THE UNION TERRITORY GOODS AND SERVICES TAX ACT, 2017

Statement of Objects and Reasons

The Union Territories (for brevity, “UT”) were earlier empowered to levy Sales Tax / VAT on
the sale of goods, whereas the Central Government was empowered to levy excise duty and
service tax on manufacture of goods and supply of services, respectively. This led to a
multiplicity of indirect taxes being levied by various authorities.
The difficulties faced in the erstwhile indirect tax system were:
(i) Rising hidden costs in trade and industry due to multiplicity of taxes at the Central and
Union Territory levels
(ii) Lack of uniformity of tax rates and tax structure, compliance procedures across Union
Territories
(iii) Cascading of taxes
(iv) Non-availability of cross-utilization of credits i.e., utilization of excise duty and service
tax credits against taxes levied by Union Territories and vice-versa.
(v) Credit of taxes levied by one Union Territory or State cannot be set off against taxes
levied by other Union Territories or States.
Under the GST regime, Union Territory tax along with related GST legislations replaced the
erstwhile taxes while empowering the Central Government to levy Union Territory tax on the
supply of goods or services or both taking place within a Union Territory not having a
Legislature. The GST legislation:
(i) Provides for levy of tax on all intra-State supplies of goods or services or both, except
alcoholic liquor for human consumption, at the rates recommended by the GST Council;
(ii) Empowers the Central Government to grant exemptions on the recommendation of the
GST Council;
(iii) Enables apportionment of tax and settlement of funds on account of transfer of input tax
credit between the Central Government, State Governments and Union Territories;
(iv) Empowers recovery of tax, interest or penalty payable by a person and remaining
unpaid;
(v) Empowers establishing of an Authority for Advance Ruling to enable the taxpayers to
seek binding clarity on taxation matters;
(vi) Provides for elaborate transitional provisions for smooth transition of taxpayers to GST
regime; and
(vii) Allows application of certain provisions of the CGST Act, 2017 to the extent relevant for
the purposes of this Act;
 Chapter 1
Preliminary
1. Short title, extent and commencement

2. Definitions

Statutory provision

1. Short title, extent and commencement

(1) This Act may be called the Union Territory Goods and Services Tax Act, 2017.
(2) It extends to the Union territories of Andaman and Nicobar Islands, Lakshadweep,
1[Dadra and Nagar Haveli and Daman and Diu, Ladakh], Chandigarh and other territory.

(3) It shall come into force on such date as the Central may, by notification in the Official
Gazette, appoint:
Provided that different dates may be appointed for different provisions of this Act and
any reference in any such provision to the commencement of this Act shall be
construed as a reference to the coming into force of that provision.
Title:
All Acts enacted by the Parliament since the introduction of the Indian Short Titles Act, 1897
carry a long and a short title. The long title, set out at the head of a statute, gives a fair
description of the general purpose of the Act and broadly covers the scope of the Act.
The short title, serves simply as an ease of reference and is considered a statutory nickname
to obviate the necessity of referring to the Act under its full and descriptive title. Its object is
identification, and not description, of the purpose of the Act.
Extent:
Part I of the Constitution of India states: “India, that is Bharat, shall be a Union of States”. It
provides that territory of India shall comprise the States and the Union Territories specified in
the First Schedule of the Constitution of India. The First Schedule provides for twenty-eight
(28) States and eight (3 with legislation + 5 without legislation =8) Union Territories.
Part VI of the Constitution of India provides that for every State, there shall be a Legislature,
while Part VIII provides that every Union Territory shall be administered by the President

1 Substituted vide The Finance Act, 2020 w.e.f date to be notified

Ch 1: Preliminary Sec. 1-2

through an ‘Administrator’ appointed by him. However, the Union Territories of Delhi,

Puducherry and Jammy & Kashmir have been provided with Legislatures with powers and
functions as required for their administration.
India is a summation of three categories of territories namely – (i) States (28); (ii) Union
Territories with Legislature (3); and (iii) Union Territories without Legislature (5).
‘State’ under the GST law is defined to include a Union Territory with Legislature. Delhi,
Puducherry and Jammu & Kashmir though are Union Territories, have a Legislature of their
own. Accordingly, for the purpose of GST Laws, the Union Territories of Delhi, Puducherry and
Jammu & Kashmir will be regarded as a State and will be governed by the respective SGST
laws passed by them, instead of the UTGST law which is passed by the Central Government.
JAMMU AND KASHMIR, LADAKH GST:
The Jammu and Kashmir Reorganization Act was passed by the Parliament, with effect from
31.10.2019 Jammu and Kashmir and Ladakh are granted separate Union Territory Status. As
far as GST is concerned, The Jammu and Kashmir Goods & Service Act is applicable to
Jammu & Kashmir and UTGST Act is applicable to Ladakh.
Commencement:
The UTGST Act came into operation on the date appointed by the Central Government by
means of a notification in the Official Gazette (i.e. 1st July 2017). A provision has been made
to notify different dates for commencement of different provisions of the Act.
It is expected that a notification with a prospective date of commencement of the UTGST Act
i.e., a specific date succeeding the date of notification in the Official Gazette, would be issued.
A notification providing for a retrospective date for commencement of the UTGST Act cannot
be issued, since that would result in simultaneous operation of two laws governing the same
subject matter i.e., the erstwhile law(s) and the UTGST Act being in force during the period
starting from such retrospective date of commencement until the date of notification in the
Official Gazette.
Statutory provisions
2. Definitions
In this Act, unless the context otherwise requires–
(1) ‘‘appointed day’’ means the date on which the provisions of this Act shall come into force.
The provisions of the UTGST Act are implemented with effect from 1st July 2017 with powers
vested to notify different dates for effective date of commencement of different provisions of
the Act.
(2) ‘‘Commissioner’’ means the Commissioner of Union territory tax appointed under section 3;

934 BGM on GST

Ch 1: Preliminary Sec. 1-2

Every Union Territory is administered by the President through an Administrator appointed by

him. The Administrator, in turn, is empowered to appoint Commissioners and other officers for
carrying out the purposes of the Act who will be deemed to be ‘Proper Officers’ for
administering the Act.
The officers appointed under the erstwhile central and UT laws will continue to function as
officers under the UTGST Act as well.
(3) ‘‘designated authority’’ means such authority as may be notified by the Commissioner;
Currently, the term does not find a reference in the Act and will be notified by the
Commissioner from time to time.
(4) ‘‘exempt supply’’ means supply of any goods or services or both which attracts nil rate of
tax or which may be exempt from tax under section 8, or under section 6 of the Integrated
Goods and Services Tax Act, and includes non-taxable supply;
The meaning of exempt supply is similar to the meaning assigned to it under the CGST law
with the exception that supplies that are partly exempted from tax under this Act will also be
considered as ‘exempt supply’. On the contrary, partially exempted supplies under the CGST
law would not be considered as ‘exempt supplies’ under the CGST law. The word “wholly”
found in section 2(47) of the CGST law which is missing from section 2(4) under the UTGST
law in the definition of exempt supply.
Exempt supplies comprise the following 3 types of supplies:
(a) supplies taxable at a ‘NIL’ rate of tax;
(b) supplies that are wholly or partially exempted from UTGST or IGST, by way of a
notification; and
(c) supplies that are not taxable under the Act (petrol, high speed diesel, alcoholic liquor for
human consumption etc.)
The following aspects need to be noted:
(a) Zero-rated supplies such as exports would not be treated as supplies taxable at ‘NIL’
rate of tax;
(b) Input tax credit attributable to exempt supplies will not be available for utilisation/ set-
off.
(5) ‘‘existing law’’ means any law, notification, order, rule or regulation relating to levy and
collection of duty or tax on goods or services or both passed or made before the
commencement of this Act by Parliament or any Authority or person having the power to make
such law, notification, order, rule or regulation;

935 UGST Act

Ch 1: Preliminary Sec. 1-2

This covers all the erstwhile Central and State laws (along with the relevant notifications,
orders, and regulations), relating to levy of tax on goods or services like Service Tax law,
Central Excise law, State VAT laws, etc. Therefore, laws that do not levy tax or duty on goods
or services, such as The Indian Stamp Act, 1899, would not be covered here.
(6) ‘‘Government’’ means the Administrator or any authority or officer authorized to act as
Administrator by the Central Government;
Every Union Territory is administered by the President through an ‘Administrator’ appointed by
him. Even a Governor of a State can be appointed as the Administrator of an adjoining UT.
Such an Administrator will be regarded as ‘Government’ for the purposes of the UTGST law.
(7) ‘‘output tax’’ in relation to a taxable person, means the Union territory tax chargeable under
this Act on taxable supply of goods or services or both made by him or by his agent but
excludes tax payable by him on reverse charge basis;
The output tax chargeable on taxable supply of goods or services can be summarised as
under:
Type of Supply Output tax Reference
Supplies within a UT without UTGST + CGST Section 8(1) and 8(2) of the
Legislature (intra-State supply) IGST Act
Supplies between two UT without IGST Section 7(1) and 7(3) of the
Legislature (inter-State supply) IGST Act
Supplies between a UT without IGST Section 7(1) and 7(3) of the
Legislature and a State (including UT (inter-State supply) IGST Act
with Legislature)

The following aspects need to be noted:

(a) While input tax is in relation to a registered person, output tax is in relation to a taxable
person. Evidently, the law excludes persons who are not registered under the Statute
from being associated with any input tax. However, where there is a liability due to the
Government, the law paves the way to cover those persons who are liable to tax, but
who have failed to obtain registration.
(b) The amount covered under this term is the tax ‘chargeable’ under law, and not what is
‘charged’. Therefore, some experts believe that in case a person wrongly charges an
amount as tax, or charges an excess rate of tax as compared to the applicable tax rate,
such excess would not qualify as output tax.
(c) Some experts are of the view that taxes payable on reverse charge basis would also be
out of the scope of ‘output tax’. Since credit of input tax can only be used to pay output

936 BGM on GST

Ch 1: Preliminary Sec. 1-2

tax, the above will have to be discharged by way of cash only (i.e., through the
electronic cash ledger, on depositing money by means of cash, cheque, etc.).
(d) The law makes a specific inclusion in respect of supplies made by an agent on behalf of
the supplier, to treat the UT tax payable on such supplies as output tax in the hands of
the supplier.
(8) ‘‘Union territory’’ means the territory of, —
(i) the Andaman and Nicobar Islands;
(ii) Lakshadweep;
(iii) Dadra and Nagar Haveli and Daman and Diu;
(iv) Ladakh;
(v) Chandigarh; or
(vi) other territory.
Explanation. —For the purposes of this Act, each of the territories specified in sub-clauses (i)
to (vi) shall be a separate Union territory;
Analysis
‘State’ under the GST law is defined under the CGST Act to include a Union Territory with
Legislature. Delhi, Puducherry and Jammu & Kashmir, being UTs with Legislature, will be
regarded as ‘States’ for GST, and will be governed by their respective SGST laws, instead of
the UTGST law.
By definition, the expression ‘other territory’ is inclusive of all territories that do not form part of
any State (including the UTs of Delhi, Puducherry and Jammu & Kashmir), and excludes the
five UTs without Legislature listed under clauses (i) to (v) of the definition.
All territories that fall into the ambit of ‘other territory’ would also form part of the meaning of
the term ‘Union territory’. The purpose of this inclusion is to ensure that any Indian territory
that remains unclaimed by all the States and Union Territories can be brought into the scope
of GST. Although there is no specific indication that the extent of the term should be limited to
the territory of India, locations outside India cannot be said to fall into the scope of ‘other
territory’ defined above, as it would defeat the purpose of law.
(9) ‘‘Union territory tax’’ means the tax levied under this Act;
It refers to the tax charged under this Act on intra-State supply of goods or services or both, in
addition to the tax levied under the CGST law. The rate of UT tax is capped at 20% and will be
notified by the Central Government based on the recommendation of the GST Council.

937 UGST Act

Ch 1: Preliminary Sec. 1-2

(10) words and expressions used and not defined in this Act but defined in the Central Goods
and Services Tax Act, the Integrated Goods and Services Tax Act, the State Goods and
Services Tax Act, and the Goods and Services Tax (Compensation to States) Act, shall have
the same meaning as assigned to them in those Acts.
Certain words and expressions like person, supplier, recipient, intra-state supply, reverse
charge, cess, place of supply etc. defined in the CGST/ SGST/ IGST laws will have the same
meaning for UTGST law.

938 BGM on GST

 Chapter 2
Administration
3. Officers under this Act
4. Authorisation of officers
5. Powers of officers
6. Authorisation of officers of Central Tax as proper officer in certain
circumstances
Statutory provision

3. Officers under this Act

The Administrator may, by notification, appoint Commissioners and such other class of officers
as may be required for carrying out the purposes of this Act and such officers shall be deemed
to be proper officers for such purposes as may be specified therein:
Provided that the officers appointed under the existing law shall be deemed to be the officers
appointed under the provisions of this Act.
4. Authorisation of officers
The Administrator may, by order, authorise any officer to appoint officers of Union territory tax
below the rank of Assistant Commissioner of Union territory tax for the administration of this
Act.
5. Powers of officers
(1) Subject to such conditions and limitations as the Commissioner may impose, an officer
of the Union territory tax may exercise the powers and discharge the duties conferred or
imposed on him under this Act.
(2) An officer of a Union territory tax may exercise the powers and discharge the duties
conferred or imposed under this Act on any other officer of a Union territory tax who is
subordinate to him.
(3) The Commissioner may, subject to such conditions and limitations as may be specified
in this behalf by him, delegate his powers to any other officer subordinate to him.
(4) Notwithstanding anything contained in this section, an Appellate Authority shall not
exercise the powers and discharge the duties conferred or imposed on any other officer
of Union territory tax.
Ch 2: Administration Sec. 3-6

6. Authorisation of officers of Central Tax as proper officer in certain circumstances

(1) Without prejudice to the provisions of this Act, the officers appointed under the Central
Goods and Services Tax Act are authorised to be the proper officers for the purposes of
this Act, subject to such conditions as the Government shall, on the recommendations
of the Council, by notification, specify.
(2) Subject to the conditions specified in the notification issued under sub-section (1), —
(a) where any proper officer issues an order under this Act, he shall also issue an
order under the Central Goods and Services Tax Act, as authorised by the said
Act under intimation to the jurisdictional officer of central tax;
(b) where a proper officer under the Central Goods and Services Tax Act has
initiated any proceedings on a subject matter, no proceedings shall be initiated by
the proper officer under this Act on the same subject matter.
(3) Any proceedings for rectification, appeal and revision, wherever applicable, of any order
passed by an officer appointed under this Act, shall not lie before an officer appointed
under the Central Goods and Services Tax Act.
Introduction
Union Territory without a legislature enjoys laws passed by Parliament. The UTGST Act is one
where the law is by the Parliament but it’s administration is left with the Administrator of the
Union Territory.
Analysis
Without being bound by the rigours and specificity of executive officers under the CGST act,
the UTGST Act empowers the Administrator to issue a notification appointing one or more
Commissioners and such other class of officers as required.
The Administrator is also empowered to appoint officers lower in rank than the Assistant
Commissioner as required. Commissioners appointed by the Administrator are empowered to
impose conditions and limitations necessary in the discharge of functions by the officers of UT
Tax. A superior officer is permitted to discharge the functions and exercise the authority
conferred on a subordinate officer. Interestingly, we do not find such flexibility in CGST Act
and IGST Act. Not only does this Act prescribed the Assuming of power by a superior officer
but also permits delegation of vested powers to be exercised by any other officer of UT Tax.
Appellate authorities under this act are denied the flexibility of such appropriation or
delegation of power vested in them.
Continuing with efficiency in tax administration, without causing any prejudice to the UT Tax
Act, officers under the CGST Act are authorised to be officers under this Act. This is permitted

940 BGM on GST

Ch 2: Administration Sec. 3-6

only upon the recommendation of the Council and subject to any conditions that may be
imposed by the Administrator.
Where officers under this Act initiate any proceedings, said officers shall proceed to pass
orders not only in respect of UT Tax but also in respect of Central Tax. Where such conjoined
proceedings are underway, the said officers are expected to intimate officers of Central Tax.
Similarly, where proceedings initiated by officers in respect of Central tax, the underlying
transaction or the taxable base being the same, such officers under the CGST Act, are
required to pass orders addressing demands in respect of UT Tax arising from the common
underlying transactions. Whichever officer initiates any proceedings will determine the law and
forum for exercising lawful jurisdiction in respect of rectification, appeal and revision.

941 UGST Act

 Chapter 3
Levy and Collection of Tax
7. Levy and Collection
8. Power to grant exemption from tax
Statutory provisions
7. Levy and collection
(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the Union
territory 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 Central Goods and Services Tax Act and at such rates, not exceeding twenty per
cent., as may be notified by the Central 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 Union territory 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 Central Government on the
recommendations of the Council.
(3) The Central 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) 2[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 Central Government may, on the recommendations of the Council, by notification,
specify categories of services the tax on intra-State supplies of which shall be paid by
the electronic commerce operator if such services are supplied through it, and all the
provisions of this Act shall apply to such electronic commerce operator as if he is the
supplier liable for paying the tax in relation to the supply of such services.

2 Substituted vide The Union Territory Goods and Services Tax Act, 2018 w.e.f. 01.02.2019
Ch 3: Levy and Collection of Tax Sec. 7-8

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, he does not have a representative in the said
territory, such electronic commerce operator shall appoint a person in the taxable
territory for paying tax and such person shall be liable to pay tax.
7.1. Introduction
a) The Constitution mandates that no tax shall be levied or collected by a taxing Statute
except by authority of law. While no one can be taxed by implication, a person can be
subject to tax in terms of the charging section only.
b) Section 7 is the charging provision of the UTGST Act. It provides that all intra-State
supplies would be liable to UTGST subject to a ceiling rate of 20%. The levy is on all
goods or services or both except on the supply of alcoholic liquor for human
consumption. Besides, GST may be levied on the supply of petroleum crude, high
speed diesel, motor spirit (petrol), natural gas and aviation turbine fuel with effect from
such date as may be notified by the Government after recommendation of the Council.
It also provides for the value on which tax shall be paid, the maximum rate of tax
applicable on such supplies, the manner of collection of tax by the Government and the
person who will be liable to pay such tax. The provision of this section is comparable to
the provisions of section 9 of the CGST Act.
c) Under the UTGST law, the levy of tax is as follows:
(a) In the hands of the supplier - on the supply of goods and / or services (referred to
as tax under forward charge mechanism);
(b) In the hands of the recipient – on receipt of goods and / or services (referred to
as tax under reverse charge mechanism)
(c) In the hands of electronic commerce operator-on services supplied by the
suppliers through such electronic commerce operator
In the normal course, the tax would be payable by the supplier of goods and/or
services. However, in specific cases (as may be notified), the onus of payment of tax is
shifted to the recipient of goods and/or services.
Normally, the supplier of goods or services or both will be liable to discharge tax on the
supplies effected. However, the Central Government is empowered to specify
categories of supplies in respect of which the recipient of goods or services or both will
be liable to discharge the tax.
Accordingly, all other provisions of this Act and CGST Act, as applicable, will apply to
the recipient of such goods or services or both, as if the recipient is the supplier of such

943 UGST Act

Ch 3: Levy and Collection of Tax Sec. 7-8

goods or services or both – viz., for the limited purpose of such transactions, the
recipient would be deemed to be the ‘supplier’.
d) When specified category of goods/ services are supplied by a supplier, who is un-
registered person to a receiver, who falls under specified class of registered person, the
liability to pay tax on such supplies will be on recipient under reverse charge basis.
Thus, specified class of registered person would be required to pay GST on all supplies
received by it from un-registered persons. Reverse charge mechanism is not applicable
on recipient of goods/services, who are registered but do not fall under specified class
of registered person, receiving such goods/services from un-registered person.
However, the government has not yet notified any specific class of registered person
and specific category of goods or services supplied by un-registered person to it, on
which Reverse charge mechanism would be applicable.
e) Additionally, where any supply of services is effected through e-commerce operators,
the law provides that the Central Government may on recommendation of the Council
notify that the e-commerce operator will be liable to discharge the tax on such supplies
where the e-commerce operator:
(a) Does not have a physical presence then the person who represents the e-
commerce operator will be liable to pay tax.
(b) Does not have a physical presence or a representative, then the e-commerce
operator is mandatorily required to appoint a person who will be liable to pay tax.
f) In so far as e-commerce operators are concerned, care must be exercised to determine
the nature of business of such operators. Essentially, there are four models of e-
commerce business:
(a) Market-place – the question of supply by the e-commerce operator does not
arise. For this reason, they are liable for TCS under section 52.
(b) Fulfilment centre – here States have been contesting that this model is one
involving ‘buy-sell’ and accordingly liable to VAT. The test here is to establish the
fact that the supply is by supplier directly to the end customer and not ‘through’
the e-commerce operator.
(c) Hybrid (of above 2) – all though not widely prevalent, this is a case where both
buy-sell as well as market-place models are employed. It is important for such
business to clearly establish which side of the fence they are would prefer to fall
on so that the respective incidence of tax follows.
(d) Agency – this is employed by few businesses involving supply of industrial inputs.
The modus operandi is that the principal logs in to the portal and routes the
supplies to the end customer. The agreements are so framed that the e-
commerce operator becomes responsible for the delivery and collection of

944 BGM on GST

Ch 3: Levy and Collection of Tax Sec. 7-8

payment. This renders the e-commerce Operator to constitute an agency. Such

arrangements need to be vetted to ensure the inference of agency that emerges
if it is not so desired, then the same may be redrafted suitably. Schedule I of the
CGST Act states that transactions between principal and agent are deemed to be
a supply and liable to tax. This consequence may be borne in mind even by e-
commerce businesses.
7.2 Analysis
The discussion of Levy under Section 9 of the CGST Act made in this book may be referred
for detailed analysis
Levy of tax: Every intra-State supply will be liable to tax, if:
(a) Supply should involve goods or services or both viz., wholly goods or wholly services or
both viz.,
Even where a supply involves both, goods and services, the law provides that such
supplies would be classifiable either as, wholly goods or wholly services. The reference
to be made to Schedule II of the CGST Act which provides for this classification.
(b) The supply is an intra-State supply – viz., ordinarily, the location of the supplier and the
place of supply is in same Union Territory. (Refer Section 8 of the IGST Act to
understand the meaning of intra-State supply);
(c) The tax shall be payable by a ‘taxable person’ as explained in definition Sec. 2(107)
and explained in Section 22 & 24 of CGST Act.
Tax shall be payable by a ‘taxable person’: The tax shall be payable by a ‘taxable person’
i.e. person/ separate establishments of persons registered or liable to be registered under
section 22 and 24 of the CGST Act...
Rate and value of tax: The rate of tax will be as specified in the notification that would be
issued in this regard, subject to a maximum of 20%. The rates would be determined based on
the recommendation of the Council and the rate of tax so notified will apply on the value of
supplies as determined under Section 15 of the CGST Act.
Supply:
Refer discussion under Chapter III of the CGST Act for a detailed understanding of the
expression ‘supply’. Additionally, the comments relating to ‘composite supply’ and ‘mixed
supply’ and ‘reverse charge’ will equally apply for supplies taxable under UTGST Act.
7.3 Comparative review
Under the erstwhile tax laws, Central Excise is on ‘manufacture of goods’, VAT/CST is on ‘sale
of goods’ and Service tax is on ‘provision of service’. Unlike different incidences, under the
GST law, it is ‘supply’ which would be the taxable event. Under the earlier law, e.g.: while
stock transfers are liable to Central Excise (if they are removed from the factory), it would not

945 UGST Act

Ch 3: Levy and Collection of Tax Sec. 7-8

be liable to VAT / CST. However, under the GST law, it would be taxable as a ‘supply. Further,
free supplies would be liable to excise duty, while under the GST laws, free supplies would
require reversal of input tax credit;
Under the erstwhile law, there are multiple transactions which apparently qualify as both ‘sale
of goods’ as well as ‘provision of services’. e.g. license of software, providing a right to use a
brand name, etc. Unlike this situation, GST clarifies as to whether a transaction would qualify
as a ‘supply of goods’ or as ‘supply of services’. A transaction would either qualify as goods or
as services, under the GST law. Even in respect of composite contracts, it has been clarified
under Schedule II, Definition of composite supply and mixed supply in the CGST law.
The payment of VAT in the hands of the purchaser (registered dealer) on purchase of goods
from an unregistered dealer and the circumstances where the Service Tax is payable under
the reverse charge mechanism in respect of say, import of services, sponsorship services etc.
are comparable to the ‘reverse charge mechanism’ prescribed herein. Further, the concept of
reverse charge only exists in relation to services. The GST law, however, permits the supply
of goods also to be subjected to reverse charge.
7.4 Related provisions
Statute Section Description
CGST Section 7 read with Schedule I, II and III Definition of ‘supply’
CGST Section 2(17) Definition of ‘business’
CGST Section 2(107) read with 22 and 24 Meaning of ‘taxable person’ and
distinct persons
CGST Section 2(31) Meaning of consideration
IGST Section 8 Meaning of intra-State supplies
UTGST Section 7 Levy and collection of UTGST
7.5 FAQs
Q1. Is the reverse charge mechanism applicable only to services?
Ans. No. Reverse charge applies to supplies of goods or services or both.
Q2. What will be the implications in case of purchase of goods from unregistered dealers?
Ans. The receiver of goods would be liable to pay tax under reverse charge.
7.6 MCQs
Q1. As per Section 7, which of the following would attract levy of UTGST?
(a) Inter-state supplies
(b) Intra-state supplies

946 BGM on GST

Ch 3: Levy and Collection of Tax Sec. 7-8

(c) Any of the above

(d) None of the above
Ans. (b) Intra-state supplies
Q2. Who can notify a supply to be taxed under reverse charge basis?
(a) Board
(b) Central Government
(c) GST Council
(d) None of the above
Ans. (b) Central Government.

Statutory provisions
8. Power to grant exemption from tax
(1) Where the Central Government is satisfied that it is necessary in the public interest so
to do, it may, on the recommendations of the Council, by notification, exempt generally
either absolutely or subject to such conditions as may be specified therein, goods or
services or both of any specified description from the whole or any part of the tax
leviable thereon with effect from such date as may be specified in such notification.
(2) Where the Central Government is satisfied that it is necessary in the public interest so
to do, it may, on the recommendations of the Council, by special order in each case,
under circumstances of an exceptional nature to be stated in such order, exempt from
payment of tax any goods or services or both on which tax is leviable.
(3) The Central Government may, if it considers necessary or expedient so to do for the
purpose of clarifying the scope or applicability of any notification issued under sub-
section (1) or order issued under sub-section (2), insert an explanation in such
notification or order, as the case may be, by notification at any time within one year of
issue of the notification under sub-section (1) or order under sub-section (2), and every
such explanation shall have effect as if it had always been the part of the first such
notification or order, as the case may be.
(4) Any notification issued by the Central Government under sub-section (1) of section 11
or order issued under sub-section (2) of the said section of the Central Goods
and Services Tax Act shall be deemed to be a notification or an order issued under this
Act.
Explanation.—For the purposes of this section, where an exemption in respect of any
goods or services or both from the whole or part of the tax leviable thereon has been
granted absolutely, the registered person supplying such goods or services or both shall
not collect the tax, more than the effective rate, on such supply of goods or services or
both

947 UGST Act

Ch 3: Levy and Collection of Tax Sec. 7-8

8.1 Introduction
This provision of this section states that the Central Government may grant exemptions for
intra-State supply of goods and / or services within a Union Territory. Reference may also be
made to Section 11 of the CGST Act and Section 6 of the IGST Act for a detailed analysis.
8.2 Analysis
The Central Government will be empowered to grant exemptions from payment of UTGST on
intra-State supplies within Union Territory, subject to the following conditions:
(i) Exemption should be in public interest
(ii) By way of issue of notification
(iii) On recommendation from the Council
(iv) Absolute / conditional exemption may be for any goods and / or services
(v) Exemption by way of special order (and not notification) may be granted by citing the
circumstances which are of exceptional nature.
 With specific reference to the fourth condition indicated above, it is important to
note that the exemption would only be in respect of goods and / or services, and
not specifically for classes of persons.
 It is to be noted that in cases where goods and/or services are exempt
absolutely, no input tax credit can be claimed.
 Mandatory nature of absolute exemptions has been litigated in the past and
where tax is paid even though exemption is available, credit becomes
admissible. For this reason, even inadvertence in not availing such absolute
exemptions are made inexcusable. As such, credit denial also becomes absolute.
No plea of equity or revenue neutrality becomes admissible.
 There is generally not much doubt about exemptions – whether absolute or
conditional – because the condition associated may be examined at one-time or
continuously to be satisfied. Conditional exemptions abate if the associated
condition is not complied. Care should be taken not to mistake conditional
exemption with absolute exemption having specific applicability.
 Although there is a view that in case of conditional exemptions, it could operate
as an optional exemption such that the taxable person may pay higher rate of tax
(so that there would be no requirement for input tax credit reversals). However,
an absolute exemption is required to be followed mandatorily. The other view is
that exemptions would not be optional and would be mandatory and the
associated conditions are also mandatorily to be satisfied.
 In terms of sub-Section (2), the Government may issue a special order on a case-
to-case basis. The circumstances of exceptional nature would also have to be

948 BGM on GST

Ch 3: Levy and Collection of Tax Sec. 7-8

specified in the special order. While this provision is welcome, trade and industry
is apprehensive that this could be used without necessary superintendence.
 To provide more clarity to the exemption notification or the special order, it is
provided that the Government may issue an “Explanation” at any time within a
period of 1 year from the date of notification or special order. The effect of this
“Explanation” would be retrospective, viz., from the effective date of the relevant
notification or special order.
 The law makes it clear that when the exemption is absolute (i.e., if whole or part
of tax leviable is exempt) the registered person cannot collect taxes more than
the effective rate.
Exemption under section 11 of the CGST/SGST Act equally applicable
Any exemption notification or special order issued under Section 11 of the CGST Law will
apply equally for intra-UT supplies, viz., any supply of goods or services or both which are
exempt under CGST Law will be exempt even under the UTGST Law.
Effective date of the notification or special order
The effective date of the notification or the special order would be date which is so mentioned
in the notification or special order. However, if no date is mentioned therein, it would come into
force on the date of its issue by the Central Government for publication in the Official Gazette.
It follows that such notification/ order shall be made available on the official website of the
department of the Central Government.
8.3 Comparative review
The provisions relating to exemption are broadly like the exemption provisions under the
erstwhile tax regime. There are no significant differences.
8.4 Related provisions
Statute Section Description
CGST Section 11 Exemption from payment of CGST / SGST
IGST Section 6 Exemption from payment of IGST
UTGST Section 8 Power to grant exemption from tax

Chapters of UTGST Act covered under CGST Act / IGST Act

Sl. Chapter No. / Heading – Sections No. Description
No. UTGST – UTGST
1 IV – Payment of tax 9 Payment of tax
10 Transfer of input tax credit

949 UGST Act

Ch 3: Levy and Collection of Tax Sec. 7-8

2 V – Inspection, Search, 11 Officers required to assist proper

Seizure and Arrest officers
3 VI – Demands and 12 Tax wrongfully collected and paid to
Recovery the Central Government or UT
Government
13 Recovery of tax
4 VII – Advance Ruling 14 Definitions
15 Constitution of Authority for Advance
Ruling
16 Constitution of Appellate Authority for
Advance Ruling
5 VIII – Transitional 17 Migration of existing tax payers
Provisions
18 Transitional arrangements for input tax
credit
19 Transitional provisions relating to job
work
20 Miscellaneous transition provisions
6 IX- Miscellaneous 21 Application of provisions of CGST Act
22 Power to make Rules
23 General power to make regulations
24 Laying of rules, regulations and
notifications
25 Power to issue instructions or
directions
26 Removal of difficulties

 The sections cited supra other than the provisions relating to Chapter IX -
Miscellaneous are discussed in the relevant sections of CGST / IGST laws wherever
deemed fit.
 The Chapter IX - Miscellaneous other than Section 21 of the UTGST Act are similar to
the provisions as discussed in the context of IGST Act. There is an additional provision
(section 25 under the UTGST Act), which deals with Commissioner’s power to issue
instructions or directions, which is similar to section 168 of the CGST Act. Readers are
requested to refer to the said provisions in this context.

950 BGM on GST

Ch 3: Levy and Collection of Tax Sec. 7-8

The discussions on the following provisions have been provided in the CGST Act in the
relevant chapters/sections.
(i) scope of supply;
(ii) composition levy;
(iii) composite supply and mixed supply;
(iv) time and value of supply;
(v) input tax credit;
(vi) registration;
(vii) tax invoice, credit and debit notes;
(viii) accounts and records;
(ix) returns;
(x) payment of tax;
(xi) tax deduction at source;
(xii) collection of tax at source;
(xiii) assessment;
(xiv) refunds;
(xv) audit;
(xvi) inspection, search, seizure and arrest;
(xvii) demands and recovery;
(xviii) liability to pay in certain cases;
(xix) advance ruling;
(xx) appeals and revision;
(xxi) presumption as to documents;
(xxii) offences and penalties;
(xxiii) job work;
(xxiv) electronic commerce;
(xxv) settlement of funds;
(xxvi) transitional provisions; and
(xxvii) miscellaneous provisions including the provisions relating to the imposition of
interest and penalty,

951 UGST Act

Ch 3: Levy and Collection of Tax Sec. 7-8

It is important to note that the UTGST Act is legislated by the Central Government and
the corresponding rules would also be legislated under its authority.
Note: All Relevant UTGST notifications are provided in forthcoming pages of this
publication.
Following rules are common to all UT GST acts i.e., Lakshadweep, Andaman & Nicobar,
Dadra & Nagar Haveli and Daman & Diu, Chandigarh and Ladakh.
Rule 1: Short title and Commencement.
(1) These rules may be called the Union Territory Goods and Services Tax (Andaman and
Nicobar Islands) Rules, 2017.
(2) They shall come into force with effect from the 1st day of July, 2017.
Rule 2: Adaptation of Central Goods and Services Tax Rules, 2017.
(1) The Central Goods and Services Tax Rules, 2017, in respect of scope of supply,
composition levy, composite supply and mixed supply, time and value of supply, input tax
credit, registration, tax invoice, credit and debit notes, accounts and records, returns, payment
of tax, tax deduction at source, collection of tax at source, assessment, refunds, audit,
inspection, search, seizure and arrest, demands and recovery, liability to pay in certain cases,
advance ruling, appeals and revision, presumption as to documents, offences and penalties,
job work, electronic commerce, settlement of funds, transitional provisions, and miscellaneous
provisions including the provisions relating to the imposition of interest and penalty, shall,
mutatis mutandis, apply except the following rules:-
Rules Particulars
Rule 90 (4) of CGST Rules 2017 Acknowledgement
Rule 117 (1) – for Second proviso of Tax or duty credit carried forward under any
CGST Rules 2017 existing law or on goods held in stock on the
appointed.
Rule 119 of CGST Rules 2017 Declaration of stock held by a principal and job-
worker
(a) Analysis of the Amendment to the Rules: For Amendment of Rule 90(4) of the
CGST Rules 2017
In terms of Rule 90 (4) of the CGST Rules 2017 read as
“(4) Where deficiencies have been communicated in FORM GST RFD-03 under the
State Goods and Services Tax Rules, 2017, the same shall also deemed to have
been communicated under this rule along with the deficiencies communicated under
sub-rule (3)”.
In terms of the amendment to the Rule to UTGST Rules, 2017 shall be read as
“(4) Where deficiencies have been communicated in FORM GST RFD-03 under the
Central Goods and Services Tax Rules, 2017, the same shall also deemed to have

952 BGM on GST

Ch 3: Levy and Collection of Tax Sec. 7-8

been communicated under this rule along with the deficiencies communicated under
sub-rule (3).”;
The aforesaid rules have been amended to the extent of for the words State Goods
and Services Tax Rules, 2017 shall be read as Central Goods and Services Tax
Rules, 2017 in line with the CGST Rules.
(b) For Amendment to the Rule 117 of CGST Rules 2017
(i) The Second proviso of the CGST Rules, 2017 provides obligation to file a details
of an Transitional claim in respect of Forms received and pending with regards to
Form C , Form I, Form H, Form F as specified in Rule 12 of the Central Sales Tax
(Registration and Turnover) Rules, 1957.
(ii) Further, in terms of the Rule 117(4) of CGST Rules 2017 a registered person who
was not registered under the existing law shall eligible to availment of Credit.
However, this provision is not made applicable under the provisions of UTGST
Rules.
(c) For Amendment to the Rule 119 of CGST Rules 2017 for the purpose of
application of UTGST Rules 2017
Rule 119 of UTGST Rules 2017 provides declaration of stock held by principal and
agent shall be within 90 days of the appointed day (w.e.f.01.07.2017) electronically in
Form GST TRAN-1. Section 142(14) is not traceable to the CGST Act, 2017, as a
corollary one may have to fall back on the SGST Legislation.
Other rules of UGST shall be same as of Central Goods of Services Tax Rule, 2017
Explanation:- For the purposes of these rules, it is hereby clarified that all references to
section 140 of the Central Goods and Services Tax Act, 2017, shall be construed to refer to
section 18 of the Union Territory Goods and Services Tax Act, 2017.

953 UGST Act