GOODS AND SERVICE TAX (GST)

A. OVERVIEW ON HISTORY OF GST

1. 1986 - The reform of India's indirect tax regime was started by the then Finance Minister with the introduction of
the Modified Value Added Tax (MODVAT)
2. 1999 - A single common "Goods and Services Tax (GST)" was proposed and given a go-ahead during a meeting
between the Prime Minister and his economic advisory panel,
3. 2006 - First announcement of GST was made by the Union Minister during the 2006-2007 budget, that it would
be introduced on April 1, 2010.
4. 2009 - Empowered Committee released the first Discussion Paper.
5. 2011 - 115th Amendment Bill was introduced and subsequently lapsed
6. 2014 - 122nd Amendment Bill was introduced in Lok Sabha
7. August 2016 - One Hundred and First Amendment Act was enacted
8. September 2016 - The first GST Council Meeting was conducted
9. March 2017 - CGST, SGST, IGST, UTGST and Compensation Cess Act was recommended by GST Council.
10. April 2017 - CGST, SGST, IGST, UTGST and Compensation Cess Act were passed
11. 1 July 2017 - GST laws, Goods and Services Tax was launched all over India.
12. 7 July 2017 - Jammu and Kashmir state legislature passed its GST

B. CONSTITUTION (101ST AMENDMENT) ACT, 2016, WHICH PAVED THE WAY FOR INTRODUCTION OF GST IN INDIA.
a. As per Article 246A, the power to levy GST has been given to the Parliament as well as to Legislature of
every State.
a. CGST – enacted by Central Government of India.
b. IGST – enacted by Central Government of India.
c. SGST – enacted by respective State Governments
d. UTGST – enacted by Central Government of India
e. IGST will be apportioned between Centre and the States in the manner provided by Parliament by
Law as per the recommendation of the GST Council.
b. GST will be levied on all supply of goods and services except alcoholic liquor for human consumption.
c. The power to impose tax on sale of the following products is still provided to the State Governments:
a. Petroleum crude;
b. High speed diesel;
c. Motor spirit (commonly known as petrol);
d. Natural gas;
e. Aviation turbine fuel; and
f. Alcoholic liquor for human consumption.
***As a result, the following bills became an Act on 12th April 2017: AND IMPLEMENTED W.E.F 01/07/2017
• Central Goods and Services Tax Act, 2017
• Integrated Goods and Services Tax Act, 2017
• Union Territory Goods and Services Tax Act, 2017
• Goods and Services Tax (Compensation to States) Act, 2017

C. WHAT IS GST?
a. Goods and services tax mean a tax on supply of goods or services, or both, except taxes on supply of
alcoholic liquor for human consumption [Article 366 (12A) of Constitution of India].
b. GST is a value added tax levy on sale or service or both.
c. GST is a destination-based consumption tax.
d. GST offers comprehensive and continuous chain of tax credit.
e. GST where burden borne by final consumer.
f. GST eliminate cascading effect of tax.
g. GST brings uniform tax structure all over India. [one India one tax]

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D. CASCADING EFFECT AND HOW GST CAN REDUCE/NULIFY THE ‘TAX ON TAX’ EFFECT.

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E. ADVANTAGES OF GST
a. One Nation One Tax.
b. Removal of bundled indirect taxes [customs duty is yet not subsumed]
c. Removal of cascading effect of taxes i.e. removes tax on tax. [refer to example]
d. Increased ease of doing business; [ease of information flow and GSTN
e. Lower cost of production, increases demand will lead to increase supply. Hence, this will ultimately lead to rise
in the production of goods. Resultantly boost to make in India initiative. (?)
f. It will boost export and manufacturing activity, generate more employment and thus increase GDP with
gainful employment leading to substantive economic growth; (?)

F. DUAL GST MODEL (INDIA ADOPTED A DUAL GST WHERE TAX IMPOSED CONCURRENTLY BY THE CENTRAL AND STATES)
a. State Goods and Services Tax Act, 2017 (SGST): SGST levied and collected by State Governments/Union Territories
with State Legislatures (namely Delhi and Pondicherry) on intra-state supplies of taxable goods or services or
both. It is a revenue source of the respective State Government.
b. Union Territory Goods and Services Tax (UTGST): UTGST levied and collected by Union Territories without State
Legislatures, on intra-state supplies of taxable goods or services or both.
Note: India is a Union of States. The territory of India comprises of the territories of the States and the Union
Territories Currently, there are 29 States and 7 Union Territories; of which, two (Delhi and Pondicherry) are
having Legislature.
c. Integrated Goods and Services Tax Act, 2017 (IGST): IGST is a mechanism to monitor the inter-state trade of goods
and services and ensure that the SGST component accrues to the Consumer State.

THUS, THE TAXABLE EVENT = SUPPLY AND THE ISSUE IS ‘LOCATION’ OF SUPPLY’.

G. GOODS AND SERVICES TAX NETWORK (GSTN) is a [Section 8 of the Companies Act, 2013, (i.e. not for profit
companies)], non-Government, private limited company. Technology backbone for GST in India. GST being a destination-
based tax, the inter- state trade of goods and services (IGST) would need a robust settlement mechanism amongst the
States and the Centre.

H. FUNCTIONS OF THE GSTN:

Creation of common and shared IT infrastructure for functions facing taxpayers has been assigned to GSTN and these are:
a. filing of registration application,
b. filing of return,
c. creation of challan for tax payment,
d. settlement of IGST payment (like a clearing house),
e. generation of business intelligence and analytics etc.

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I. IMPORTANT DEFINITIONS
Sec 2(6), “aggregate turnover”
Sec 2(17), “business”
Sec 2(18), “business vertical”
Sec 2(20), “casual taxable person”
Sec 2(30), “composite supply”
Sec 2(31), “consideration” in relation to the supply of goods or services
Sec 2(32), “Continuous supply of goods”
Sec 2(33), “Continuous supply of services”
Sec 2(50), “Fixed establishment”
Sec 2(52), Goods
Section 2(56), “India”
Sec 2(62), “input tax”
Section 2(78), “non-taxable supply” [Alcoholic Liquor for human consumption, Sale of Land etc.]
Sec 2(84), “person”.
Sec. 2(90), “principal supply”
Sec. 2(93), “recipient” of supply of goods or services
Section 2(98), “reverse charge”
Section 2(102), “services”
Section 2(105), “supplier”
Section 2(107), “taxable person”
Section 2 (108), “taxable supply”

J. TAXABLE EVENT
Taxable event under GST law is supply of goods or services or both. It means no supply no GST. The term, “supply” has been
inclusively defined in the Act. The meaning and scope of supply under GST can be understood in terms of following six
parameters, which can be adopted to characterize a transaction as supply:
Supply of goods or services. [Supply of anything other than goods or services does not attract GST].
Supply should be made for a consideration**.
Supply should be made in the course or furtherance of business.
Supply should be made by a taxable person.
Supply should be a taxable supply.
Supply should be made within the taxable territory
** Section 2(31) of the CGST Act, 2017 “consideration” –
[Donation or charity does not attract GST]

SCHEDULE I
ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION
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 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.
3. Supply of goods—
(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 [omitted vide CGST (Amendment) Act, 2018] person from a related person or from
TYPES OF SUPPLIES :

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FRINGE BENEFITS - GST
1. “The compensation to employees in the form of money is not a supply. However, fringe benefits are supply of goods or
services and are liable to tax if not exempted,” as per the CBEC clarification.
2. The fringe benefits are transactions in furtherance of business. “Even if supplied without consideration, the same are
deemed supply” and will attract GST

NON-TAXABLE SUPPLIES UNDER CGST ACT, 2017

As per Section 7(2), Supply excludes:
• activities or transactions specified in Schedule III; or
• 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.

Composite and Mixed Supplies (Section 8 of CGST Act, 2017):

Composite supply is when two or more goods are sold in a combination, it becomes difficult to identify the rate of
tax to be levied. For such goods or services, CGST Act, 2017 has provided with two terms:
• Composite supply and
• Mixed supply.
Composite supply is similar to the concept of “bundled service” as under service tax laws in the existing regime.
Both Composite supply and Mixed supply consist of two or more taxable supplies of goods or services or both
but the main difference between the two is that Composite supply is naturally bundled i.e., goods or services are
usually provided together in normal course of business and cannot be separated. Whereas in Mixed supply, the
goods or services can be sold separately.

LEVY AND COLLECTION

Section 9(1) of CGST Act, 2017 provides that there shall be levied of tax called 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 of the CGST Act, 2017

REVERSE CHARGE MECHANISM

Section 9(3) of CGST Act, 2017 the Government may, on the recommendation of the GST Council, may notify
categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis (similar
provision under section 5(3) of IGST Act, 2017).

Section 9(4) of CGST Act, 2017, central tax (i.e. CGST) in respect of the supply of taxable goods or services or both
by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as
the recipient (Similar provision under section 5(4) of IGST Act, 2017). This provision suspended till 31.03.2018.

Note: Reverse charge provisions would not be applicable if the aggregate value of such supplies of goods or
services or both received by a taxable person from any or all the suppliers, who are not registered, does not
exceeds Rs 5,000 in a day (Vide Notification No. 8/2017 Dt. 28.06.2017).

COMPOSITION SCHEME
The Government of India provides for simplified and easy of doing business scheme for payment of taxes and
filling of returns to certain categories of taxable person. As a result, such taxable person is not required to maintain
elaborate records and filing detailed returns. Section 10 of the CGST Act, provides for composition levy to such
person

As per Section 10(1) of CGST Act, 2017, Registered person, whose aggregate turnover in the financial year did not
exceed Rs 1 crore (Rs 75 Lakhs for north-eastern states), may opt to pay composition levy. (vide notification
No. 46/2017 - Central Tax, Dt.-13/10/2017).

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Example (composite levy or normal levy)
Hotel King Pvt. Ltd. is a registered person under GST. P.Y. turnover was Rs 100 lakhs. Applicable GST 18%. Inputs cost Rs
7,80,000 (exclusive of GST 18%). Profit margin is 40% on cost. Find the invoice price and advice the best option to pay tax if
any. There is no opening balance and closing balance for the tax period.

TIME OF SUPPLY
It means the date on which the charging event has occurred. As a result, the rate of CGST/SGST or IGST or UTGST will be
decided in accordance with the time of supply. Based on time of supply we will also determine the due date of payment of GST.

PLACE OF SUPPLY OF GOODS IN GST:

While determining the levy of taxes based on Place of Supply, two things are considered namely:
1. Location of Supplier: It is the registered place of business of the supplier.
2. Place of Supply: It is the registered place of business of the recipient

VALUE OF SUPPLY
Value of Supply in common terms is nothing but the amount paid by the recipient of supply to the supplier as consideration for
supply (also known as transaction value). It means Value of supply is the figure upon which tax is levied and collected. It is
important to know to ascertain correct value of supply for correct levy of GST.

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