assets assets are transferred or disposed
off by/under directions of person
carrying on the business so as no
longer to form part of those
assets.
Goods held/used for business are Supply of Services
put to private use or are made
available to any person for use
for any purpose other than
business, by/ under directions of
person carrying on the business
Goods forming part of assets of Supply of Goods
any business carried on by a
person who ceases to be a taxable
person, shall be deemed to be
supplied by him, in the course or
furtherance of his business,
immediately before he ceases to
be a taxable person.
Exceptions:
▪ Business is transferred as
a going concern to
another person.
▪ Business is carried on by
a personal representative

37
 who is deemed to be a
taxable person
5 (a) Renting of immovable
property
(b) Construction of complex,
building, civil structure, etc
Construction of a complex,
building, civil structure or a part
thereof, including a complex or
building intended for sale to a
buyer, wholly or partly, except
where the entire consideration
has been received after issuance
of completion certificate, where
required, by the competent
authority or after its first
occupation, whichever is earlier.

The term construction includes

additions, alterations,
replacements, or remodelling of
any existing civil structure.
The expression competent
authority means the
Government or any authority
authorised to issue completion
certificate under any law for the
time being in force and in case of
non-requirement of such
certificate from such authority,
from any of the following,
namely: —
(i) an architect
registered with the
Council of
Architecture
constituted under the
Architects Act, 1972;
or
(ii) a chartered engineer
registered with the

38
 Institution of
Engineers (India); or
(iii) a licensed surveyor of
the respective local
body of the city or
town or village or
development or
planning authority.
(c) Temporary transfer or
permitting use or enjoyment of
any intellectual property right
(d) Development, design,
programming, customisation,
adaptation, upgradation,
enhancement, implementation of
IT software
(e) Agreeing to obligation to
refrain from an act, or to tolerate
an act or situation, or to do an act.
(f) Transfer of right to use any
goods for any purpose (whether
or not for specified period) for
cash, deferred payment or other
valuable consideration.

TAX LIABILITY ON COMPOSITE AND MIXED SUPPLIES

COMPOSITE AND MIXED SUPPLIES [SECTION 8]
STATUTORY PROVISIONS
Section 8 Tax liability on composite and mixed supplies
Clauses Particulars
The tax liability on a composite or a mixed supply shall be determined in the
following manner, namely: -
(a) 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; and
(b) a mixed supply comprising of two or more supplies shall be treated as supply
of that particular supply that attracts highest rate of tax

ANALYSIS
GST is payable on individual goods or services or both at the notified rates. The application of
rates poses no problem if the supply is of individual goods or individual services, which is
clearly identifiable and such goods or services are subject to a particular rate of tax.

39
However, in certain cases, supplies are not such simple and clearly identifiable supplies. Some
of the supplies are a combination of goods or combination of services or combination of goods
and services both and each individual component of such supplies may attract a different rate
of tax.
In such a case, the rate of tax to be levied on such supplies may be a challenge. It is for this
reason, that the GST Law identifies composite supplies and mixed supplies and provides
certainty in respect of tax treatment under GST for such supplies.
In order to determine whether the supplies are ‘composite supplies’ or ‘mixed supplies’, one
needs to determine whether the supplies are naturally bundled or not naturally bundled in
ordinary course of business. The concept of ‘naturally bundled’ supplies is emanating from the
definition of ‘composite supply’.
COMPOSITE SUPPLIES
Composite supply means a supply made by a taxable person to a recipient and:
▪ comprises two or more taxable supplies of goods or services or both, or any
combination thereof.
▪ are naturally bundled and supplied in conjunction with each other, in the ordinary
course of business
▪ one of which is a principal supply [Section 2(30)].
This means that in a composite supply, goods or services or both are bundled owing to natural
necessities. The elements in a composite supply are dependent on the ‘principal supply’.
Principal supply means the supply of goods or services which constitutes the predominant
element of a composite supply and to which any other supply forming part of that composite
supply is ancillary [Section 2(90)].
✓ Works contract and restaurant services are classic examples of composite supplies.
How to determine whether the services are bundled in the ordinary course of business?
Whether the services are bundled in the ordinary course of business, would depend upon the
normal or frequent practices followed in the area of business to which services relate. Such
normal and frequent practices adopted in a business can be ascertained from several indicators
some of which are listed below:
1.The perception of the consumer or the service recipient - If large number of service
recipient of such bundle of services reasonably expect such services to be provided as a
package, then such a package could be treated as naturally bundled in the ordinary course of
business.
2.Majority of service providers in a particular area of business provide similar bundle of
services.
3.The nature of the various services in a bundle of services will also help in determining
whether the services are bundled in the ordinary course of business. If the nature of services is
such that one of the services is the main service and the other services combined with such

40
service are in the nature of incidental or ancillary services which help in better enjoyment of a
main service.
4. Other illustrative indicators, not determinative but indicative of bundling of services in the
ordinary course of business are:
❖ The elements are normally advertised as a package.
❖ The different elements are not available separately.
❖ The different elements are integral to one overall supply. If one or more is removed,
the nature of the supply would be affected.
How to determine the tax liability on composite supplies?
A composite supply comprising of two or more supplies, one of which is a principal supply,
shall be treated as a supply of such principal supply. Accordingly, the entire value of composite
supply [i.e. main supply + ancillary supply(ies)] shall be classified under the category of main
supply and shall be taxed at the GST rate applicable to the main supply. This can be better
understood with the help of following example:
Rati Computers supplies laptop (worth ` 52,000) along with laptop bag (worth ` 3,000) to
a customer for ` 55,000. Being naturally bundled, supply of laptop bag along with the
laptop is composite supply which is treated as the supply of the principal supply [viz.
laptop]. Assuming that the rate of tax applicable on laptop is 18% and on laptop bag is
28%, in the given case, rate of principal supply, i.e. laptop @ 18% will be charged on the
entire value of ` 55,000.
Supplies given in the below mentioned table are the composite supplies. CBIC has clarified as
to what constitutes the principal supply in the given composite supplies:
Activity/ transaction Principal supply
Supply of printed In the case of printing of books, pamphlets, brochures, annual
books, pamphlets, reports, and the like, where only content is supplied by the publisher
brochures, or the person who owns the usage rights to the intangible inputs while
envelopes, annual the physical inputs including paper used for printing belong to the
reports, leaflets, printer, supply of printing [of the content supplied by the recipient of
cartons, boxes etc., supply] is the principal supply and therefore such supplies would
printed with design, constitute supply of service
logo, name, address
or other contents In case of supply of printed envelopes, letter cards, printed boxes,
supplied by the tissues, napkins, wall paper etc. by the printer using its physical
recipient of such inputs including paper to print the design, logo etc. supplied by the
printed goods recipient of goods, predominant supply is supply of goods and the
supply of printing of the content [supplied by the recipient of supply]
is ancillary to the principal supply of goods and therefore such
supplies would constitute supply of goods. [Circular No. 11/11/2017
GST dated 20.10.2017]
Activity of bus body The principal supply may be determined on the basis of facts and
building circumstances of each case [Circular No. 34/8/2018-GST dated
01.03.2018].
Retreading of tyres Pre-dominant element is process of retreading which is a supply of
service. Rubber used for retreading is an ancillary supply. Supply of

41
 re-treaded tyres, where the old tyres belong to the supplier of re-
treaded tyres, is a supply of goods [Circular No. 34/8/2018-GST
dated 01.03.2018]

MIXED SUPPLY
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 [Section
2(74)]
The individual supplies are independent of each other and are not naturally bundled.
How to determine if a particular supply is a mixed supply?
In order to identify if the particular supply is a mixed supply, the first requisite is to rule out
that the supply is a composite supply.
A supply can be a mixed supply only if it is not a composite supply. As a corollary, it can be
said that if the transaction consists of supplies not naturally bundled in the ordinary course of
business, then it would be a mixed supply.
Once the amenability of the transaction as a composite supply is ruled out, and a single
consideration is charged for the entire supply of different components, it would be a mixed
supply, classified in terms of supply of goods or services attracting highest rate of tax.
How to determine the tax liability on mixed supplies?
A mixed supply comprising of two or more supplies shall be treated as supply of that particular
supply that attracts highest rate of tax.
Example
Sringaar Enterprises supplies 10,000 kits (at ` 50 each) amounting to ` 5,00,000 to Raghav
General Store. Each kit consists of 1 shampoo, 1 face wash and 1 kajal pencil. It is a mixed
supply and is treated as supply of that particular supply which attracts highest tax rate.
Assuming that the rate of tax applicable on shampoo is 18%, on face wash is 28% and on
kajal pencil is 12%, in the given case, highest tax rate [viz. face wash] @ 28% will be
charged on the entire value of ` 5,00,000.
More than one supply made together and taxed at the individual rates
There can be a case where an activity/transaction involves more than one supply of goods or
services or both, but neither they are composite supplies nor can be categorised as mixed
supplies, that is, all supplies carry independent significance. In such a case, if separate
consideration is indicated against each supply, each such supply shall be charged at the
respective rate applicable to that particular supply.

42
VALUE OF SUPPLY
Introduction
GST is payable (i) on supply of goods and / or services for a consideration in the course of or
furtherance of business; (ii) on certain supplies made without a consideration as specified in
Schedule I to the CGST Act.
As GST is an ad valorem levy, i.e. it is levied as a percentage of the value of supply of goods
and/or services, it becomes important to know how to arrive at the value on which tax is to be
paid. Provisions relating to ‘value of supply’ set out the mechanism to compute such value
basis which CGST and SGST/UTGST (intra-State supply) and IGST (inter-State supply)
should be paid.
Section 15 of the CGST Act supplemented with rules under Chapter IV: Determination of Value
of Supply of CGST Rules1 prescribes the provisions for determining the value of supply of
goods and services. There are common provisions for determining the value of supply of goods
and services.
Sub-section (1) of section 15 provides the mechanism for determining the value of a supply
which is made between unrelated persons and when price and only the price is the sole
consideration for the supply. When value cannot be determined under section 15(1) as also in
certain specific cases, the same is determined using Chapter IV: Determination of Value of
Supply of CGST Rules.
VALUE OF SUPPLY [SECTION 15]
Section 15 Value of taxable supply
Sub-section Clause Particulars
(1) The value of a supply of goods or services or both shall be the transaction
value, which is the price actually paid or payable for the said supply of
goods or services or both where the supplier and the recipient of the
supply are not related and the price is the sole consideration for the
supply.
(2) The value of supply shall include-
(a) any taxes, duties, cesses, fees and charges levied under
any law for the time being in force other than this Act,
the State Goods and Services Tax Act, the Union
Territory Goods and Services Tax Act and the Goods
and Services Tax (Compensation to States) Act, if
charged separately by the supplier;
(b) any amount that the supplier is liable to pay in relation
to such supply but which has been incurred by the
recipient of the supply and not included in the price
actually paid or payable for the goods or services or
both;

43
 © incidental expenses, including commission and
packing, charged by the supplier to the recipient of a
supply and any amount charged for anything done by
the supplier in respect of the supply of goods or services
or both at the time of, or before delivery of goods or
supply of services;
interest or late fee or penalty for delayed payment of any
(d)
consideration for any supply; and
subsidies directly linked to the price excluding
(e) subsidies provided by the Central Government and
State Governments.
Explanation. ––For the purposes of this sub-section, the amount of subsidy
shall be included in the value of supply of the supplier who receives the
subsidy.
(3) The value of the supply shall not include any discount which is given
before or at the time of the supply if such discount has
(a) been duly recorded in the invoice issued in respect of
such supply; and
(b) after the supply has been effected, if—
(i) such discount is established in terms of an
agreement entered into at or before the time
of such supply and specifically linked to
relevant invoices; and
(ii) input tax credit as is attributable to the
discount on the basis of document issued by
the supplier has been reversed by the
recipient of the supply.
Where the value of the supply of goods or services or both cannot be
(4) determined under sub-section (1), the same shall be determined in such
manner as may be prescribed.
Notwithstanding anything contained in sub-section (1) or sub-section (4),
the value of such supplies as may be notified by the Government on the
(5)
recommendations of the Council shall be determined in such manner as may
be prescribed.

Value of Supply
GST is payable (i) on supply of goods and / or services for a consideration in the course of or
furtherance of business; (ii) on certain supplies made without a consideration as specified in
Schedule I to the CGST Act.

44
As GST is an ad valorem levy, i.e. it is levied as a percentage of the value of supply of goods
and/or services, it becomes important to know how to arrive at the value on which tax is to be
paid. Provisions relating to ‘value of supply’ set out the mechanism to compute such value
basis which CGST and SGST/UTGST (intra-State supply) and IGST (inter-State supply)
should be paid.
Section 15 of the CGST Act supplemented with rules under Chapter IV: Determination of Value
of Supply of CGST Rules1 prescribes the provisions for determining the value of supply of
goods and services. There are common provisions for determining the value of supply of goods
and services.
Sub-section (1) of section 15 provides the mechanism for determining the value of a supply
which is made between unrelated persons and when price and only the price is the sole
consideration for the supply. When value cannot be determined under section 15(1) as also in
certain specific cases, the same is determined using Chapter IV: Determination of Value of
Supply of CGST Rules.

VALUE OF SUPPLY [SECTION 15]

STATUTORY PROVISIONS
Section 15 Value of taxable supply
Sub- Clause Particulars
section
(1) The value of a supply of goods or services or both shall be the transaction
value, which is the price actually paid or payable for the said supply of goods
or services or both where the supplier and the recipient of the supply are not
related and the price is the sole consideration for the supply.
(2) The value of supply shall include-
(a) any taxes, duties, cesses, fees and charges levied under
any law for the time being in force other than this Act,
the State Goods and Services Tax Act, the Union
Territory Goods and Services Tax Act and the Goods and
Services Tax (Compensation to States) Act, if charged
separately by the supplier;
(b) any amount that the supplier is liable to pay in relation
to such supply but which has been incurred by the
recipient of the supply and not included in the price

45
 actually paid or payable for the goods or services or
both;
{c} incidental expenses, including commission and packing,
charged by the supplier to the recipient of a supply and
any amount charged for anything done by the supplier in
respect of the supply of goods or services or both at the
time of, or before delivery of goods or supply of
services;
(d) interest or late fee or penalty for delayed payment of any
consideration for any supply; and
{e} subsidies directly linked to the price excluding subsidies
provided by the Central Government and State
Governments.
Explanation. ––For the purposes of this sub-section, the amount of subsidy
shall be included in the value of supply of the supplier who receives the
subsidy.
(3) The value of the supply shall not include any discount which is given
(a) before or at the time of the supply if such discount has
been duly recorded in the invoice issued in respect of
such supply; and
(b) after the supply has been affected, if—
(i) such discount is established in terms of an
agreement entered into at or before the time
of such supply and specifically linked to
relevant invoices; and
(ii) input tax credit as is attributable to the
discount on the basis of document issued by
the supplier has been reversed by the
recipient of the supply.
(4) Where the value of the supply of goods or services or both cannot be
determined under sub-section (1), the same shall be determined in such
manner as may be prescribed.
(5) Notwithstanding anything contained in sub-section (1) or sub-section (4),
the value of such supplies as may be notified by the Government on the
recommendations of the Council shall be determined in such manner as
may be prescribed.
Explanation—For the purposes of this Act, ––
(a) persons shall be deemed to be “related persons” if––

46
 (i) such persons are officers or directors of one another’s businesses
(ii) such persons are legally recognised partners in business;
(iii) such persons are employer and employee;
(iv) any person directly or indirectly owns, controls or holds twenty-
five per cent or more of the outstanding voting stock or shares of
both of them;
(v) one of them directly or indirectly controls the other;
(vi) both of them are directly or indirectly controlled by a third person;
(vii) together they directly or indirectly control a third person; or
(viii) they are members of the same family;
(b) the term “person” also includes legal persons;
(c) persons who are associated in the business of one another in that one is the
sole agent or sole distributor or sole concessionaire, howsoever described, of
the other, shall be deemed to be related

ANALYSIS
The CGST law has different provisions for determining the value of a supply of goods / services
in the following situations:
✓ Supplies made solely for a price in money (monetary consideration), to unrelated
persons  Sub-section (1) of section 15;
✓ Supplies made solely for non-monetary consideration, or for part monetary
consideration and part non-monetary consideration, or involving additional
consideration, or to related persons, or for specific classes of supply
✓ Sub-sections (4) and (5) of section 15 read with the Chapter IV: Determination of Value
of Supply of CGST Rules.
Supplies to unrelated persons where price is the sole consideration
(i) Transaction value [Section 15(1)]
When a transaction of supply of goods / services is made –
▪ between two persons (see definition of “person”) who are not related to each other (see
definition of “related person” in ‘Explanation’ to section 15), and
▪ price is the sole consideration (see definition of consideration) for the supply,
the value of supply is the “transaction value”.

47
Under section 15(1), the transaction value which is applicable between unrelated persons where
price is the sole consideration for the supply is –
the price actually paid or payable for the said supply of goods or services or both.
This is the price for the specific supply that is being valued. It includes the amount already paid
at the time the supply is being valued for tax, as well as the amount payable and not yet paid at
that time. The word ‘payable’ refers to price that is agreed to be paid for the goods / services.
Inclusions in value [Section 15(2)]
The value of supply includes certain elements which are enumerated and discussed below.
▪ Taxes, duties, cesses, fees and charges other than CGST, SGST, UTGST, GST
Compensation Cess, if charged separately
▪ Payments to third parties - Any amount that the supplier is liable to pay in relation to
supply but which has been incurred by the recipient of the supply and not already
included in the price. Incidental expenses, such as, commission and packing, charged
by the supplier to the recipient of a supply
▪ Any amount charged for anything done by the supplier in respect of the supply of goods
and/or services at the time of, or before delivery of goods /supply of services
▪ Interest or late fee or penalty for delayed payment of consideration
▪ Subsidies, directly linked to the price, other than subsidies given by the State or Central
Governments.
The above elements are discussed below.
Taxes other than GST & GST Compensation Cess [Section 15(2)(a)]
Any taxes, duties, cesses, fees and charges levied under any law for the time being in force
except the CGST Act, the SGST Act, the UTGST Act and the GST (Compensation to States)
Act, if charged separately by the supplier, are includible in the value of supply. In case of inter-
State sale liable to IGST, the value of supply will include taxes other than IGST and the GST
Compensation Cess in terms of third proviso to section 20 of IGST Act. In effect, all the taxes,
duties etc. which are not subsumed in GST form part of the taxable value for the purpose of
levying GST.
For instance, if a supplier of goods pays municipal tax in relation to the goods being supplied
and charges the same separately, such tax will form part of the value of supply.

48
TCS under Income-Tax Act, 1961 not includible in the taxable value for the purpose of
GST: The CBIC vide Circular No. 76/50/2018 GST dated 31.12.2018 (amended vide
corrigendum dated 7.03.2019) has clarified that for the purpose of determination of value of
supply under GST, tax collected at source (TCS) under the provisions of the Income Tax Act,
1961 would not be includible as it is an interim levy not having the character of tax.
Payments made to third parties by the recipient on behalf of the supplier in relation to
the supply [Section 15(2)(b)]
A supplier may need to incur various expenses in order to make a particular supply of goods /
services. In the normal course, he would pay these amounts and they would form part of the
price that he charges from the customer (recipient of supply). However, even if the customer
makes direct payment of some of such liabilities (of the supplier) to the third parties, and the
supplier does not include this amount in his bill, it would still form part of the value of the
supply.
A point to note here is that amount paid by the recipient to third parties will be added to the
value under this clause only when the supplier is under contractual liability to make payment
to such third parties and the said payment is in relation to such supply.
Incidental expenses [Section 15(2)(c)]
Incidental expenses, such as, commission and packing charged by the supplier or anything else
done by the supplier in relation to the supply at the time of or before delivery of goods or supply
of services must be added to value.
Outward freight, transit insurance
Where the supplier agrees to deliver the goods at the buyer’s premises and arranges for
transport and insurance, the contract of supply becomes a composite supply; the principal
supply being the supply of goods. Therefore, outward freight and transit insurance become part
of the value of the composite supply and GST is payable thereon at the same rate as applicable
for the relevant goods. However, if the contract for supply is on ex-factory basis where buyer
pays the outward freight and insurance, the same will not be included in the value of supply of
goods.
Interest, late fee or penalty for delayed payment [Section 15(2)(d)]
The value for a supply will include not only the base price but also the charges for delay in
payment.
Subsidies linked with price [Section 15(2)(e)]
Subsidy is a sum of money given to keep the price of a service or commodity low. The subsidy
is added to the value of supply of the supplier who receives the subsidy. It must be noted that
only subsidies directly linked to the price of goods/services are added to the value. Blanket
subsidy/donation received are not includible in the value. Note that if the subsidy is given by
the State or Central Government, it is not to be added to the value of supply.
(iii) Exclusion of discounts from value [Section 15(3)]

49
Discounts are a common phenomenon for businesses. Numerous kinds of discounts are given
by the suppliers to their customers namely, trade discounts, cash discounts,
quantity/volume/performance discounts etc. Such discounts are reduced from the sale price of
the supply. Since, the value of a taxable supply is the transaction value, GST is leviable on the
value after deducting the discounts.
However, not all discounts offered by the supplier to their customers are allowed as a deduction
from the value. Only such discounts which satisfy the conditions prescribed in section 15(3),
are allowed as deduction from the value. The essence of the conditions prescribed in section
15(3) is that the price as established at the time of supply should form the basis of value.
The discounts which do not fulfil the conditions specified in section 15(3) are not deductible
from the value, i.e. GST in such a case is levied on the gross value of the supply without
considering the discount.
Discounts that are allowed as deduction from the value are as follows:
(a) Discounts given before or at the time of supply and shown in the invoice – Example
for such discount can be discounts that are offered for making the payment at the time
of supply itself. Such discounts are thus, recorded in the invoice and thus, GST is
charged on the gross value less discount recorded in the invoice.
(b) Post supply discounts- It is not always commercially feasible to determine all
discounts before or at the time of supply or record them in the invoice. For instance,
cash discount given for making the payment within a stipulated time. Even though the
discount is established before/at the time of supply, the supplier cannot record such
discount in the invoice as he does not know if the buyer will make the payment within
the stipulated time. Likewise, in case of quantity/volume/performance discount also,
the supplier is not aware before/at the time of supply as to whether the buyer would
purchase the requisite quantity within the stipulated time. Therefore, in this case also,
the discount cannot be recorded in the invoice. In such cases, initially the GST is paid
on the gross value indicated in the invoice without considering the discount. The
supplier, however, passes the discount to the buyers subsequently by issuing credit
notes.
Post supply discounts, i.e. the discounts that are given after supply is made, are allowed as a
deduction from the value of supply if the following two conditions are satisfied:
Discount is in terms of an agreement that existed at the time of supply and can be worked out
invoice-wise; and
Proportionate input tax credit is reversed by the recipient - The buyer would have availed input
tax credit (ITC) of GST payable on the gross value specified in the invoice. Thus, when a credit
note is issued to him by the supplier for the discount, the buyer will reverse the proportionate
credit; consequent to which, the supplier’s output tax liability will be reduced by the same
amount.
If any of the above conditions are not satisfied, the GST liability of supplier cannot be reduced.
The supplier, however, can issue a commercial credit note3 for the value of discount. In such a
scenario, the buyer will not be required to reverse any input tax credit.

50
The provisions relating to allowability of discount as a deduction from the value have been
depicted by way of a diagram given below.

Allowability of certain specific types of discounts offered by the suppliers as clarified vide
Circular No. 92/11/2019 GST dated 07.03.2019.
(i) Staggered discounts (‘Buy more, save more’ offers): In case of staggered
discounts, rate of discount increases with increase in purchase volume. For example
– One may get 10 % discount for purchases above ` 5,000/-, 20% discount for
purchases above ` 10,000/- and 30% discount for purchases above ` 20,000/-. Such
discounts are shown on the invoice itself. Such discounts are excluded to determine
the value of supply.
(ii) Periodic/year ending discounts/volume discounts: These discounts are offered
by the suppliers to their stockists, etc. For example- Get additional discount of 1%
if you purchase 10,000 pieces in a year, get additional discount of 2% if you
purchase 15,000 pieces in a year. Such discounts are established in terms of an
agreement entered into at or before the time of supply though not shown on the
invoice as the actual quantum of such discounts gets determined after the supply
has been affected and generally at the year end. In commercial parlance, such
discounts are colloquially referred to as “volume discounts”. Such discounts are
passed on by the supplier through credit notes. Such discounts are excluded to
determine the value of supply provided they satisfy the parameters laid down in
section 15(3), including the reversal of ITC by the recipient of the supply as is
attributable to the discount on the basis of document (s) issued by the supplier.
(iii) Secondary discounts: These are the discounts which are not known at the time of
supply or are offered after the supply is already over. For example, M/s A supplies
10,000 packets of biscuits to M/s B at ` 10/- per packet. Afterwards, M/s A re-values
it at ` 9/- per packet. Subsequently, M/s A issues credit note to M/s B for ` 1/- per
packet.

51
Such secondary discounts shall not be excluded while determining the value of supply as such
discounts are not known at the time of supply and the conditions laid down in section 15(3)(b)
are not satisfied.
It may be noted that financial / commercial credit note(s) can be issued by the supplier even if
the conditions mentioned in section 15(3)(b) are not satisfied. Such credit notes do not include
GST, and do not have any impact on value of supply for the purposes of GST.
Supplies where value cannot be determined u/s 15(1) and notified supplies [Sub-sections
(4) and (5) of section 15
Section 15(4) lays down that where sub-section (1) is not applicable, that is, if the transaction
is with a related party, and/or price is not the sole consideration for the supply of goods /
services, then the value will be determined in the manner as prescribed, which means as
stipulated in the rules for valuation [See the definition of ‘prescribed’]. Further, section 15(5)
lays down that in respect of certain notified supplies also, the value will be determined in the
manner as stipulated in the rules for valuation.

52
Levy and collection of tax
CHARGE OF GST
INTRODUCTION
Power to levy tax is drawn from the Constitution of India. To pave way for the introduction of
Goods and Services Tax (“GST”), 101st Constitutional Amendment Act, 2016 was passed. By
virtue of this Act, enabling provision was made to levy GST on supply of goods or services or
both in India. Central excise duty, State VAT and certain State specific taxes and service tax
were subsumed into a comprehensive GST.
The very basis for the charge of tax in any taxing statute is the taxable event i.e the occurrence
of the event which triggers levy of tax. As discussed earlier, the taxable event under GST is
SUPPLY. CGST and SGST/UTGST are levied on all intra-State supplies of goods and/or
services while IGST is levied on all inter-State supplies of goods and/ or services.
The provisions relating to levy and collection of CGST and IGST are contained in section 9 of
the CGST Act, 2017 and section 5 of the IGST Act, 2017, respectively. Let us now have a
fundamental idea of intra-State supply and inter-State supply.
Intra-State Supplies
As a general rule, where the location of the supplier and the place of supply of goods or
services are in the same State/Union territory, it is treated as intra-State supply of goods or
services respectively.
The provisions relating to levy and collection of CGST and IGST are contained in section 9 of
the CGST Act, 2017 and section 5 of the IGST Act, 2017, respectively. Let us now have a
fundamental idea of intra-State supply and inter-State supply.

53
Inter-State Supply
Similarly, where the location of the supplier and the place of supply of goods or services are
in (i) two different States or (ii) two different Union Territories or (iii) a State and a Union
territory, it is treated as inter-State supply of goods or services respectively.
LEVY & COLLECTION OF CGST & IGST [SECTION 9 OF THE CGST ACT &
SECTION 5 OF THE IGST ACT]
STATUTORY PROVISIONS
Section 9 of
the CGST Levy and collection
Act
Sub-section Particulars
(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.
(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, 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.
(4) The Government may, on the recommendations of the Council, by
notification, 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, specify categories of services the tax on intraState 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
54
 appoint a person in the taxable territory for the purpose of paying tax and such
person shall be liable to pay tax.

ANALYSIS
Central Goods and Services Tax (CGST) shall be levied on all intra-State supplies of goods
or services or both.
The tax shall be collected in such manner as may be prescribed and shall be paid by the taxable
person. However, intra-State supply of alcoholic liquor for human consumption is outside
the purview of CGST.
Value for levy: Transaction value under section 15 of the CGST Act
Rates of CGST: Rates for CGST are rates as may be notified by the Government on the
recommendations of the GST Council. Maximum rate of CGST can be 20%
Note: On inter-State supplies of goods and/or services, Integrated Goods and Services Tax
(IGST) is levied on the transaction value under section 15 of the CGST Act. Since alcoholic
liquor for human consumption is outside the purview of GST law, IGST is also not leviable on
the same. IGST is the sum total of CGST and SGST/UTGST. Maximum rate of IGST can be
40%.
However, CGST/IGST on supply of the following items has not yet been levied. It shall be
levied with effect from such date as may be notified by the Government on the
recommendations of the Council:
▪ petroleum crude
▪ high speed diesel
▪ motor spirit (commonly known as petrol)
▪ natural gas and
▪ aviation turbine fuel
Tax payable on supply of goods or services or both under reverse charge
CGST/IGST shall be paid by the recipient of goods or services or both, on reverse charge basis,
in the following cases:
✓ Supply of such goods or services or both, as notified by the Government on the
recommendations of the GST Council.
✓ Supply of specified categories of goods or services or both by an unregistered supplier
to specified class of registered persons, as notified by the Government on
recommendation of GST Council.
All the provisions of the CGST/IGST Act shall apply to the recipient in the aforesaid cases as
if he is the person liable for paying the tax in relation to the supply of such goods or services
or both.
Reverse charge Mechanism
Generally, the supplier of goods or services is liable to pay GST. However, under the reverse
charge mechanism, the liability to pay GST is cast on the recipient of the goods or services.

55
Reverse charge means the liability to pay tax is on the recipient of supply of goods or services
instead of the supplier of such goods or services in respect of notified categories of supply
[Section 2(98)].
It may be noted that the underlying principle of an indirect tax is that burden of tax has to be
ultimately passed on to the recipient. GST being an indirect tax, this principle holds good for
GST. Under normal circumstances, the statutory liability to deposit GST and undertake
compliances [i.e. to obtain registration under GST, deposit the tax with the Government, filing
returns, etc.] is on the supplier while he may recover the same from its recipient. However,
under reverse charge mechanism, the statutory liability to deposit GST and undertaking
compliance requirements, [i.e. to obtain registration under GST, deposit the tax with the
Government, filing returns, etc.] shifts from supplier to recipient.
There are two types of reverse charge scenarios provided in law.
i. First scenario occurs in case of supply of specified categories of goods or services,
covered by section 9(3) of the CGST/ SGST (UTGST) Act. Similar provisions are
contained under section 5(3) of the IGST Act.
ii. Second scenario occurs in case of supply of specified categories of goods or services
made by an unregistered supplier to specified class of registered recipients, covered by
section 9(4) of the CGST Act. Similar provisions are contained under section 5(4)
of the IGST Act.
Goods and services notified under reverse charge mechanism under section 9(3) of the
CGST Act/ section 5(3) of the IGST Act are as follows
A. Supplies of goods taxable under reverse charge, i.e. supply of the goods where tax
is payable by the recipient: Goods like cashewnuts [not shelled/peeled], bidi wrapper
leaves, tobacco leaves and raw cotton (when supplied by an agriculturist to any
registered person), supply of lottery (when supplied by State Government, Union
Territory or any local authority to lottery distributor or selling agent), silk yarn (when
supplied by manufacturer of silk yarn to any registered person), used vehicles, seized
and confiscated goods, old and used goods, waste and scrap (when supplied by Central
Government, State Government, Union Territory or any local authority to any registered
person), etc. are taxable under reverse charge.
B. Supply of services taxable under reverse charge under section 9(3) of the CGST
Act, i.e. the services where tax is payable by the recipient: the following categories
of supply of services wherein whole of the tax shall be paid on reverse charge basis by
the recipient of services:
S.No Category of supply of service Supplier of service Recipient of
Service
1 Supply of services by a Goods Goods Transport Any business entity
Transport Agency (GTA) in respect Agency (GTA) who located in the taxable
of transportation of goods by road to has not paid CGST territory
@ 6%
2 Services provided by an individual An individual Any business entity
advocate including a senior advocate including a located in the taxable
advocate or firm of advocates by senior advocate or territory
firm of advocates.

56
 way of legal services, directly or
indirectly.
3 Services supplied by an arbitral An arbitral tribunal. Any business entity
tribunal to a business entity. located in taxable
territory.
4 Services provided by way of Any person Any body corporate
sponsorship to any body corporate or partnership firm
or partnership firm located in the taxable
territory.
5 Services supplied by the Central Central Government, Any business entity
Government, State Government, State Government, located in the taxable
Union territory or local authority to Union territory or territory.
a business entity local authority
5A Services supplied by Central Central Government, Any person
Government, State Government, State Government, registered under the
Union territory or local authority by Union territory or CGST Act, 2017
way of renting of immovable local authority
property to a person registered
under CGST Act, 2017
5B Services supplied by any person by Any person Promoter
way of transfer of development
rights (TDR) or Floor Space Index
(FSI) (including additional FSI) for
construction of a project by a
promoter
5C Long term lease of land (30 years or Any person Promoter
more) by any person against
consideration in form of upfront
amount (called as premium, salami,
cost, price, development charges or
by any other name) and/or periodic
rent for construction of a project by
a promoter
6 Services supplied by a director of a A director of a Company or a body
company/ body corporate to the said company or a body corporate located in
company/ body corporate. corporate the taxable territory.
7 Services supplied by an insurance An insurance agent Any person carrying
agent to any person carrying on on insurance
insurance business. business, located in
the taxable territory
8 Services supplied by a recovery A recovery agent A banking
agent to a banking company or a company/financial
financial institution or a non- institution or a non-
banking financial company banking financial
company, located in
the taxable territory.
9 Supply of services by a music Music composer, Music company,
composer, photographer, artist or photographer, artist, producer or the like,
the like by way of transfer or or the like located in the taxable
permitting the use or enjoyment of a territory.

57
 copyright covered under section
13(1)(a) of the Copyright Act, 1957
relating to original dramatic,
musical or artistic works to a music
company, producer or the like.
9A Supply of services by an author by Author Publisher located in
way of transfer or permitting the use the taxable territory.
or enjoyment of a copyright covered
under section 13(1)(a) of the
Copyright Act, 1957 relating to
original literary works to a
publisher.
However, an author can choose to pay tax under forward charge if- (i) he has taken
registration under the CGST Act and filed a declaration, in the prescribed form, that
he exercises the option to pay CGST on the said service under forward charge in
accordance with section 9(1) and to comply with all the provisions as they apply to
a person liable for paying the tax in relation to the supply of any goods and/or
services and that he shall not withdraw the said option within a period of 1 year
from the date of exercising such option; (ii) he makes a declaration on the invoice
issued by him in prescribed form to the publisher.
10 Supply of services by the members Members of RBI
of Overseeing Committee to Overseeing
Reserve Bank of India (RBI) Committee
constituted by the
RB
11 Services supplied by individual Individual Direct A banking company
Direct Selling Agents (DSAs) other Selling Agents or a NBFC, located
than a body corporate, partnership (DSAs) other than a in the taxable
or limited liability partnership body corporate, territory
(LLP) firm to bank or non-banking partnership or LLP
financial company (NBFCs) firm
12 Services provided by business Business facilitator A banking company,
facilitator to a banking company located in taxable
territory
13 Services provided by an agent of An agent of business A business
business correspondent to business correspondent correspondent,
correspondent located in the taxable
territory.
14 Security services (services provided Any person other A registered person,
by way of supply of security than a body located in the taxable
personnel) provided to a registered corporate territory.
person.
15 Services provided by way of renting Any person, other Any body corporate
of any motor vehicle designed to than a body located in the taxable
carry passengers where the cost of corporate who territory
fuel is included in the consideration supplies service to a
charged from the service recipient, body corporate &
provided to a body corporate. doesn’t issue an
invoice charging

58
 CGST @6% to
service recipient.
16 Services of lending of securities Lender i.e., a person Borrower i.e., a
under Securities Lending Scheme, who deposits person who borrows
19977 (“Scheme”) of Securities and securities registered the securities under
Exchange Board of India, as in his name/in the the Scheme through
amended name of any other an approved
person duly intermediary of
authorised on his SEBI.
behalf with an
approved
intermediary for the
purpose of lending
under Scheme of
SEBI

Tax payable by Electronic Commerce Operator (ECO) on notified services.

Electronic Commerce Operator (ECO) is any person who owns/operates/manages an electronic
platform for supply of goods or services or both.
Sometimes, ECO itself supplies the goods or services displayed on its electronic portal.
However, many a times, the products/services displayed on the electronic portal are actually
supplied by some other person to the consumer. When a consumer places an order for a
particular product/ service on this electronic portal, the actual supplier supplies the selected
product/ service to the consumer. The price/ consideration for the product/ service is collected
by the ECO from the consumer and passed on to the actual supplier after the deduction of
commission by the ECO.
The Government may, on the recommendations of the GST Council, notify specific categories
of services the tax [CGST/SGST/IGST] on supplies of which shall be paid by the electronic
commerce operator (ECO) if such services are supplied through it. Few services have been so
notified. For instance, service by way of transportation of passengers by a radio-taxi, motorcab,
maxicab and motor cycle, etc
Classification under GST
In order to determine the rate applicable on a particular supply of goods or services, one needs
to first determine the classification of such goods or services. Classification of goods and
services assumes significance since there are different rates prescribed for supply of different
goods and services. Therefore, classification is crucial for determining the rate of tax applicable
on a particular product or service.
Classification of goods
Classification of goods means identification of the chapter, heading, sub-heading and tariff item
in which a particular product will be classified.
Chapter, heading, sub-heading and tariff item are referred in the Schedules of rate notification
for goods under GST are the Chapter, heading, sub-heading and tariff item of the First Schedule
to the Customs Tariff Act, 1975. Indian Customs Tariff is based on HSN. HSN stands for

59
Harmonized System of Nomenclature. It is a multipurpose international product nomenclature
developed by the World Customs Organization (WCO) for the purpose of classifying goods
across the World in a systematic manner. It comprises of about 5,000 commodity groups; each
identified by a 6 digit code [code can be extended], arranged in a legal and logical structure
and is supported by well-defined rules to achieve uniform classification. India has extended the
HSN codes upto 8-digits.
Along the lines of HSN, the Indian Customs Tariff has a set of Rules of Interpretation of the
First Schedule and General Explanatory notes. These rules and the general explanatory notes
give clear direction as to how the nomenclature in the schedule is to be interpreted. These Rules
for Interpretation including section and chapter notes and the General Explanatory Notes of the
First Schedule apply to the interpretation of the rate notification for goods under GST also.
Consequently, under GST, goods are classified on the basis of HSN in accordance with the
Rules for the Interpretation of the Customs Tariff. Once classification for a product has been
determined on this basis, applicable rate has to be determined as per the rate prescribed in the
rate notification issued under GST.

Classification of services
A new Scheme of Classification of Services has been devised under GST. It is a modified
version of the United Nations Central Product Classification. Under this scheme, the services
of various descriptions have been classified under various sections, headings and groups.
Chapter 99 has been assigned for services.

Rate of tax is determined in accordance with the Service Code in which the service is classified
GST Rate Prescribed for various Good

60
Broadly, six rates of CGST have been notified in six Schedules of rate notification for goods,
viz., 0.125%, 1.5%, 2.5%, 6%, 9% and 14%. SGST/ UTGST at the equivalent rate is also
leviable. With regard to IGST, broadly six rates have been notified in six Schedules of rate
notification for goods, viz., 0.25%, 3%, 5%, 12%, 18% and 28%17. Certain specified goods
have been exempted from tax.
GST Rate Prescribed for various Services
Broadly, six rates of CGST have been notified for services, viz., 0.75%, 2.5%, 3.75%, 6%, 9%
and 14%18. Equivalent rate of SGST/ UTGST will also be levied. For IGST, six rates have
been notified for services, viz., 1.5%, 5%, 7.5%, 12%, 18% and 28%1920. For certain specified
services, nil rate of tax has been notified.
COMPOSITION LEVY [SECTION 10 OF THE CGST ACT]
STATUTORY PROVISIONS
Section Composition levy
10
Sub- Particulars
section
(1) Notwithstanding anything to the contrary contained in this Act but subject to the
provisions of sub-sections (3) and (4) of section 9, a registered person, whose
aggregate turnover in the preceding financial year did not exceed fifty lakh
rupees, may opt to pay, in lieu of the tax payable by him under sub-section (1)
of section 9, an amount of tax calculated at such rate as may be prescribed, but
not exceeding,
one percent of the turnover in State or turnover in Union
a
territory in case of a manufacturer
two and a half per cent. of the turnover in State or turnover
in Union territory in case of persons engaged in making
b
supplies referred to in clause (b) of paragraph 6 of Schedule
II, and
half per cent. of the turnover in State or turnover in Union
c
territory in case of other suppliers
subject to such conditions and restrictions as may be prescribed.
Provided that the Government may, by notification, increase the said limit of
fifty lakh rupees to such higher amount, not exceeding one crore and fifty lakh
rupees, as may be recommended by the Council
Provided further that a person who opts to pay tax under clause (a) or clause (b)
or clause (c) may supply services (other than those referred to in clause (b) of
paragraph 6 of Schedule II), of value not exceeding ten percent. of turnover in a
State or Union territory in the preceding financial year or five lakh rupees,
whichever is higher.
Explanation - For the purposes of second proviso, the value of exempt supply of
services provided by way of extending deposits, loans or advances in so far as
the consideration is represented by way of interest or discount shall not be taken
into account for determining the value of turnover in a State or Union territory.
(2)

61
Place of Supply in GST
Introduction
GST is a destination-based tax wherein the tax is payable in the state where goods and services
are finally consumed. The taxes under GST may be CGST, SGST, UTGST and IGST. In order
to determine the type of GST, the nature of supply is to be ascertained. This nature may be
either Inter-state or Intra-state. The supply of goods imported into, or exported from India is
treated as Inter-state supply.
Place of supply and location of supplier are the two major determinants, while deciding the
nature of supply. The supply may be domestic or cross-border. The Domestic supply may
further be within or outside the state. This bifurcation is applicable not only for goods but also
for services.
Legal Framework
The provisions regarding place of supply of goods or services are provided in Chapter
V of IGST Act, vide sections 10-14.
Section 10: Place of supply of goods other than supply of goods imported into, or exported
from India
Section 11: Place of supply of goods imported into, or exported from India
Section 12: Place of supply of services where location of supplier and recipient is in India
Section 13: Place of supply of services where location of supplier or location of recipient
is outside India
Section 14: Special provision for payment of tax by a supplier of online information and
database access or retrieval services
Importance of place of supply
Place of supply is important to determine the kind of tax that is to be levied. The IGST is levied
in case of inter-state supply whereas CGST and SGST become applicable in case of intra state
supply. Whether a supply is inter-state or intra state, it depends upon the location of supplier
and the place of Supply.
When the location of supplier and the place of supply are in two different States, it will be an
Inter-State supply and IGST will be applicable but when the two are in the same State, then it
will be an Intra-State supply and CGST & SGST/UTGST is applicable.
Table 1

62
 Case Location of Place of Whether location of Whether inter-State/
Supplier Supply supplier and the place intra-State
of supply are in the
same State

1 Kerala Bihar NO Inter-State (IGST)

2. Puducherry Puducherry YES Intra-State (CGST&

Puducherry GST)

3. Chandigarh Chandigarh YES Intra-State (CGST +

UTGST)

4. Chandigarh Punjab NO Inter-State (IGST)

5. Chandigarh Daman & NO Inter-State (IGST)

Diu

6. Goa Goa YES Intra-State (CGST +

Goa GST)

7. Karnataka Karnataka Special case Inter-State

(SEZ) (non-SEZ)

Thus, it is very important to understand the two phrases and the manner of determination of
the two.
Location of supplier of Goods
The word ‘location’ refers to the site or premises i.e. the geographical point. Location of
supplier of goods is the site/premises of supplier where the supplier is situated together with
the goods under his control, ready to be supplied. Thus, it is usually the place from where a
supply is made. In GST registration certificate, a place is mentioned as a principal place of
business and it may be taken as location of supplier.
Location of supplier of Services
The section 2(15) of the IGST Act, 2017 gives the meaning of “Location of Supplier of
Services”. The definition may be summarized in the table given below:

Situation Location of Supplier of Services

63
 (a) where a supply is made from a place of the location of such place of business;
business for which registration has been
obtained

(b) where a supply is made from a place other the location of such fixed
than the place of business for which establishment;
registration has been obtained, that is to say,
a fixed establishment elsewhere

(c) where a supply is made from more than one the location of the establishment most
establishment, whether the place of business directly concerned with the provision
or fixed establishment of the supply

(d) in absence of such places the location of the usual place of

residence of the supplier.

Location of Recipient of Services

The Location of Recipient of Services is defined by Section 2(14) of the IGST Act. It may be
summarized in the table given below:

Situation Location of Supplier of Services

(a) where a supply is received at a place of the location of such place of business;
business for which registration has been
obtained

(b) where a supply is received at a place other the location of such fixed establishment
than the place of business for which
registration has been obtained, that is to
say, a fixed establishment elsewhere

(c) where a supply is received at more than the location of the establishment most
one establishment, whether the place of directly concerned with the receipt of
business or fixed establishment the supply

(d) in absence of such places the location of the usual place of

residence of the recipient

64
The term “place of supply” is a legal term and its meaning should be understood with the legal
intent and not in common parlance.
GST is a destination-based consumption tax but no provision of law clarifies this concept. The
provisions of ‘place of supply’ fully bridge this missing link. In each case of supply, the law
makers have declared the place of supply. It is the place of supply that will have right of accrual
of revenue.
Types of Supply
The GST laws have integrated the goods and services under the common name “supply”.
Considering the need of the given chapter, the supplies may be divided on two bases, namely-
Geographical basis and the purpose of recipient.
Geographical Basis
The geographical boundaries of a country are very important in determination of any type of
tax liability. Under GST also, the place of recipient and the place of supplier play significant
role in deciding the type of supply. On such basis, there can be following two types of supplies:
(a) Domestic Supply
(b) Cross border supply
(a) Domestic Supply: It refers to those supply or transactions, where the supplier and recipient
of Supply, both are located in India. The supply of goods or services is within India.
(b) Cross border supply: It is basically supply of goods or provisioning of services exported
out of India or imported into India. Section 11 deals with statutory provisions for determination
of place of supply of ‘GOODS’ imported into, or exported from India. Similarly, section 13
deals with statutory provisions for determination of place of supply of ‘SERVICES’ where
location of supplier or location of recipient is outside India.
Purpose of Recipient
When supply is made in terms of goods or services, the recipient may be the end consumer or
another business entity, for which it is an inward supply. On such basis, the supply may be
classified as:
(a) Business to Business Supply (B2B Supply)
(b) Business to Consumer Supply (B2C Supply)
This determination is very essential in finding out the place of supply.
(a) Business to Business Supply: It is commonly abbreviated as B2B. Under this type of
supply, both the supplier and the recipient are businesses. It means the supplies are used by the
recipient in the course of furtherance of the business. The tax paid by the recipient shall be
available as input tax credit.
For Example: If an event management company hires the services of a caterer, in the course
of or in furtherance of their business, then it is a B2B supply.

65
(b) Business to Consumer Supply: It is commonly abbreviated as B2C. Under this type of
supply, the recipient is the final consumer. In other words, it is a transaction between a business
and a consumer. Accordingly, no credit of Input tax is allowed to the consumer.
Suppose, Mr. Sharma hires the services of a caterer on the occasion of marriage of his daughter.
In this case, the recipient is end user. No question arises about availability of ITC to Mr.
Sharma. This type of supply is a B2C supply.
Difference between B2B and B2C Supply

B2B Supply B2C Supply

1. It refers to Business to Business Supply. It refers to Business to Consumer

Supply.

2. The two parties are ‘Business’ and The two parties are ‘Business’ and
‘Business’. ‘Consumer’.

3. The recipient is acting in the course of or The recipient is the end user.
in the furtherance of his business.

4. The recipient can claim ITC. No question arises about availability of

ITC.

Place of supply of Domestic transactions involving goods

The section 10(1) of the IGST Act has provided the five rules for determination of place of
supply of domestic transactions, which are as follows:
(a) Supply involving movement of goods
(b) Goods delivered on bill to ship to model
(c) Supply not involving movement of goods
(d) Goods assembled/installed at site
(e) Goods supplied on board a conveyance
The Section 10(2) provides that if the place of supply cannot be determined as per any of the
above rules as given in section 10(1), the government may prescribe the manner to ascertain
the place of supply.
These rules and sub-rules are discussed in detail in the following paragraphs.

Example 1:

66
 Sharma Private Limited (Delhi) sells 40 units of certain goods to Manish Limited
(Bengaluru). The goods are delivered in Bengaluru through transport arranged by Sharma
private Limited (i.e. the supplier). Here, the movement of goods terminates for delivery at
Bengaluru.
Place of Supply: Bengaluru (Karnataka)
Location of Supplier: Delhi
Nature of Supply: Inter-state liable to IGST

Example 2:

Muskan Limited (Delhi) is a registered dealer in Mumbai, Maharashtra. It supplies 40

washing machines to VIVA Electronics (a registered dealer) of Jaipur, Rajasthan. VIVA
Electronics has taken the washing machines from supplier’s ex-factory at Mumbai. The
transport is arranged by the buyer. Here, the supply involves movement of goods by the
recipient and Jaipur is the place where the movement of washing machines terminates for
final delivery to the recipient.
Place of Supply: Jaipur (Rajasthan)
Location of Supplier: Mumbai (Maharashtra)
Nature of Supply: Inter-state liable to IGST

Goods delivered on “Bill to ship to” Model

As per section 10(1)(b) where the goods are delivered by the supplier to a recipient or any other
person on the direction of a third person, whether acting as an agent or otherwise, before or
during movement of goods, either by way of transfer of documents of title to the goods or
otherwise, it shall be deemed that the said third person has received the goods and the place of
supply of such goods shall be the principal place of business of such person.
In this situation, there are three parties involved:
(a) The supplier
(b) The Recipient
(c) The 3rd party on whose instructions the goods are delivered.
The first party is the supplier of goods who delivers the same to the second party, the recipient.
This delivery is however, on the instructions of a third party i.e., the buyer who may be acting
as an agent or on his own account. It is deemed that the third person has received the goods
and the place of supply is the principal place of business of such third person.

67
Technically, in this case, there are two supplies. The first is from the supplier to third person
and the second is between the third person and the recipient. But, this section captures only
the first supply between supplier and third person. Therefore, the place of supply will be
the principal place of business of third person.

Example 3:

A of ‘Maharashtra’ supplied goods to B of ‘Delhi’. When goods start moving, B instructs

the supplier i.e. Mr. A to deliver the goods to ‘C’ at Ahmedabad on his behalf. Now, in this
example, the place of supply will be Delhi as per section 10(1)(b) of the IGST Act, 2017.

Example 4:

Mr. Vimal (a supplier registered in Punjab having principal place of business in Ludhiana)
asks Mr. Sumit of Agra, UP to deliver 25 fabric knitting machines to his buyer Mr. Nikunj
at Alwar, Rajasthan. This is the example ‘BILL TO – SHIP TO’ Model. There are three
parties:
(a) Supplier (Mr. Sumit)
(b) Recipient (Mr. Nikunj)
(c) Third party on whose instructions the goods are delivered (Mr. Vimal)
In this case, basically two supplies are involved:
(i) Between Vimal and Nikunj
(ii) Between Sumit and Vimal
The first supply (i.e. between Vimal and Nikunj) is covered under section 10(1)(a) and the
second supply (i.e. between Sumit and Vimal) is “BILL TO-SHIP To” transaction covered
under section 10(1)(b). Accordingly for latter supply, the place of supply of goods is not the
location of delivery of such goods (Alwar) but the principal place of business of third person
i.e. Mr. Vimal located at Ludhiana.
Place of Supply: Ludhiana, Punjab
Location of Supplier: Agra (UP)
Nature of Supply: Inter-state liable to IGST

Example 5:

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 Ritu limited (Noida, UP) instructs Kamal Limited (Agra, UP) to supply certain goods to Mr.
Varad of Jaipur, Rajasthan. Accordingly, Kamal Limited supplies the specified goods to Mr.
Varad, on behalf of Ritu Limited. Here,
Kamal Limited: Supplier
Varad Limited: Recipient
Ritu Limited: Third party
As per section 10(1)(b), it shall be deemed that the said third person (Ritu Limited) has
received the goods. Thus, the place of supply shall be the Principal place of business of third
person (Ritu limited) on whose instructions the goods are delivered. Therefore,:
Place of Supply: Noida, UP
Location of Supplier (Kamal Limited): Agra (UP)
Nature of Supply: Intra-state liable to CGST & SGST

Supply not involving movement of goods

As per Section 10(1)(c) “Where the supply does not involve movement of goods, (whether by
the supplier or the recipient), the place of supply shall be the location of such goods at the time
of the delivery to the recipient”. Here, it is not intended to cover cases where it is difficult to
move, but to cover those cases where the supply demands that good ought not to move.
If the supply does not involve movement of goods, the place of supply is the location of goods
at the time of delivery to the recipient.

Example 6:

X took a building on rent from Mr. Y. He bolted a machinery on the floor of the building.
After three years he vacated the building but agreed with the land lord to leave behind the
machinery for the land lord without dismantling it. The supply of machinery by the tenant
to the Landlord does not involve movement of goods and the place of supply shall be where
the machine is fixed.

Example 7:

H. B. Leasing Limited (Madurai, Tamil Nadu) has leased his machine (Cost Rs. 28,00,000)
to Mr. Prateek (Alwar, Rajasthan) for use in manufacturing at monthly rent of Rs. 40,000.
After 2 years, Prateek requested the lessor company to sell the machine to him for Rs.
10,00,000, which is agreed to by H. B. Leasing Limited. In this case, there will be no

69
 movement of goods and the same will be sold on “as is where basis is”. Therefore, the
location of the machine at the time of such sale will be the place of supply i.e. Alwar
Place of Supply: Alwar, Rajasthan
Location of Supplier: Madurai, Tamil Nadu
Nature of Supply: Inter-state liable to IGST

Example 8:

Swami Limited (Mysore) opens a new branch office at Pune, Maharashtra. It purchases a
building for office from Shah Bros. (Pune) along with pre-installed furniture and computers.
Though there will be no GST liability on purchase of building, but office furniture and
computers will be liable to GST. Since there is no movement of office furniture and
computers, the place of supply of such goods is their location at the time of delivery to the
recipient (Swami Limited) i.e. Pune, Maharashtra.

Supply involving Installation or Assembly of Goods

As per Section 10(1)(d), “Where the goods are assembled, or installed at site, the place of
supply shall be the place of such installation or assembly.” It is important to distinguish this
installation or assembly from “works contract.” Works contract under GST is treated as supply
of service and the provisions of this section are therefore not applicable. Thus, if the supply
involves goods which are to be installed or assembled at site, the place of supply is the place
of such installation or assembly.

Example 9:

A purchase a Machine from B, where both A and B are in Delhi. The Machine, however,
needs to be installed in Faridabad (Haryana). The place of supply will be Faridabad
(Haryana) as the Machine is installed in Faridabad. Location of Supplier Delhi, Place of
Supply Haryana : IGST will be applicable.

Example 10:

Ruchi Soya Limited (Meerut, UP) gives a contract to BHEL Limited (Bilaspur, Himachal
Pradesh) to supply a heavy motor machine which is required to be assembled in a factory

70
 located in Manali, Himachal Pradesh. The place of supply is the site of assembly of
machine, i.e. Manali even though Ruchi Soya is located in UP.
Place of Supply: Manali, Himachal Pradesh
Location of Supplier: Bilaspur, Himachal Pradesh
Nature of Supply: Intra-state liable to CGST & SGST

Goods supplied on Board a Conveyance

As per Section 10(1)(e), “Where the goods are supplied on board a conveyance, including a
vessel, an aircraft, a train or a motor vehicle, the place of supply shall be the location at which
such goods are taken on board. The supplier may himself supply the goods to the passengers,
like sales man of a particular company selling packed eatables which they carry along
specifically for the purpose of sale or the goods sold to the operator of the conveyance and the
operator selling to the travelling passengers. In the second case, there are two supplies, the first
is the supply to the operator of conveyance and second is the supply by the operator of
conveyance to the passengers on board during the journey. In the second case, this section
covers the second supply from the operator of the conveyance to the passengers on board during
journey.
The place of supply of goods supplied on board a conveyance like aircraft, train, vessel, motor
vehicle, etc. is the location where such goods have been taken on board. These goods are sold
during the journey on board a conveyance.

Example 11:

Mr. Z boarded the train at New Delhi for its destination Mumbai. He carried some goods
with him for the purpose of sale during the journey. When the train reaches Surat, he sells
certain goods. Now, in this case the place of supply of such goods will be New Delhi i.e.
the location at which the goods are taken on board.

Example 12:

Ms. Deepa (Delhi) boards the Delhi-Mumbai train at Delhi. During the journey, she sells
the goods at Vadodara which were taken on board by her at Delhi. The place of supply of
goods is the location at which the goods are taken on board i.e. Delhi and not Vadodara
where they have been sold.
Place of Supply: Delhi

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When Place of Supply cannot be determined as above
Where the place of supply of goods cannot be determined, the place of supply shall be
determined in such manner as may be prescribed. Where none of the above provisions are
applicable to determine the place of supply of goods, the Central Government will prescribe
rules on the recommendations of the GST Council regarding the manner of its determination.
However, it must be ensured before taking recourse to residual provisions that the Supply is
one which is
Place of supply of Goods imported into, or Exported from India [Cross Border
Transactions]
Place of supply of goods where the goods are imported into or exported from India will be
determined in accordance with section 11 of the IGST Act. Import of goods is defined in section
2(5) of the IGST Act and export of goods is defined in section 2(10) of the IGST Act. It must
be noted that the payment in convertible foreign exchange is not a criterion for determining
import and export of goods but it is relevant in case of services and transactions involving
goods treated as services. Another aspect worth noting is, if the goods move from one foreign
country to another foreign country without entering into India it will not be a supply in taxable
territory even if the supplier is in India.
The place of supply in cases involving import and export of goods is determined as per the
provisions of section 11 of the IGST Act, 2017.
Export of goods
When goods are exported from India, then the place of supply of such goods shall be the
location outside India i.e. the place where the goods have been exported. “Export means taking
goods out of India to a place outside India”. Such export of goods have been treated as inter-
state supply but no GST is payable as it has been declared as Zero rated supplies.
Import of goods
If the goods have been imported into India, the place of supply of goods is the place where the
importer is located. In this regard, Import has been defined as bringing into India from a place
outside India. It is treated as inter-state supplies and it attracts IGST along with Customs Duties.
In the case of some products like Pan Masala, GST compensation cess is also levied.

example 13:

Z of Chennai imported goods from USA. The place of supply will be Chennai i.e. the
location of Importer.

Table 2 Import of Goods

72
 Case Location Place where Place where Location of Place of Supply
of goods are the goods are importer
Supplier located supplied
before supply

1. England England Delhi Delhi Delhi

2. Haryana USA Denmark Punjab Not an import

3. USA USA Nagpur Delhi Delhi

Place of supply of Services where location of supplier of service and the location of the
Recipient of service is in India: [Domestic transaction in services]
As per section 12 of the IGST Act, 2017, when the location of supplier of service and the
location of recipient of service is in India, the place of supply of services is governed by
(a) General Provisions
(b) Specific Provisions
General Provisions [Section 12(2)]
The general provisions are applicable only if the supply of service does not fall in any of the
specific cases provided under section 12.
(a) When the recipient is registered person
In case, the recipient is a registered person, the location of such registered person shall be the
place of supply. For Example: A supplies services to B, who is a registered person. In this case,
the place of supply will be the location of such registered person i.e. the location of B.
(b) When the recipient is unregistered person
In case, the recipient is an unregistered person, the place of supply will still be the location of
recipient, if the address of recipient exists on record. This means the supplier has taken the
address and other details of the recipient at the time of supply of services.
However, in case the address of recipient does not exist on record, then place of supply of
service would be the location of the supplier. For Example: A of Delhi supplies services to B
of Pune. B is not a registered person. A does not have any address of B in his records. Here, the
place of supply will be the location of the supplier i.e. Delhi, the location of Mr. A.
The above provisions can be summarized as under:

Supply of Service made to ……….. POS of Services

73
 (a) Registered Person Location of Recipient

(b) Unregistered Person and Location of Recipient is available Location of Recipient

(c) Unregistered Person and Location of Recipient is NOT Location of Supplier

available

Example 14:

A provides designing services to an Advertisement Company. The recipient company is a

registered person. The location of recipient i.e. the location of the advertising company will
be the place of supply.

Example 15:
Mr. A supplies services to Mr. B in India. Mr. B is not a registered person but A has the address
of B in his records. The place of supply will be the location of B.

Example 16:

A Barber provides services to so many customers daily but he does not record their names
and addresses. The place of supply will be the location of the Barber.

Specific Provisions
The general provisions do not appropriately cover all situations of provisions of services.
Therefore, special provisions are applicable for specific services. These are provided in sub-
section (3) to sub-section (14) of section 12. These are discussed as follows:
Services in relation to an immovable property/boat/vessel [Section 12(3)]
Section 12(3) covers supplies of services which are in relation to an immovable property or a
boat or a vessel. These services are classified as follows:

Category Service Place of Supply Example

(a) Services provided The location of X provided

directly in relation to an immovable property architectural services
immovable property or the boat or the to Y of Delhi. X and Y
including those by are registered under

74
Category Service Place of Supply Example

architect, interior vessel is the place of GST. X has place of

decorator, surveyor, supply. business in Nagpur.
engineer, related experts The building is situated
Where the immovable
and estate agent. in Delhi. The place of
property extends to
supply will be Delhi.
more than one
state/union territory, the
(b) Service provided by services is deemed to
way of grant of rights to have been supplied in
use immovable property each of the respective
or for carrying out or states/Union territories
co-ordination of proportionately in terms
construction work of the value of the
services.

(c) Services provided by Where the services are Suresh, a registered

way of lodging, provided outside person has place of
accommodation by a India, Location of the business in
Hotel, Inn, guest house, recipient Ahmedabad. He visits
home stay, Club, Mumbai for business
Note:
Campsite, house boat purpose and stays in a
Vessel. The lines given above hotel there. The place
along with the of supply will be
paragraph appearing Mumbai where the
under same Column in Hotel is located.
previous page is
applicable to all the
(d) Services provided by Categories from (a) to A is a rich businessman
way of accommodation (e) of Delhi. He hosts the
in an immovable marriage of his
property for organizing daughter in the
any marriage/reception Udaipur fort in
or matters related Udaipur Rajasthan.
thereto, official, social, The place of supply of
cultural, religious or service will be
business functions Udaipur. In fact, all
including services other services provided
provided in relation to at the Udaipur Fort for
such function at such the conduct of
property marriage will also have

75
 Category Service Place of Supply Example

(e) Services ancillary to the place of supply as

above-mentioned Udaipur.
services.

The provisions relating to place of supply can be summarized as follows:

Nature of Supply Location of Place of Supply

immovable
property/boat/vessel

Supply of services relating to In India Location of such immovable

immovable property/boat/vessel
property/boat/vessel, including
accommodation therein.

Outside India Location of the recipient

Computation of value of services where immovable property is located in more than one
State and where the location of supplier and recipient is in India [New rule 4 of the
IGST Rules (effective from 1-1-2019)]
Section 12(3) of the IGST Act provides that the place of supply of services, in relation to
immovable property or a boat or a vessel, shall be the location at which immovable property
or boat or vessel is located or intended to be located. However, in case where the immovable
property or boat or vessel is located in more than one State/UT, the service is deemed to have
been supplied in each of the respective States/UT, proportionately in terms of value of services
determined as per rule 4 in the following manner:-

S. Type of service in relation to Factor which determines the

No. immovable property proportionate value of service

(a) Service provided by way of lodging Number of nights stayed in such property
accommodation by hotel, inn, guest
Example 17: A hotel chain X charges a
house etc. and its ancillary services
consolidated sum of ` 30,000 for stay in its
(other than the cases where such
two establishments in Delhi and Agra,
property is a single property located
where the stay in Delhi is for 2 nights and
in 2 or more contiguous States/UT
the stay in Agra is for 1 night. The place of
or both)
supply in this case is both in the Union
territory of Delhi and in the State of Uttar

76
S. Type of service in relation to Factor which determines the
No. immovable property proportionate value of service

Pradesh and the service shall be deemed to

have been provided in the Union territory
of Delhi and in the State of Uttar Pradesh
in the ratio2:1 respectively. The value of
services provided will thus be apportioned
as ` 20,000 in the Union territory of Delhi
and ` 10,000 in the State of Uttar Pradesh.

(b) All other services provided in Area of the immovable property lying in
relation to immovable property each State/UT
including
Example 18: There is a piece of land of
• area 20,000 square feet which is partly in
State S 1 say 12,000 square feet and partly
• Services by way of
in State S 2, say 8000 square feet. Site
accommodation in
preparation work has been entrusted to T.
any immovable
The ratio of land in the two states works
property for
out to 12:8 or 3:2 (simplified). The place
organising any
of supply is in both S1 and S 2. The
marriage or reception
service shall be deemed to have been
etc.
provided in the ratio of 12:8 or 3:2
• Supply of (simplified) in the States S1 and S 2
accommodation by a respectively. The value of the service shall
hotel, inn, guest be accordingly apportioned between the
house, club or States.
campsite, by
whatever name
called where such
property is a single
property located in 2
or more contiguous
States or/and UT
• Services ancillary to
services mentioned
above

(c) Services by way of lodging Time spent by the boat or vessel in each
accommodation by a house boat or such State/UT, to be determined on the
vessel and its ancillary services basis of declaration made by the service
provider.

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S. Type of service in relation to Factor which determines the
No. immovable property proportionate value of service

Example 19: A company C provides the

service of 24 hours accommodation in a
houseboat, which is situated both in Kerala
and Karnataka in as much as the guests
board the house boat in Kerala and stay
there for 22 hours but it also moves into
Karnataka for 2 hours (as declared by the
service provider). The place of supply of
this service is in the States of Kerala and
Karnataka. The service shall be deemed to
have been provided in the ratio of 22:2 or
11:1 (simplified) in the States of Kerala
and Karnataka, respectively. The value of
the service shall be accordingly
apportioned between the States.

Example 20 (Place of Supply of services directly in relation to immovable property)

In the light of section 12(3) of the IGST Act and the related proviso, the Place of Supply
(POS) will be determined in the following manner:

Situation POS Reason

(a) Mr. X of Chennai hired the services of interior Chennai Since the property is located
decorator Mr. Y of Surat for redoing his home India, therefore, as per provi
in Singapore. the IGST Act, 2017, the plac
Chennai, being the location o

(b) Atul of Delhi entered into a lease agreement Faridabad Any service provided by wa
with Manish of Delhi whereby he leased out use immovable property is c
his farm in Faridabad to Manish. 12(3). Though both the supp
are in Delhi but the POS sha
immovable property, here be

(c) Shahrukh Khan of Mumbai purchased a Mumbai Since the immovable proper
bungalow in USA. He hires Bangalore based India, therefore, as per provi

78
 architect to design a structure for his the IGST Act, 2017, the plac
bungalow. Mumbai, being the location

(d) Mr. Vikram, an employee of “Viraj Nagpur Section 12(3) covers accomm
communication”, Delhi, goes on an official place of supply shall be loca
tour to Nagpur and stays in a hotel there, property.
booked in the name of his company.

Restaurant service, personal grooming/fitness/beauty and health services [Section 12(4)]

The place of supply of restaurant and catering services, personal grooming, fitness, beauty
treatment, health service including cosmetic and plastic surgery is the location where such
services are actually performed.

Example 21:

Z stays in Delhi but visits a nearby Gymnasium in Noida (UP). The place of supply will
be Noida, where services are actually performed.

Training and performance appraisal services [Section 12(5)]

The place of supply of services in relation to training and performance appraisal depends upon
whether the supply is B2B or B2C. In B2B supply i.e., where the recipient of service is a
registered person, the place of supply is the location of such person. However, in case of B2C
supply i.e., where the recipient of service is unregistered, the place of supply is the place where
the service is actually performed.

Type of service Place of Supply

B2B Supply B2C Supply

Training and performance Location of Location where the services

appraisal registered Recipient are performed.

Example 22:

Z carries performance appraisal of the employees of XYZ a firm which is not registered
under the Act. XYZ is located in Moradabad but appraisal was conducted in Nainital. As

79
 XYZ is not registered, the place of supply shall be the place where services are actually
performed i.e. Nainital.

Services by way of admission to events/amusement park/other places [Section 12(6)]

The place of supply of following services-

S.No. Supply Place of Supply Example

1. Services provided by way of Place where the Z comes to visit Shimla

admission to certain events event is actually from Delhi. He enjoys a
held or where the play in a theatre in Shimla
park or such other and pays for the same. The
2. Services provided by way of place is located. place of supply will be the
admission to amusement place where the play is
park or any other place actually held and the theater
is located i.e. Shimla.
3. Services ancillary to the
above- mentioned services

Organisation of events [Section 12(7)]

The Place of Supply is dependent on whether the Recipient is registered or unregistered.
When such service is provided to a registered person, the place of supply is location of
recipient. When it is provided to an unregistered person, the place of supply is the location
where the event is actually held and if the event is held outside India, the place of supply is the
location of recipient.

Type of Service Place of Supply

Recipient is Recipient is
registered unregistered

Organisation of events or services ancillary to the Location of Location

same or assigning of sponsorship to such events. recipient (in where the
For example cultural, artistic, sporting, scientific, all Cases) event is held
educational or entertainment event, conference,
fair, exhibition, celebration or other similar event

Organisation of “events outside India” Location of

recipient

80
If the event is held in more than one State/Union Territory and a consolidated amount is
charged for services relating to such event, the place of supply of such services is deemed to
be in each of the respective States/Union territories in proportion to the value for services.

Example 23:

A company having place of Business in Hyderabad (Andhra Pradesh), duly registered

under GST, hires the services of X of Delhi for organizing promotional events for the
company at all the metropolitan cities. The place of supply is Hyderabad, as “A” is a
registered company. If A is not registered, the place of supply will be each place where the
event is held.

Example 24:

In the Example 23, if events were held in New York and London, the place of supply
would be the location of recipient i.e. still Hyderabad.

Computation of value of services where event is organised in more than one State and
where the location of supplier and the recipient is in India [New rule 5 of the IGST
Rules (effective from 1-1-2019)]
Section 12(7) of the IGST Act provides that when services provided by way of organisation of
events including services ancillary to such organisation or assigning of sponsorship to such
events, is provided to an unregistered person, the place of supply of such service is the location
where the event is actually held.
If the event is held in more than one State/UT and a consolidated amount is charged for services
relating to such event, the place of supply of such service is deemed to be in each of the
respective State/UT in proportion to the value of services determined in terms of the contract
or agreement entered into in this regard. In the absence of any such contract or agreement, the
value is determined in accordance with Rule 5 by the application of generally accepted
accounting principles.

Example 25:

An event management company E has to organize some promotional events in States S1

and S2 for a recipient R (unregistered). 3 events are to be organized in S1 and 2 in S2.
They charge a consolidated amount of ` 10,00,000 from R. The place of supply of this
service is in both the States S1 and S2. Say the proportion arrived at by the application of
generally accepted accounting principles is 3:2. The service shall be deemed to have been
provided in the ratio 3:2 in S1 and S2 respectively. The value of services provided will
thus be apportioned as ` 6,00,000 in S1 and ` 4,00,000 in S2.

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Transportation of goods including mails [Section 12(8)]
The place of supply of services by way of transportation of goods including by mail, or courier,
etc. provided to a registered person is the location of such person.
However, where such services are provided to an unregistered person, the place of supply is
the location at which such goods are handed over for their transportation.

Type of Service Place of Supply

If Recipient is If Recipient is
Registered Unregistered

Services by way of transportation Location of Location at which such goods

of goods including by mail, or recipient are handed over for their
courier, etc. transportation.

A new proviso has been inserted in section 12(8) by IGST (Amendment) Act, 2018 vide
Notification No. 01/2019-Integrated Tax, dt. 29-1-2019. This proviso lays down that where the
transportation of goods is to a place outside India, the place of supply shall be the place of
destination of such goods. Therefore, in case where the location of supplier and recipient is in
India and goods are transported to a place outside India, the place of supply of transportation
service shall be the place of destination of such goods, i.e. outside India.

Example 26:

ABC is a registered Company in Kolkata. It hires the services of a courier company in

Chennai to send some important documents from Chennai office to the New Delhi branch.
Since the recipient ABC is registered the place of supply will be the location of recipient,
i.e. Kolkata.
If ABC had been unregistered, the place of supply would have been the location, where
goods are handed over for their transportation i.e. Chennai.

Example 27:

X is working in an MNC in Bengaluru. He has been transferred to Pune. He hired the

services of “Movers and Packers” to shift his household goods from Bengaluru to Pune.
Since X is unregistered the place of supply is Bengaluru where the goods are handed over
for their transportation.

Passenger transportation service [Section 12(9)]

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The Place of Supply is dependent on whether the Recipient is registered or unregistered.
When such service is provided to a registered person, the place of supply is location of
recipient. When it is provided to an unregistered person, the place of supply of passenger
transportation shall be the place where the passenger embarks on the conveyance for a
continuous journey.

Type of Service Place of Supply

Recipient is Recipient is unregistered

registered

Passenger transportation Location of the Location where the passenger embarks

recipient on the conveyance for a continuous
journey

Issue of right to passage Location of the If the address of the unregistered person
for future use and the recipient is avail-able in the records of the
point of boarding not supplier, the location of such
known at the time of unregistered person.
issue of right
In other cases, the location of the
supplier of service

Example 28:

Mr. C travels from Mumbai to Nagpur. C is registered person in Delhi and therefore the
place of supply is the location of recipient which is Delhi.

Example 29:

Mr. A is unregistered person who lives in Kolkata. His address is known to the supplier.
He boards a train at Jaipur to travel to Kolkata. The place of supply is Jaipur.

Example 30:

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 Mr. A buys a metro card in New-Delhi. He is entitled to use the card anywhere in Delhi,
Faridabad, and Noida which is not predetermined at the time of buying the card. Here, the
place of supply will be the location of the supplier of services i.e. New-Delhi. The Metro
company does not have the
address of Mr. A

Example 31: Saksham books an air ticket from Delhi to Goa and back from Goa to Delhi. He
buys the ticket in Gurgaon (Haryana). He is an unregistered person. The place of supply will
be Delhi for the outward journey and Goa for the return journey.
Service supplied on board a conveyance [Section 12(10)]
For determining the place of supply of both goods and services supplied on board a conveyance,
no distinction is made between registered and unregistered recipients.

Type of Service Place of Supply Example

Service supplied on Location of the first In India “Enjoy on wheels” is a train which
board a conveyance scheduled point of runs from Jaipur to Kanyakumari and
such as vessel, departure of that provides entertainment services. For
aircraft, train or conveyance for the outward journey the place of supply will be
motor vehicle. journey Jaipur and For Return Journey It will be
Kanyakumari.

Example 32:

C is travelling from Mumbai to Ranchi. He watches a movie on board by making the

payment. The place of supply will be Mumbai, the place of departure of the conveyance.

Telecommunication service [Section 12(11)]

Section 12(11) classifies the telecommunication services into 3 categories for the purpose of
determining the place of supply. Telecommunication services includes the services of
telephone, data transfer (internet), cable, DTH (Direct to home) services, etc. The place of
supply for the three categories shall be understood from the following table:
Supply Place of Supply Example
1. Services by way of fixed Place where the B takes a lease line
telecommunication line, leased telecommunication connection at his
line, leased circuit or house in Jaipur
cable connection or from C of Mumbai.

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 circuits, internet leased circuit, dish antenna is The place of supply
cable or dish antenna installed. is the location of B
where lease line is
installed.
2. Post-paid mobile connection and The billing address of A takes a post-paid
post-paid internet services recipient of services telephone
on the record of the connection. Place
supplier of services of supply will be the
address of A on
records with the
supplier.
3. Pre-paid mobile connection and Through a selling
pre-paid internet and DTH agent or a re-seller or a
services through a voucher or any distributor of
other means subscriber identity
module card or re-
charge voucher, the
address of the selling
agent or the re-seller,
as per the records of
the supplier.
4. In other cases The address of the
recipient as per the
records of the supplier
of services and if the
address is not
available the location
of supplier.
5. If payment is made through net The address of the
banking or E mode recipient as per the
records of the supplier
of services

Computation of value of services where leased circuit is installed in more than one State
and where the location of supplier and the recipient is in India [New rule 6 of the IGST
Rules (effective from 01.01.2019)]
Section 12(11)(a) of the IGST Act determines the place of supply of services in relation to
telecommunication services provided using a fixed telecommunication line, leased circuits.
Internet leased circuits, cable or dish antenna. The place of supply of such services is the
location where the telecommunication line, leased circuit or cable connection or dish antenna
is installed for receipt of services.

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If the leased circuit is installed in more than one State/UT and a consolidated amount is charged
for supply of services, the place of supply is deemed to be in each of the respective States/UT
in proportion to the value of services determined in terms of the contract or agreement entered
into in this regard.
In the absence of any such contract or agreement, the value is determined in accordance with
rule 6 in proportion to the number of points lying in the State/UT.
The number of points in a circuit is determined in the following manner:

S. Number of Points Example

No.

(i) In the case of a circuit between two points A company T installs a leased circuit
or places, the starting point or place of the between the Delhi and Mumbai offices
circuit and the end point or place of the of a company C. The starting point of
circuit will invariably constitute two this circuit is in Delhi and the end point
points. of the circuit is in Mumbai. Hence, one
point of this circuit is in Delhi and
another in Maharashtra. The place of
supply of this service is in the Union
territory of Delhi and the State of
Maharashtra. The service shall be
deemed to have been provided in the
ratio of 1: 1 in the Union territory of
Delhi and the State of Maharashtra,
respectively.

(ii) Any intermediate point or place in the Example 1: A company T installs a

circuit will also constitute a point provided leased circuit between the Chennai,
that the benefit of the leased circuit is also Bengaluru and Mysuru offices of a
available at that intermediate point company C. The starting point of this
circuit is in Chennai and the end point
of the circuit is in Mysuru. The circuit
also connects Bengaluru. Hence, one
point of this circuit is in Tamil Nadu
and two points in Karnataka. The place
of supply of this service is in the States
of Tamil Nadu and Karnataka. The
service shall be deemed to have been
provided in the ratio of 1:2 in the
States of Tamil Nadu and Karnataka,
respectively.
Example 2: A company T installs a
leased circuit between the Kolkata,

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 S. Number of Points Example
No.

Patna and Guwahati offices of a

company C. There are 3 points in this
circuit in Kolkata, Patna and
Guwahati. One point each of this
circuit is, therefore, in West Bengal,
Bihar and Assam.
The place of supply of this service is in
the States of West Bengal, Bihar and
Assam. The service shall be deemed to
have been provided in the ratio of
1:1:1 in the States of West Bengal,
Bihar and Assam, respectively.

Banking, financial and stock broking services [Section 12(12)]

The place of supply of banking and other financial services, including stock broking services
to any person is the location of the recipient of services on the records of the supplier of
services.
However, if the location of recipient of services is not on the records of the supplier, the place
of supply is the location of the supplier of services.

Example 33:

A buys shares from a stock broker “C” in Mumbai. A resides in Kota (Rajasthan). Place of
supply is the address of A in the records of “C”, which is Kota.

Insurance services [Section 12(13)]

The Place of Supply is dependent on whether the Recipient is registered or unregistered.
The place of supply of insurance services is the location of recipient when provided to a
registered recipient.
If such services are provided to a person other than a registered person, the place of supply is
the location of the recipient of services in the records of the supplier of services.

Example 34:

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 XY Ltd. is registered in Gurgaon and gets his assets insured. The place of supply is the
location of recipient i.e., Gurgaon.

Example 35:

X is unregistered but he takes an insurance policy for his health. The place of supply is
location of X i.e. the address of X in the records of the insurer.

Advertisement service to the Government [Section 12(14)]

Type of Service Place of Supply

Advertisement service to the Central Each of such States or Union territories

Government/State Government/Statutory where the advert
body/Local authority meant for the State or
Union Territory identified in contract or
agreement

Example 36:

Delhi Government contracts with an advertisement agency for promotion of a major event
to be held in Delhi. The government demands that the bill boards for the same be displayed
all over India. The place of Supply will be all the States and the Union territories where the
bill boards are displayed.

Exemption from GST

The Goods and Services Tax (GST) is a comprehensive indirect tax levied on the supply of
goods and services in India. Implemented on July 1, 2017, GST replaced various other indirect
taxes, including VAT, service tax, and excise duty, creating a unified tax system. However, not
all goods and services fall under its purview. To ensure affordability, equity, and fairness, the
government has identified certain goods and services that are exempt from GST. Understanding
these exemptions is crucial for businesses, consumers, and policymakers alike.
What is GST Exemption?

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GST exemption means that specific goods or services are not subject to GST. It implies that no
GST is charged on the supply of such items, making them more affordable to the end consumer.
GST exemptions are categorized into three broad areas:
1. Goods Exempt from GST: Includes essential items like fresh fruits, vegetables, grains,
and other daily necessities.
2. Services Exempt from GST: Includes healthcare, education, and other social welfare
services.
3. Threshold Exemption: Small businesses with a turnover below a certain limit are not
required to register under GST or pay the tax.
Objectives of GST Exemption
The primary objectives behind granting GST exemptions are:
1. Reducing the Tax Burden on Consumers: Exempting essential goods and services
ensures that basic necessities remain affordable for all sections of society.
2. Encouraging Small Businesses: By exempting small enterprises from GST, the
government promotes entrepreneurship and reduces compliance costs.
3. Promoting Social Welfare: Exemptions for healthcare, education, and other critical
sectors support the welfare and development of society.
4. Ensuring Economic Equity: Exemptions on certain goods and services help bridge
the gap between different income groups by making basic commodities accessible to
the underprivileged.
Goods Exempt from GST
The government has exempted a wide range of goods from GST to meet the basic needs of
citizens. Some of the key goods exempt from GST are:
1. Agricultural Products: Fresh fruits, vegetables, cereals, pulses, and unprocessed milk
are exempt from GST to support farmers and ensure food affordability.
2. Daily Essentials: Products like bread, salt, and jaggery do not attract GST, as they are
basic necessities.
3. Books and Printed Materials: Educational books and materials are GST-exempt to
promote literacy and education.
4. Medicinal Plants and Herbs: Certain medicinal plants and herbs are exempt to support
traditional healthcare practices.
5. Handicrafts and Khadi Products: To encourage traditional industries, specific
handicrafts and khadi items are GST-free.
Services Exempt from GST
Key services that are exempt from GST include:

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 1. Healthcare Services: Services provided by hospitals, clinics, and medical
professionals are GST-free to make healthcare accessible and affordable.
2. Educational Services: Schools, colleges, and vocational training centers providing
recognized education are exempt to promote learning and skill development.
3. Public Transport: Non-air-conditioned public transport by railways and roadways is
exempt to make commuting affordable.
4. Religious Services: Services provided by religious institutions for charitable purposes
are GST-exempt.
5. Agricultural Services: Activities related to the cultivation and harvesting of crops are
not subject to GST.
Threshold Exemption for Small Businesses
To support small-scale enterprises, the government provides threshold exemptions under GST.
As of recent updates:
• Businesses with an annual turnover of up to ₹40 lakhs (₹20 lakhs for some special
category states) are exempt from GST registration.
• For service providers, the threshold limit is ₹20 lakhs (₹10 lakhs for special category
states).
This exemption helps small businesses avoid the complexities of GST compliance, thereby
fostering growth in the unorganized sector.
Composition Scheme and GST Exemption
In addition to threshold exemptions, small businesses can opt for the Composition Scheme if
their annual turnover is below ₹1.5 crore (₹75 lakhs for some special category states). Under
this scheme:
1. Businesses pay a fixed percentage of their turnover as tax, rather than calculating GST
for each transaction.
2. They are not required to file detailed GST returns, reducing compliance efforts.
This scheme acts as an indirect exemption by simplifying tax payments for small enterprises.
Impact of GST Exemptions
1. Benefits for Consumers
• Essential goods and services being tax-free ensure affordability.
• Healthcare and education exemptions reduce costs for individuals and families.
2. Advantages for Businesses
• Small businesses can operate without the burden of GST compliance if they fall under
the threshold exemption.
• Reduced costs for industries relying on GST-exempt goods and services.

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3. Economic and Social Welfare
• Exemptions in critical sectors like healthcare and education contribute to the country’s
social development.
• Promotes equity by ensuring essential goods remain accessible to lower-income groups.
Challenges and Limitations of GST Exemptions
While GST exemptions have significant benefits, they also pose challenges:
1. Complexity in Implementation: Businesses dealing with both exempt and taxable
goods/services face complications in maintaining separate accounts.
2. Cascading Effect of Taxes: Exemptions may lead to a cascading tax effect, as input
tax credits cannot be claimed for GST-exempt goods and services.
3. Revenue Loss for the Government: Exemptions reduce tax revenue, potentially
impacting public spending and development programs.
4. Misuse of Exemptions: Some businesses may exploit exemptions to evade taxes,
causing revenue leakages.
GST Exemption vs. Zero-Rated Supply
It’s important to differentiate between GST exemption and zero-rated supply:
• GST Exemption: No GST is charged, and input tax credit is not available.
• Zero-Rated Supply: GST is charged at 0%, but input tax credit can be claimed. This
is applicable mainly for exports and supplies to SEZs.
Changes and Updates in GST Exemptions
The GST Council regularly reviews and updates the list of exempt goods and services to align
with economic needs and government policies. For example:
1. New exemptions may be introduced for emerging sectors or essential items.
2. Existing exemptions may be withdrawn or modified to increase government revenue or
address inefficiencies.
INTERNATIONAL TAX LAW: INTERNATIONAL TAX AGREEMENTS AND
TREATIES
Taxation is a crucial aspect of global economics, ensuring that governments can fund public
services and development. However, as economies become interconnected, tax issues extend
beyond national borders. This gives rise to international tax law, which governs how taxes
are imposed and shared among nations. A key component of international tax law is the
framework of international tax agreements and treaties, designed to prevent double taxation,
promote trade, and combat tax evasion.
What are International Tax Agreements and Treaties?
International tax agreements and treaties are formal arrangements between two or more
countries that establish rules for taxing income, profits, or gains earned across borders. These

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agreements aim to resolve potential conflicts over taxing rights and provide clarity to taxpayers
and governments.
The most common types of tax treaties are:
1. Double Taxation Avoidance Agreements (DTAA):
o Designed to prevent individuals and businesses from being taxed twice on the
same income in two different countries.
2. Exchange of Information Agreements (EOI):
o Focus on sharing financial information between nations to curb tax evasion and
illicit financial flows.
3. Tax Information Exchange Agreements (TIEA):
o Target specific tax-related information exchange, usually between jurisdictions
with secrecy laws and other countries.
4. Multilateral Tax Treaties:
o Agreements involving multiple countries to address broader issues, such as the
OECD's Multilateral Instrument (MLI) for implementing base erosion and
profit-shifting measures.
Objectives of International Tax Treaties
1. Avoidance of Double Taxation:
o Ensures taxpayers are not taxed twice on the same income by allocating taxing
rights between countries.
2. Promoting International Trade and Investment:
o Provides tax certainty and reduces tax barriers, encouraging cross-border
investments and business activities.
3. Preventing Tax Evasion and Avoidance:
o Establishes mechanisms to detect and deter tax evasion, often through the
exchange of financial information.
4. Harmonizing Tax Policies:
o Ensures consistent tax treatment for cross-border transactions to reduce
administrative burdens and disputes.
5. Resolving Disputes:
o Creates a framework for resolving tax-related disagreements between nations
and taxpayers.
Key Provisions of International Tax Agreements
Tax treaties typically include provisions on:

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 1. Tax Residency:
o Defines residency rules to determine where an individual or entity should be
taxed.
2. Permanent Establishment (PE):
o Establishes criteria for taxing businesses operating in foreign countries through
branches, offices, or factories.
3. Tax Rates and Withholding Tax:
o Specifies reduced tax rates on income types like dividends, interest, and
royalties when paid to residents of treaty countries.
4. Elimination of Double Taxation:
o Offers methods such as the exemption method (excluding foreign income from
taxation) or the credit method (crediting foreign taxes paid against domestic
tax liabilities).
5. Exchange of Information:
o Facilitates sharing of taxpayer information to combat tax evasion and ensure
compliance.
6. Non-Discrimination Clause:
o Prohibits discriminatory tax treatment based on nationality.
7. Dispute Resolution:
o Provides mechanisms like the Mutual Agreement Procedure (MAP) for
resolving tax disputes amicably.
Importance of Double Taxation Avoidance Agreements (DTAAs)
DTAAs are pivotal in international tax law. Without such agreements, individuals and
businesses operating across borders might face double taxation, deterring international trade
and investment.
Example:
A software developer residing in Country A earns income by providing services to a company
in Country B. Without a DTAA, the income could be taxed both in Country A (residence
country) and Country B (source country). A DTAA between these countries ensures that the
income is taxed only once, based on agreed rules.
How DTAAs Work
1. Allocation of Taxing Rights:
o Treaties allocate taxing rights to either the source country (where income is
generated) or the residence country (where the taxpayer resides).
2. Reduced Tax Rates:

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 o Treaties often specify lower withholding tax rates on dividends, interest, and
royalties for treaty-partner countries.
3. Relief Mechanisms:
o DTAAs ensure relief from double taxation through the exemption or credit
method.
4. Taxpayer Certainty:
o Provides clarity and reduces litigation risks for taxpayers.
Role of the OECD and UN in International Tax Law
1. OECD (Organisation for Economic Co-operation and Development):
o The OECD Model Tax Convention serves as the blueprint for most bilateral tax
treaties worldwide.
o It introduces guidelines for resolving tax disputes, defining residency, and
tackling tax avoidance through initiatives like Base Erosion and Profit
Shifting (BEPS).
2. UN (United Nations):
o The UN Model Tax Convention focuses on developing countries' needs, often
allocating more taxing rights to source countries.
o This approach helps developing nations secure tax revenues from foreign
investments.
Tax Treaties and Modern Challenges
1. Digital Economy:
o Traditional tax treaties face challenges in taxing digital services provided
remotely by multinational corporations.
o Efforts like the OECD's Pillar One and Pillar Two frameworks aim to
address these issues by introducing global minimum taxes and reallocating
taxing rights.
2. Base Erosion and Profit Shifting (BEPS):
o Multinational companies exploit tax loopholes to shift profits to low-tax
jurisdictions.
o The OECD's BEPS Action Plan addresses these issues through measures like
country-by-country reporting and anti-abuse rules.
3. Tax Havens:
o Secrecy jurisdictions undermine tax systems by facilitating tax evasion and
avoidance. Tax treaties with robust information exchange provisions aim to curb
such practices.

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 4. Environmental and Social Goals:
o Tax treaties increasingly incorporate provisions to address environmental
concerns, like carbon taxation, and promote sustainable development.
Case Studies: Examples of Tax Treaties
1. India-Mauritius Tax Treaty:
o Previously allowed entities to avoid capital gains tax in India. Amendments in
2016 introduced provisions to tax such gains, addressing abuse of treaty
benefits.
2. US-Germany Tax Treaty:
o Demonstrates robust mechanisms for dispute resolution and fair allocation of
taxing rights.
3. Multilateral Instrument (MLI):
o Part of the OECD BEPS project, the MLI enables simultaneous updates to
multiple tax treaties, introducing anti-abuse measures and improving dispute
resolution.
Benefits of International Tax Agreements
1. Encourages Trade and Investment:
o Provides certainty and reduces tax burdens for businesses operating globally.
2. Prevents Tax Evasion:
o Facilitates information sharing and strengthens enforcement mechanisms.
3. Reduces Compliance Costs:
o Simplifies tax rules for cross-border transactions.
4. Promotes Fair Taxation:
o Ensures equitable allocation of taxing rights between countries.
Criticisms and Limitations
1. Complexity:
o Tax treaties can be complex, requiring significant expertise for interpretation
and compliance.
2. Abuse of Treaties:
o Loopholes in treaties are often exploited through practices like treaty shopping.
3. Disadvantage to Developing Countries:
o Many treaties favor developed nations by allocating more taxing rights to
residence countries.

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 4. Inadequate Digital Economy Provisions:
o Existing treaties struggle to address taxation challenges posed by digital
businesses.
Double Taxation: UN Model Convention, OECD Guidelines, and Their Implications
1. Introduction to Double Taxation
Double Taxation occurs when the same income, asset, or financial transaction is taxed in two
or more jurisdictions. It typically arises in international trade and investment due to overlapping
tax laws. There are two types of double taxation:
• Juridical Double Taxation: When the same taxpayer is taxed on the same income in
two different jurisdictions.
• Economic Double Taxation: When two different taxpayers are taxed on the same
income in two jurisdictions.
To mitigate these issues, countries rely on Double Taxation Avoidance Agreements (DTAAs)
and internationally recognized models such as the UN Model Convention and the OECD
Guidelines.
2. UN Model Convention on Double Taxation
The UN Model Double Taxation Convention between Developed and Developing
Countries is tailored to address the concerns of developing nations. It seeks to balance the
taxing rights of source and residence countries, often favoring source-based taxation to support
revenue needs in developing economies.
Key Features of the UN Model:
1. Source-Based Taxation:
o Prioritizes the right of the source country (where income is generated) to tax
over the residence country (where the taxpayer resides).
o Examples include withholding taxes on dividends, interest, royalties, and fees
for technical services.
2. Permanent Establishment (PE):
o Defines conditions under which a business entity is deemed to have a taxable
presence in another jurisdiction.
o Includes stricter criteria for dependent agents and service PEs, benefiting
developing nations.
3. Article 5: Taxation of Business Profits:
o Allows source countries to tax profits attributable to a PE, including profits
arising from sales and services.
4. Tax Dispute Resolution:

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 o Includes provisions for resolving disputes between countries through mutual
agreement procedures (MAPs) but has limited focus on arbitration.
Advantages for Developing Countries:
• Higher taxing rights for income generated within their jurisdictions.
• Revenue generation to support economic development.
3. OECD Model Tax Convention
The OECD Model Tax Convention is primarily used by developed nations and is residence-
based. It aims to eliminate double taxation while promoting international trade and investment.
Key Features of the OECD Model:
1. Residence-Based Taxation:
o Gives the primary taxing rights to the country where the taxpayer resides, with
limited source-based taxation.
2. Permanent Establishment (PE):
o PE rules are more lenient compared to the UN Model, requiring a fixed place of
business or substantial presence.
3. Taxation of Dividends, Interest, and Royalties:
o Lower withholding tax rates in source countries to encourage cross-border
investments.
4. Dispute Resolution and Arbitration:
o Includes robust mechanisms for resolving tax disputes, including mandatory
binding arbitration.
5. Transfer Pricing:
o Provides detailed guidelines on the arm’s-length principle to address issues of
profit shifting between jurisdictions.
Advantages for Developed Countries:
• Encourages outbound investments by reducing the tax burden on cross-border
transactions.
• Greater reliance on residence-based taxation, aligning with their economic structures.
4. Key Differences Between UN and OECD Models
Aspect UN Model OECD Model
Focus Source-based taxation Residence-based taxation
Target Audience Developed and developing Developed countries
countries

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 Withholding Taxes Higher rates allowed for source Lower rates to encourage
countries investment
Permanent Broader definition benefiting Narrower definition for
Establishment (PE) source countries limited taxation
Dispute Resolution Focus on MAPs, no binding Includes mandatory
arbitration arbitration
5. OECD Guidelines on Double Taxation
The OECD Transfer Pricing Guidelines and BEPS (Base Erosion and Profit Shifting)
Actions provide additional tools to address double taxation and tax avoidance.
Key Guidelines:
1. Transfer Pricing Rules:
o Emphasize the arm’s-length principle to prevent artificial shifting of profits to
low-tax jurisdictions.
2. BEPS Action Plan:
o Focuses on preventing treaty abuse, ensuring taxation aligns with economic
activity, and improving dispute resolution mechanisms.
3. Multilateral Instrument (MLI):
o A tool to rapidly implement BEPS measures into existing DTAAs without
renegotiation.
Impact of OECD Guidelines:
• Mitigates double taxation while addressing profit shifting and tax base erosion.
• Enhances transparency and cooperation between tax authorities.
6. Tax Treaties and Their Role
Bilateral and multilateral tax treaties based on the UN and OECD models play a crucial role in
mitigating double taxation.
• India’s Approach: India incorporates both UN and OECD principles in its tax treaties
to strike a balance between revenue needs and investment promotion.
7. Tax Challenges in the Digital Economy
Digitalization has exacerbated double taxation issues due to challenges in determining the
source of income. The OECD/G20 Inclusive Framework on BEPS proposes solutions like:
• Pillar One: Allocates taxing rights for digital transactions to market jurisdictions.
• Pillar Two: Introduces a global minimum corporate tax rate.
8. Tax Havens and Their Impact

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Tax havens exacerbate double taxation and avoidance issues by offering low or zero tax rates.
Their impact includes:
• Revenue Loss: Shifting profits to tax havens undermines source-country revenues.
• Increased Tax Avoidance: Encourages aggressive tax planning by multinational
corporations.
POLICY CHALLENGES OF TAXATION IN DEVELOPING COUNTRIES
Taxation policies in developing countries must balance revenue generation with promoting
economic growth and equity. These nations face several challenges:
1. Narrow Tax Base
• A significant portion of the population in developing countries is engaged in the
informal economy, which is largely untaxed.
• Limited taxpayer registration and compliance reduce the government's ability to
mobilize revenue.
2. Administrative Constraints
• Tax authorities in developing countries often lack the technological tools, skilled
personnel, and resources necessary for efficient tax collection.
• Corruption and inefficiency further erode public trust in the tax system.
3. International Taxation Issues
• Developing countries struggle to tax multinational corporations (MNCs) effectively due
to gaps in international tax rules and lack of negotiation power.
• Base erosion and profit shifting (BEPS) by MNCs lead to significant revenue losses.
4. Complex Tax Systems
• Overly complex tax codes discourage compliance and create opportunities for tax
avoidance.
• Simplifying tax systems without sacrificing revenue is a key challenge.
5. Evasion and Avoidance
• Weak enforcement mechanisms allow individuals and corporations to evade taxes or
exploit loopholes for avoidance.
• Addressing these issues requires robust anti-avoidance frameworks and international
cooperation.
Taxation of E-Commerce Transactions
The rapid growth of e-commerce has revolutionized global trade, presenting new challenges
for taxation systems:
1. Nature of Digital Economy

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 • Unlike traditional commerce, e-commerce involves intangible goods, digital services,
and cross-border transactions, making it difficult to define a taxable jurisdiction.
• Taxing e-commerce requires revisiting the traditional concepts of "permanent
establishment" and "source of income."
2. Challenges in Identifying Transactions
• Many e-commerce transactions are small-scale and involve multiple jurisdictions,
making it hard to track and tax them.
• Digital platforms often act as intermediaries, further complicating tax collection.
3. Global Responses
• The OECD's Base Erosion and Profit Shifting (BEPS) Action Plan includes
recommendations for taxing the digital economy.
• Several countries, including India, have implemented a digital services tax (DST) to
address these challenges.
4. India’s Approach
• India introduced the Equalisation Levy in 2016 to tax digital services provided by non-
resident entities.
• In 2020, the scope of the levy was expanded to include e-commerce operators, targeting
revenue from online platforms operating in India without a physical presence.
• While effective, such measures face criticism for potentially violating international
trade agreements.
Anti-Avoidance Measures
Tax avoidance, though legal, undermines government revenues and the fairness of tax systems.
Anti-avoidance measures aim to curb such practices:
1. General Anti-Avoidance Rule (GAAR)
• GAAR provides a framework to disregard transactions structured solely to avoid taxes.
• India implemented GAAR in 2017, targeting transactions lacking economic substance.
2. Specific Anti-Avoidance Rules (SAAR)
• These rules address specific tax avoidance strategies, such as transfer mispricing or
treaty shopping.
3. Transfer Pricing Regulations
• MNCs often manipulate transfer prices in cross-border transactions to shift profits to
low-tax jurisdictions.
• India has stringent transfer pricing regulations to ensure transactions are at arm's length.
4. Challenges

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 • Implementing anti-avoidance measures requires skilled tax officers and advanced data
analytics.
• Aggressive enforcement may discourage foreign investment.
Tax Havens and Their Impact on the Indian Tax Economy
Tax havens are jurisdictions with low or zero taxes, attracting individuals and corporations
seeking to minimize their tax liabilities. These havens pose significant challenges for India's
tax economy:
1. Base Erosion and Profit Shifting (BEPS)
• Indian companies often use tax havens to shift profits, reducing taxable income in India.
• BEPS affects India’s ability to collect its fair share of taxes from global companies
operating in the country.
2. Illicit Financial Flows
• Tax havens facilitate money laundering, corruption, and other illicit financial flows,
depriving India of critical resources for development.
• The Panama Papers and Pandora Papers exposed several Indian entities involved in
offshore accounts.
3. Impact on Domestic Industries
• Tax havens create an uneven playing field, as domestic companies face higher tax
burdens compared to MNCs using havens to lower their liabilities.
4. India’s Countermeasures
• Double Taxation Avoidance Agreements (DTAAs): India has renegotiated tax treaties
with countries like Mauritius and Singapore to prevent treaty shopping.
• Black Money Act (2015): Targets undisclosed foreign income and assets.
• Exchange of Information: India participates in the OECD’s Common Reporting
Standard (CRS) for automatic information exchange.
Recommendations to Address Tax Policy Challenges
1. Broadening the Tax Base
o Formalizing the informal economy through digital payments and better record-
keeping can help increase tax compliance.
o Offering incentives for voluntary compliance can encourage individuals and
businesses to enter the tax net.
2. Strengthening Administrative Capacity
o Investing in technology, such as big data analytics and artificial intelligence, can
enhance tax administration efficiency.

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 o Training tax officers in international taxation and digital economy issues is
crucial.
3. Global Cooperation
o India should actively participate in global forums like the OECD to shape
international tax rules that address its concerns.
o Bilateral and multilateral treaties must emphasize transparency and information
sharing.
4. Simplifying Tax Systems
o Streamlining tax codes and reducing rates can encourage compliance while
minimizing avoidance.
o Introducing a unified tax policy for the digital economy will address loopholes
in e-commerce taxation.
5. Combating Tax Havens
o Tightening anti-avoidance measures and implementing country-by-country
reporting can ensure MNCs pay their fair share.
o Encouraging ethical corporate practices through incentives can reduce reliance
on tax havens.

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