THE INTEGRATED GOODS AND SERVICE TAX ACT, 2017

Statement of Objects and Reasons:

Earlier, the States effecting inter-State sale of goods were empowered to collect and retain
Central Sales Tax (CST) under the Central Sales Tax Act, 1956.
The difficulties faced in the erstwhile Central Sales Tax system are:
(i) The levy is non-vatable i.e. the credit of CST is not available as a set-off in the hands of
the purchaser.
(ii) CST directly gets added to the cost of the goods resulting in cascading effect of the
taxes on the cost of production of products.
(iii) Creation of tax arbitrage on account of the rate of CST being different from VAT levied
on intra-State sale.
(iv) Several businesses are not in a position to procure goods in the course of inter-State
trade or commerce after concessional rate of tax against the declaration forms.
To usher in the GST regime, levy of a single tax called Integrated Goods and Service Tax is
considered necessary on the supply of goods or services or both taking place in the course of
inter-State trade/ commerce. The rate of tax is equal to the sum total of Central Tax (CGST)
and State Tax (SGST) or Union Territory Tax (UTGST) though there are some cases where
more rationalisation is required in terms of parity of net tax incidence. The new legislation,
amongst others, broadly:
(i) Provides for levy of tax on all inter-State supplies of goods or services or both (except
alcoholic liquor for human consumption) at a rate recommended by the GST Council
(not exceeding 40%);
(ii) Provides for levy of tax on goods imported into India;
(iii) Provides for levy of tax on import of services on a reverse charge basis;
(iv) Empowers the Central Government to grant exemptions on the recommendation of the
GST Council;
(v) Provides for determination of nature of supply (intra-State or inter-State) and place of
supply
(vi) Provides for payment of tax by a supplier of Online Information and Database Access or
Retrieval Services (OIDAR)
(vii) Enables apportionment of tax and settlement of funds on account of transfer of input tax
credit between the Central Government, State Government and Union Territory; `
(viii) Provides for application of certain provisions of the Central Goods and Service Tax Act,
2017 to the extent relevant for the purposes of this Act;
(ix) Provides for transitional transactions in relation to import of services.
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Chapter I Relevant circulars, notifications, clarifications, flyers issued by Government:

1. Notification No. 01/2017 – Central Tax dated 19.06.2017 Seeks to appoint 22.06.2017 as
Preliminary the date on which the provisions of Section 1, 2, 3, 14, 20 and 22 are effective.
2. Notification No. 03/2017 – Central Tax dated 28.06.2017 Seeks to appoint 01.07.2017 as
1. Short title, extent and commencement the date on which the provisions of Section 4 to 13, 16 to 19, 21, 23 to 25 are effective.

2. Definitions Title
All Acts enacted by the Parliament since the introduction of the Indian Short Titles Act, 1897
Statutory Provisions carry a long and a short title. The long title, set out at the head of a statute, gives a full
description of the general purpose of the Act and broadly covers the scope of the Act.
1. Short title, extent and commencement
The short title, serves simply as a reference and is considered a statutory nickname to obviate
(1) This Act may be called the Integrated Goods and Services Tax Act, 2017. the necessity of referring to the Act under its full and descriptive title. Its object is
(2) It shall extend to the whole of India identification, and not description, of the purpose of the Act.
(3) It shall come into force on such date as the Central Government may, by notification in Extent
the Official Gazette, appoint: Part I of the Constitution of India states: “India, that is Bharat, shall be a Union of States”. It
Provided that different dates may be appointed for different provisions of this Act and provides that territory of India shall comprise the States and the Union Territories specified in
any reference in any such provision to the commencement of this Act shall be construed the First Schedule of the Constitution of India. The First Schedule provides for twenty-nine
(29) States and seven (7) Union Territories. Changes introduced by Jammu and Kashmir
as a reference to the coming into force of that provision.
Reorganization Act, 2019 to take effect from 31 Oct 2019.
Part VI of the Constitution of India provides that for every State, there shall be a Legislature,
1. The Central Goods and Services Tax Act, 2017 has been implemented in the State of while Part VIII provides that every Union Territory shall be administered by the President
Jammu and Kashmir from 8th July 2017 through Constitution (Application to Jammu and through an ‘Administrator’ appointed by him. However, the Union Territories of Delhi (Article
Kashmir) Amendment Order, 2017, the Central Goods and Services Tax (Extension to 239 AA) and Pondicherry (Article 239A) have been provided with Legislatures with powers and
Jammu and Kashmir) Ordinance, 2017 and the Integrated Goods and Services Tax functions as required for their administration.
(Extension to Jammu and Kashmir) Ordinance, 2017. India is a summation of three categories of territories namely – (i) States (29); (ii) Union
2. Certain provisions came into force on 22.6.17 and remaining provisions on 1.7.17 as Territories with Legislature (2); and (iii) Union Territories without Legislature (5).
notified by the Central Government and hence appointed day for the CGST Act, IGST, State of Jammu and Kashmir enjoys a special status in the Indian Constitution in terms of
UTGST Acts, SGST Acts was 1st July 2017. However, the appointed day for the State of Article 370 of the Indian Constitution until the coming into force Presidential Order entitled
Jammu and Kashmir was 8th July 2017. “The Constitution (Application to Jammu and Kashmir) Order, 2019” (C.O. 272) dated 5 Aug
3. Words "except the State of Jammu and Kashmir" omitted by the Integrated Goods and 2019 and Jammu and Kashmir Reorganization Act, 2019 from 31 Oct 2019.
Services Tax (Extension to Jammu and Kashmir) Act, 2017, w.e.f. 8-7-2017. The assembly of J&K had passed the GST bill in the first week of July. Subsequently, the
Honourable President of India promulgated two ordinances, namely, the CGST (Extension to
Section or Rule Description Jammu and Kashmir) Ordinance, 2017 and the IGST (Extension to Jammu and Kashmir)
Ordinance, 2017 making the CGST/ IGST applicable to the State of Jammu and Kashmir,
(CGST / SGST)
w.e.f. 8 July 2017. After the promulgation of ordinance, India has adopted GST in its form
Section 2(56) Definition of India across the country.
Section 2(22) Definition of Taxable Territory Commencement
Provisions of the IGST Act related to registration etc. came into operation through Notification
No. 1/2017- Integrated Tax dated 19.6.2017. Further, Notification No. 3/2017-Integrated Tax

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was issued to make other provisions of the IGST Act applicable w.e.f. 1st July. Effectively, all (b) Service is provided by one service provider or by an agent on behalf of more than one
operation provisions of the IGST Act have become applicable from 1 st July 2017. service providers
Similar to extending enforcement of IGST Act, Notification No. 4/ 2017–Integrated Tax dated (c) Journey does not involve any stopover at any of the legs of the journey for which one or
28th June, 2017 has been issued to make Integrated Goods and Services Tax Rules, more separate tickets or invoices are issued (“Stopover” means a place where a
2017applicable w.e.f. 22nd June 2017. However, IGST Rules, 2017 have been separately passenger disembarks from the conveyance).
notified along with the Central Goods and Services tax Rules, 2017.
The following aspects need to be noted:
Statutory Provisions • All stopovers will not cause a break in the journey. Only those stopovers for which one
2. Definitions or more separate tickets are issued will be relevant. A travel involving Bangalore-Dubai-
New York-Dubai-Bangalore on a single ticket with a halt at Dubai (onward and return)
In this Act, unless the context otherwise requires- will be covered by the definition of continuous journey. However, if the passenger
(1) “Central Goods and Services Tax Act” means the Central Goods and Services Tax Act, disembarks at Dubai or breaks his journey for a certain period in order to resume it at a
2017; later point of time, it will not be considered a continuous journey.

It refers to the Act under which tax is levied on intra-State supply of goods or services or both • All the above conditions should be cumulatively satisfied to consider the journey as
(other than supply of alcoholic liquor for human consumption). continuous journey.
• A return journey will be treated as a separate journey even if the right to passage for
(2) ‘‘central tax” means the tax levied and collected under the Central Goods and Services Tax
onward and return journey is issued at the same time.
Act;
(4) “customs frontiers of India” means the limits of a customs area as defined in section 2 of
Tax levied under the CGST Act is referred to as “Central tax”. It refers to the tax charged
the Customs Act, 1962;
under the CGST Act on intra-State supply of goods or services or both (other than supply of
alcoholic liquor for human consumption). The rate of tax is capped at 20%. The rates for
goods have been notified vide Notification No. 1/2017- Integrated Tax (Rate) dated 28-06- Relevant circulars, notifications, clarifications, flyers issued by Government:
2017 while Notification No. 8/2017- Integrated Tax (Rate) dated 28-06-2017 covers the rates
1. Circular No. 33/2017 –Cus. dated 01.08.2017: Leviability of Integrated Goods and Services
of services notified.
Tax (IGST) on High Sea Sales of imported goods and point of collection thereof
It is relevant to note that the term ‘central tax’ under the IGST Act is defined to include tax
levied and collected under the CGST Act whereas the term ‘central tax’ under the CGST Act is The customs frontiers of India include the following:
defined to mean the central goods and services levied under section 9. Therefore, the phrase (a) Customs Port;
‘central tax’ has a wider connotation under the IGST Act as it includes taxes collected in
(b) Customs Airport;
addition to what is levied under CGST Act.
(c) International Courier Terminal;
(3) “continuous journey” means a journey for which a single or more than one ticket or invoice
is issued at the same time, either by a single supplier of service or through an agent acting on (d) Foreign Post Office;
behalf of more than one supplier of service, and which involves no stopover between any of (e) Land Customs Station;
the legs of the journey for which one or more separate tickets or invoices are issued.
(f) Area in which imported goods or goods meant for export are ordinarily kept before
Explanation. ––For the purposes of this clause, the term “stopover” means a place where a clearance by Customs Authorities
passenger can disembark either to transfer to another conveyance or break his journey for a
The following aspects need to be noted:
certain period in order to resume it at a later point of time;
• Bonded Warehouses would now be covered under this definition.
This is relevant to determine the place of supply of passenger transport services.
• A person importing goods into the territory of India from an overseas exporter would be
Continuous journey refers to a journey where: liable to pay IGST on such supply of goods.
(a) A single or more than one ticket or invoice is issued at the same time;

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• Where a transfer of documents of title takes place during import, the question of • Section 16(2) of IGST Act serves section 16(1) of IGST Act. It is not yet another ‘credit
payment of tax by the importer would not arise since the documents of title would be granting’ provision in GST law. If that really true, then students of this new law need to
transferred before the goods cross the customs frontier of India. It has been clarified learn the “two routes” to claiming input tax credit.
vide Circular No. 33/2017-Cus dated 1-Aug-17, that IGST on high sea sale(s)
But these questions may be taken up by our Courts. Until then it is clear from the circular that
transactions of imported goods, whether one or multiple, shall be levied and collected
“all exempt and non-GST articles” will enjoy zero-rated benefits with only one restriction that
only at the time of importation i.e. when the import declarations are filed before the
Customs authorities for the customs clearance purposes for the first time. survives is in section 17(5) of CGST Act that is made applicable to such exports also.

• Supplies made by an importer after the goods have crossed the customs frontier of Following further aspects may also be noted:
India would be liable to CGST, SGST or IGST, depending on the facts of each case. • Unlike export of services which requires fulfilment of certain conditions for a supply to
qualify as ‘export of services’ like the nature of currency in which payment is required to
(5) “export of goods” with its grammatical variations and cognate expressions, means taking
goods out of India to a place outside India; be made, location of the exporter etc., export of goods doesn’t require fulfilment of any
such conditions.
Section or Rule Description • The movement of goods is alone relevant and not the location of the exporter/ importer.
This means that even if an order is received from a person outside India for delivery of
Section 2(52) Definition of Goods (CGST)
goods within India, it will NOT be considered as export of goods.
Section 2(56) Definition of India (CGST)
• The exporter may utilize such credits for discharge of other output taxes or alternatively,
Section 7 Inter-State supply (IGST)
the exporter may claim a refund of such taxes.
Section 11 Place of supply of goods imported into or exported from India
• The exporter will be eligible to claim refund under the following situations:
Section 16 Zero rated supply
(i) export the goods under a Letter of Undertaking, without payment of IGST and
Export of goods will be treated as ‘zero-rated supplies’. Accordingly, while no tax would be claim refund of unutilized input tax credit; or
payable on such supplies, the exporter will be eligible to claim the corresponding input tax
(ii) export the goods upon payment of IGST and claim refund of such tax paid,
credits. It is relevant to note that the input tax credits would be available to an exporter even if
without of course, charging this IGST to the customer. That is, to claim rebate,
the supplies were exempt supplies so long as the eligibility of the input taxes is established.
pay-without-charging only then will this refund be available.
Interestingly circular 45/19/2018-GST dated 30 May 2018 at para 6.2, makes it clear that
export of articles that are otherwise exempt and even non-GST articles would also be eligible (6) “export of services” means the supply of any service when, ––
to credit and consequent refund or rebate in respect of zero-rated supplies of such articles.
(i) the supplier of service is located in India;
Some experts express concerns over allowing zero-rated benefits to non-GST articles such as
alcoholic liquor and 5-petro products (left out of GST) as the words “notwithstanding that such (ii) the recipient of service is located outside India;
supply may be an exempt supply” appearing in section 16(2) of IGST Act cannot be read ‘as if’ (iii) the place of supply of service is outside India;
it reads as “notwithstanding that such exports are of exempt goods”. And they support their
argument on the following: (iv) the payment for such service has been received by the supplier of service in convertible
foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of
• ‘exempt supply’ is not the same as ‘exempt goods’. A supply may be exempt for any
India" 1; and
reason but must necessarily involved goods that come within the operation of GST law.
Articles that are out of GST law cannot be included in the contemplation of any (v) the supplier of service and the recipient of service are not merely establishments of a
provision within this law; distinct person in accordance with Explanation 1 in section 8;
• zero-rated benefit is allowed of ‘credit’ and before claiming refund or rebate, the amount
must cross the series of hurdles in (i) section 16(1) of CGST Act then (ii) section 17(2)
and 17(5) of CGST Act. When these hurdles have blocked credit, it cannot be possible 1 Inserted vide The Integrated Goods and Services Tax (Amendment) Act, 2018 w.e.f. 01.02.2019
that credit is directly allowed by the words in section 16(2) of IGST Act; and

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Ch 1: Preliminary Sec. 1-2 Ch 1: Preliminary Sec. 1-2

Section or Rule Description The following aspects need to be noted:

Section 2(52) Definition of Goods (CGST) • The requirement under the Service Tax law was that the supplier should be located in
Section 2(56) Definition of India (CGST) the taxable territory i.e. India, excluding Jammu and Kashmir. Under the GST law, the
Section 2(93) Definition of Recipient (CGST) requirement is that the supplier is located in India (which includes Jammu and Kashmir)
Section 2(102) Definition of Service (CGST) as GST has been enacted in the State of J&K also.
Section 2(105) Definition of Supplier (CGST) • Although overseas establishment of a person who is situated in India is treated as a
Section 2(14) Definition of Location of the recipient of services distinct person for purposes of levy of integrated tax, as regards export of services, this
overseas establishment must demonstrate substance in its activities to qualify as
Section 2(14) Definition of Location of the supplier of services
recipient of the export of the services from India and establish itself as more than just a
Section 2(21) Definition of Supply mere establishment of the person.
Section 7 Inter-State supply
• Establishments will be treated as establishment of distinct persons under the following
Section 8 Intra-State supply
situations:
Section 10 Place of supply of goods other than supply of goods imported
into, or exported from India Situation Location of one Location of the other establishment
Section 12 Place of supply of services where location of supplier and establishment
recipient is in India I India Outside India
Section 13 Place of supply of services where location of supplier or location II State or Union Territory Outside that State or Union Territory
of recipient is outside India
III State or Union Territory Other Places of Business independently
Section 16 Zero rated supply registered in that State or Union
The concept of export of services is broadly borrowed from the provisions of the erstwhile Territory
Service Tax law. But it is remarkably dissimilar to definition of export of goods. It is for this Therefore, where both the establishments are located in a State/ Union Territory
reason the correctly identify whether supply involving goods are treated (by schedule II) as under the same GSTIN, the establishments will not be considered as distinct persons.
supply of services. If this ‘treatment by fiction’ is misunderstood that would lead to
misapplication of the definition and claiming benefits that are not available or foregoing IGST Amendment Act, 2018 2
benefits that could have been availed. In clause (6), in sub-clause (iv), after the words "foreign exchange", the words "or in Indian
Under the GST regime, export of service will be treated as ‘zero-rated supplies’. Accordingly, rupees wherever permitted by the Reserve Bank of India" inserted. This amendment is made
while no tax would be payable on such supplies, the exporter will be eligible to claim the to consider a service to be exported even if the export proceeds are received in Indian rupees,
corresponding input tax credits. It is relevant to note that the input tax credits would be if the same is permitted by RBI. This has been done mainly to include within export of
available to an exporter even if supplies were exempt supplies as long as the eligibility of the services, services provided to Nepal and Bhutan wherein payment is received in Indian
input taxes as input tax credits is established. Currency.

The exporter may utilise such credits for discharge of other output taxes or alternatively, the (7) “fixed establishment” means a place (other than the registered place of business) which is
exporter may claim a refund of such taxes. characterised by a sufficient degree of permanence and suitable structure in terms of human
The exporter will be eligible to claim refund under the following situations: and technical resources to supply services or to receive and use services for its own needs;

(a) He may export the services under a Letter of Undertaking, without payment of IGST and
claim refund of unutilized input tax credit; or
(b) He may export the services upon payment of IGST and claim refund of such tax paid. 2 Effective from 1.02.2019

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Section or Rule Description overseas Head Office. Had the applicant been a Branch Office or Project Office, experts
Section 2(85) Definition of Place of Business (CGST) explain, that the ruling would have been completely different. Now, please consider what
would be the treatment of Head Office in one country and its Permanent Establishment (art. 5
Section 2(102) Definition of Services (CGST)
of the DTAA) in another country. When a PE is admitted for tax purposes and demonstrated
Section 12 Place of supply of services where location of supplier and recipient is in that such PE is transacting at arm’s length with all its AEs (associated enterprises), the same
India demands harmonious treatment for GST purposes also.
Section 13 Place of supply of services where location of supplier or location of
(8) “Goods and Services Tax (Compensation to States) Act” means the Goods and Services
recipient is outside India
Tax (Compensation to States) Act, 2017;
Fixed Establishment refers to a place:
(a) Having a sufficient degree of permanence Section or Rule Description

(b) Having a structure of human and technical resources Section 2(54) Definition of Goods and Services Tax (Compensation to States)
Act
(c) Other than the registered place of business
The Goods and Services Tax (Compensation to States) Act (for brevity “Compensation Act”)
The following aspects need to be noted: provides for compensation to the States for the loss of revenue arising on account of
• Not every temporary or interim location of a project site or transit-warehouse will ipso implementation of GST for a period of 5 years from the said date of implementation. The cess
facto become a fixed establishment of the taxable person. paid on the supply of goods or services will be available as credit for utilization towards
payment of said cess on outward supply of goods and services on which such cess is leviable.
• The person should undertake supply of services or should receive and use services for
own needs. (9) “Government” means the Central Government;
• Temporary presence of staff in a place by way of a short visit to a place or so does not It is interesting to note that this definition seems to have very little to explain but in the context
also make that place a fixed establishment. of article 12 of our Constitution, much has been said by Honb’e Supreme Court. Readers may
• Liaison Offices meant to undertake liaison activities cannot render services that are find decisions in University of Madras v. Shantha Bai AIR 1954 Mad 67 (SC) contrasted with
commercial in nature, in the garb of rendering liaison services. For e.g.: If a liaison Ujjam Bai v. UoI 1962 AIR 1621 (SC) very interesting to understand the scope ‘State’ that
office were to render marketing service to its parent entity outside India, for a customer would help understand ‘Government’ as the reference is to ‘Sovereign’ until it was finally
settled in the Ajay Hasia v. Khalid Mujib Sehravardi & Ors 1981 AIR 487 where the following
located in India and the said liaison office staff receive a fee/ commission, then the
principles emerged to examine whether the organization is a ‘Government Entity’, namely:
concept of liaison office stands to test. In such a scenario, the reimbursements received
by the liaison office could be subject to tax notwithstanding the fact that the entire (a) Equity share capital is held by the Government;
transaction can be subjected to valuation as a permanent establishment. (b) Financial assistance comes entirely from the Government;
However, TAMILNADU ADVANCE RULING AUTHORITY in case of M/s TAKKO HOLDING (c) Activities undertaken allows monopoly over the domain or sector;
GMBH (2018-TIOL-216-AAR-GST) The key issue brought before the AAR was whether
(d) Deep and pervasive control rests with the Government;
reimbursement of expenses and salary paid by overseas counterpart to liaison office qualify as
supply and thereby necessitates liaison office to obtain GST registration and discharge GST (e) Functions of the Government are executed through it as the instrumentality; and
liability. The AAR denied the necessity of obtaining registration as well as payment of GST. (f) Functions performed by the Government are vested with it.
The decision was based on the findings that Applicant is neither a ‘related persons’ nor
If the entity enjoys such relationship, then it will be Government Entity. Please also refer to the
‘distinct persons’ but is acting only as an extension of the German Office. The authorities also definition in para 2(zfa) in notification 12/2017-CT(R) dated 28 Jun 2017. There, 90% control is
noted that Applicant is only working as an employee of foreign entity and thus cannot be prescribed by way of relaxation to the extent of 10%.
treated as a ‘supplier’ thereof. Experts explain that AAR would have taken into consideration
the inherent limitations imposed under FDI guidelines and relevant Master Directions of RBI Government Entity would not only vest plenary control and authority with the Government but
that ‘liaison office’ is NOT permitted to undertake any business-like activities even qua its also its entire ‘liquidation estate’ (as understood in section ….. of IBC 2016) would belong to

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the Consolidated Fund. Further, all employees would be servants of the President of India and In case of multi State registration, GSTIN mentioned on the Bill of entry would discharge
their salaries and benefits would be a charge on the Consolidated Fund. Experts advise great the IGST on Reverse charge on import of goods even if the port is situated in separate
caution while examining whether IAAI, University, MCI, BCI, ICAI, ICSI, ICMAI, BCCI, etc are State
Government or not cannot be answered lightly.
(11) ‘‘import of services” means the supply of any service, where––
Government Authority and Government Entity are entirely difference. Sovereign functions
(i) the supplier of service is located outside India;
vested with Boards and Authorities will be sovereign authorities if the functions are listed in XI
and XII schedules of the Constitution. (ii) the recipient of service is located in India; and

(10) ‘‘import of goods” with its grammatical variations and cognate expressions, means (iii) the place of supply of service is in India;
bringing goods into India from a place outside India; Section or Rule Description
Section or Rule Description Section 2(56) Definition of India (CGST)
Section 2(52) Definition of Goods (CGST) Section 2(86) Definition of Place of supply (CGST)
Section 2(93) Definition of Recipient (CGST)
Section 2(56) Definition of India (CGST)
Section 2(105) Definition of Supplier (CGST)
Section 7 Inter-State supply
Section 2(14) Definition of Location of the recipient of services (IGST)
Section 8 Intra-State supply
Section 2(21) Definition of Supply (IGST)
Section 11 Place of supply of goods imported into or exported from India Section 7 Inter-State supply (IGST)
Import of goods into India would be treated as supply of goods in the course of inter-State Section 16 Zero rated supply
trade/ commerce and would be liable to integrated tax under this Act.
The phrase “import of service” is very broad and covers all such supplies where:
The following aspects need to be noted:
(a) The supplier is located outside India,
• The place of supply of goods in case of imports would be the location of the importer.
E.g.: If goods are imported at Mumbai port but the importer is at Delhi, the place of (b) The recipient is located in India
supply shall be Delhi; (c) Place of supply is in India.
• The integrated tax would be levied on the value of goods as determined under the The following aspects need to be noted:
Customs law in addition to the custom duties levied on such imports. In other words,
• Supplies, where the supplier and recipient are mere establishments of a person, would
levy of Basic Customs Duty (BCD) will continue and the component of Countervailing
also qualify as “import of service”.
Duty (CVD) and Special Additional Duty (SAD) will be replaced by Integrated tax;
• The importer will be liable to pay integrated tax on a reverse charge basis and the same
• The time at which the customs duties are levied on import of goods would also be the
time when integrated tax is levied; will have to be discharged by cash only and credit cannot be utilized for discharging
such a liability;
• The importer will be liable to pay integrated tax on a reverse charge basis and the same
will have to be discharged by cash only and credit cannot be utilized for discharging • Import of service made for a consideration alone would be taxable, whether or not in the
such a liability; course of business. Therefore, import of service for personal consumption for a
consideration would qualify as ‘supply’ and would be liable to integrated tax. However,
• Merchant Trading Transactions i.e. where the supplier of goods will be resident in one
the recipient will not be required to obtain a registration for that purpose. However,
foreign country, the buyer of goods will be resident in another foreign country and the
import of services from related persons or establishments located outside India without
merchant will be resident in India, would primarily not come under the ambit of GST
consideration also would be liable to integrated tax as per Schedule I of the CGST Act,
since they do not involve entry of goods into India.
2017;

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• The threshold limits for registration would not apply and the importer would be required • Use of the words ‘broker or agent or any other person’ bring up this question whether
to obtain registration irrespective of his turnover. there is a common genus of which each of the specific words is a specie. And by use of
• Import of services is included in the definition of ‘supply’ in section 7(1)(b) of CGST Act. the rule of ejusdem generis rule of interpretation may require that ‘any other person’ be
By this provision personal imports even without being in the course or furtherance of understood as ‘broker’ or ‘agent’. Guidance for interpretation to be applicable is found in
business will also attract levy of GST. Please also refer entry 10(a) to notification the words ‘by whatever name called’. So, ‘or any other person’ is appended with ‘by
9/2017-Int.(R) dated 28 Jun 2017 where ‘other than commerce’ is exempted from IGST. whatever name called’ such that meaning of who ‘this person’ is will be, indifferent to
However, there is no such exemption in CGST notification 12/2017-CT(R) dated 28 Jun any name that this person is called by. Hence, it appears that ejusdem generis will be
2017. Hence, import of services which is a intra-State supply under section 13 of IGST applicable here;
Act would NOT be exempt from tax except for the threshold exemption under section 22 • Further, ‘who arranges or facilitates the supply’ does not circumscribe the scope of
of CGST Act. An example of a cross-border transaction would be ‘intermediary services’ agent to anything less than what section 182 of Indian Contract Act furnishes. So,
under section 13(8) of IGST Act. intermediary is one who operates under ‘delegated authority’ that is ‘detached from
consequences’. In other words, the role of intermediary must be determined or defeated
(12) “integrated tax” means the integrated goods and services tax levied under this Act;
by the jurisprudence available in section 182 and the rest of the definition here is
intended to be a differentiator;
Section or Rule Description
• Differentiation is required between an agent who oversteps scope of agency and
Section 2(52) Definition of Goods (CGST)
actually supplies on ‘own account’. Such agents by making supplies, either actually or
Section 2(102) Definition of Services (CGST) by fiction in para 3 of schedule I, will be saved from the definition of ‘intermediary’.
Section 7 Inter-State supply Decision of CESTAT in Go Daddy has been differentiated in AAR and Toshniwal
Brothers and this appears to lay down the correct position of law, at least, for purposes
It refers to the tax charged under this Act on inter-State supply of goods or services or both of GST;
(other than supply of alcoholic liquor for human consumption). The rate of tax is capped at
• Further, mere use of the word ‘agent’ does not decide the question of ‘intermediary’.
40%. The rates for goods have been notified vide Notification No. 1/2017- Integrated Tax
Agency must be determined from facts of supply and not usage in trade. Refer C.B.E. &
(Rate) dated 28-06-2017 while Notification No. 8/2017- Integrated Tax (Rate) dated 28-06-
C. Press Release No. 92/2017, dated 23-8-2017 wherein it is recognized that
2017 covers the rates of services notified.
‘advertisement agent’ may undertake advertisement intermediary supplies as (i) agent
(13) “intermediary” means a broker, an agent or any other person, by whatever name called, and collect only a fee for services which attracts GST on such fee or (ii) reseller where
who arranges or facilitates the supply of goods or services or both, or securities, between two the gross value attracts GST with benefit of credit on cost incurred to the Paper.
or more persons, but does not include a person who supplies such goods or services or both Experts caution against relying on the ‘title’ just as the definition itself says ‘by whatever
or securities on his own account; name called’ and requires attention to the paid to the exact ‘role’ performed;

Section or Rule Description • Two supplies are generally involved:

Section 13 Place of supply of services where location of supplier or location o Supply between the principal and the third party; and
of recipient is outside India o Supply of his own service to his principal – generally for a fee or commission;
Section 14 Special provision for payment of tax by a supplier of online
• An intermediary cannot alter the nature or value of supply, which he facilitates on behalf
information and database access or retrieval services
of his principal;
The following aspects need to be noted: • The consideration for an intermediary’s supply is separately identifiable from the main
• Definition of intermediary uses the words ‘agent’ and thereby imports the entire supply that he is arranging and is in the nature of fee or commission charged by him;
jurisprudence from Indian Contract Act. Agency is constituted (i) by appointment (ii) by • The place of supply in relation to intermediary services is the location of the service
holding out and ratification and (iii) by implication; provider. Care must be taken, in cross-border transactions, NOT to assume they are
inter-State supplies in all instances;

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Ch 1: Preliminary Sec. 1-2 Ch 1: Preliminary Sec. 1-2

(14) “location of the recipient of services” means, –– (b) where a supply is made from a place other than the place of business for which
(a) where a supply is received at a place of business for which the registration has been registration has been obtained (a fixed establishment elsewhere), the location of such
obtained, the location of such place of business; fixed establishment;
(c) where a supply is made from more than one establishment, whether the place of
(b) where a supply is received at a place other than the place of business for which
business or fixed establishment, the location of the establishment most directly
registration has been obtained (a fixed establishment elsewhere), the location of such
concerned with the provision of the supply; and
fixed establishment;
(d) in absence of such places, the location of the usual place of residence of the supplier;
(c) where a supply is received at more than one establishment, whether the place of
business or fixed establishment, the location of the establishment most directly The phrase ‘location of the supplier of services’ is essential to determine the place of supply of
concerned with the receipt of the supply; and service and can be understood in the following 4 sub-clauses:
(d) in absence of such places, the location of the usual place of residence of the recipient; (a) Services made from a place of business where registration is obtained – Location of
such place of business;
The phrase ‘location of the recipient of services’ is essential to determine the place of supply
of service and can be understood in the following 4 sub-clauses: (b) Services made from a fixed establishment (i.e., a place of business not registered, but
having a sufficient degree of permanence involving human and technical resources) –
(a) Services received at a place of business where registration is obtained – Location of Location of such fixed establishment;
such place of business;
(c) Services made from more than one establishment – Location of the establishment most
(b) Services received at a fixed establishment (i.e., a place of business not registered, but directly concerned with the receipt of the supply;
having a sufficient degree of permanence involving human and technical resources) –
(d) Other than the above – Location of the usual place of residence of the supplier (address
Location of such fixed establishment;
where the person is legally registered/ constituted in case of recipients other than
(c) Services received at more than one establishment – Location of the establishment most individuals).
directly concerned with the receipt of the supply; Note: The definition uses the term “place”, and not the phrase “State or Union Territory”.
(d) Services received at a place other than above – Location of the usual place of Therefore, a view may be taken that the location of the provider of the service could be
residence of the recipient (address where the person is legally registered/ constituted in determined under the residuary clause (i.e., usual place of residence), merely because it is
case of recipients other than individuals). provided from a place of business which is neither registered as an additional place of
Note: The definition uses the term “place”, and not the phrase “State or Union Territory”. business, nor a fixed establishment, although the place of provision is in the same State as
Therefore, a view may be taken that the location of the recipient of the service could be another place of business which is registered.
determined under the residuary clause (i.e., usual place of residence), merely because it is Where services are provided from more than one establishment i.e. principal place of business
received in a place of business which is neither registered as an additional place of business, and fixed establishment, the location of the establishment with which the service receiver is
nor a fixed establishment, although the place of receipt is in the same State as another place directly concerned will be considered for the purpose of determining the location of supply.
of business which is registered. Consider if a Chartered Accountant in Kanpur represents Client before the Tribunal in Delhi,
E.g.: Event management services received in the Mangalore unit of M/s. ABC Ltd. M/s. ABC location of supplier of services would be Kanpur, UP and not Delhi because location of
Ltd has its registered office in Mumbai (having a GST registration) and has a branch office in supplier of services is the place of business. And place of business (as per 2(98) of CGST
Bangalore (having a GST registration). Mangalore unit is neither an additional place of Act) is the place where business is ordinarily carried on. And place of business is the ‘seat of
business nor a fixed establishment. In such a case, location of the recipient of service is the management of operations’ and not the ‘site of execution of duties’.
Mumbai office, and not the Bangalore office, although Bangalore and Mangalore are located in (16) “non-taxable online recipient” means any Government, local authority, governmental
the same State. authority, an individual or any other person not registered and receiving online
(15) “location of the supplier of services” means, –– information and database access or retrieval services in relation to any purpose other
than commerce, industry or any other business or profession, located in taxable
(a) where a supply is made from a place of business for which the registration has been
territory.
obtained, the location of such place of business;

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Ch 1: Preliminary Sec. 1-2 Ch 1: Preliminary Sec. 1-2

Explanation. ––For the purposes of this clause, the expression “governmental authority” (iv) providing data or information, retrievable or otherwise, to any person in electronic form
means an authority or a board or any other body, –– through a computer network;
(i) set up by an Act of Parliament or a State Legislature; or (v) online supplies of digital content (movies, television shows, music and the like);
(ii) established by any Government, (vi) digital data storage; and
with ninety per cent. or more participation by way of equity or control, to carry out any (vii) online gaming;
function entrusted to a Panchayat under article 243G or 3a municipality under article
243W of the Constitution;
Relevant circulars, notifications, clarifications, flyers issued by Government:
Relevant circulars, notifications, clarifications, flyers issued by Government: 1. Notification No. 02/2017 dated 19.06.2017 - Seeks to empower the Principal Commissioner
of Central Tax, Bengaluru West to grant registration in case of online information and
1. Notification No. 02/2017 dated 19.06.2017 - Seeks to empower the Principal Commissioner
database access or retrieval services provided or agreed to be provided by a person located in
of Central Tax, Bengaluru West to grant registration in case of online information and
non-taxable territory and received by a non-taxable online recipient
database access or retrieval services provided or agreed to be provided by a person located in
non-taxable territory and received by a non-taxable online recipient The definition has very wide coverage of activities/ services delivered in the digital economy
and is drafted in line with the provisions under the Service Tax laws to include services like e-
The phrase “non-taxable online recipient” covers the following persons:
downloads of games, movies etc., web-hosting services, online supply of on-demand disc
(a) The Central Government space, distance teaching, etc.
(b) Local Authority An indicative list of services that would not be covered under Online Information and Database
(c) Governmental Authority i.e. an authority established with 90% or more participation by Access or Retrieval (OIDAR) services are:
the Government and set-up to undertake functions entrusted to a municipality under • Legal services or Financial services advising clients through e-mail
Article 243W of the Constitution like:
• Educational or professional courses, where the content is delivered by a teacher over
• Preparation of plans for economic development,
the internet or an electronic network (using a remote link)
• Urban planning,
Following aspects need to be noted:
• Fire Services,
• Supply of Online Information and Database Access or Retrieval (OIDAR) services by a
• Water supply, etc. person located in a non-taxable territory (outside India) to a non-taxable online
(17) “online information and database access or retrieval services” means services whose recipient, would be liable to tax in the hands of the supplier;
delivery is mediated by information technology over the internet or an electronic network and • The supplier would be responsible for collection and remittance of integrated tax to the
the nature of which renders their supply essentially automated and involving minimal human Government of India;
intervention and impossible to ensure in the absence of information technology and includes
• The supplier can take a single registration under the Simplified Registration Scheme
electronic services such as, ––
(yet to be notified by the Government);
(i) advertising on the internet;
• Alternatively, a person located in India representing the supplier can obtain registration
(ii) providing cloud services; and pay the tax on behalf of the supplier. If the supplier does not have a representative/
(iii) provision of e-books, movie, music, software and other intangibles through physical presence in India, he can appoint a person who will be liable to pay the
telecommunication networks or internet; integrated tax on such transactions by providing the details of the State of consumption;
• Business-to-Business (B2B) transactions w.r.t. OIDAR will be taxable in the hands of
3 Inserted vide The Integrated Goods and Services Tax (Amendment) Act, 2018 w.e.f 01.02.2019 the recipient itself under reverse charge mechanism.

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Ch 1: Preliminary Sec. 1-2 Ch 1: Preliminary Sec. 1-2

(18) “output tax”, in relation to a taxable person, means the integrated tax chargeable under (19) “Special Economic Zone” shall have the same meaning as assigned to it in clause (za) of
this Act on taxable supply of goods or services or both made by him or by his agent but section 2 of the Special Economic Zones Act, 2005;
excludes tax payable by him on reverse charge basis;
It covers two categories of zones as under:
The output tax i.e. integrated tax chargeable on inter-State taxable supply of goods or services
can be summarised as under: (a) Zones which are existing as on 10.02.2006 i.e. the date when SEZ Act was made
effective.
Type of Supply Reference
(b) Zones which have been notified under section 3(4) and section 4(1) of the SEZ Act,
Supplies between 2 States (or UT with Legislature) Section 7(1) and 7(3) of the IGST Act
2005.
Import of goods or services Section 7(2) and Section 7(4) of the
IGST Act Notifications under section 3(4) are issued when the State Government wants to set up a SEZ
and the Notifications under section 4(1) are issued when any other person (except State
Supplies to/ by a SEZ developer or unit Section 7 (5) (b) of the IGST Act Government) wants to set-up a SEZ. The notifications issued therein specify the SEZ area.
Supplies made by a person located in India and Section 7 (5) (a) of the IGST Act
(20) “Special Economic Zone developer” shall have the same meaning as assigned to it in
where the place of supply is outside India
clause (g) of section 2 of the Special Economic Zones Act, 2005 and includes an Authority as
Following aspects need to be noted: defined in clause (d) and a Co-Developer as defined in clause (f) of section 2 of the said Act;
• While input tax is in relation to a registered person, output tax is in relation to a taxable The term “Special Economic Zone developer” covers the following persons:
person. Evidently, the law excludes persons who are not registered under the law from
being associated with any input tax. However, where there is a liability due to the (a) Person/ State Government who has been granted a letter of approval by the Central
Government, the law paves the way to cover those persons who are liable to tax, but Government
who have failed to obtain registration. (b) Special Economic Zone Authority
• The amount covered under this term is the amount of tax that is ‘chargeable’, and not (c) Co-developer
the amount that is ‘charged’. Therefore, in case a person wrongly charges tax, or
charges an excess rate of tax, as compared to the applicable tax rate, such excess Where the State Government/ person wants to set up a SEZ, notifications are required to be
would not qualify as output tax. issued under section 3(4) and section 4(1) of the SEZ Act, 2005, respectively and after
fulfilment of the prescribed conditions and procedures, a letter of approval is granted. Such a
o The taxes payable by recipient of supply, on account of making inward supplies
person who has been granted a letter of approval is regarded as a developer.
of such categories of supply as are notified for the purpose of reverse chargeability of
tax, or making inward supplies from unregistered persons, would be out of the scope of A co-developer is a person who has been granted a letter of approval for providing
‘output tax’. infrastructure facilities or for carrying out authorized operations in a notified SEZ. The Board of
• The implication of the exclusions mentioned above is that the input tax credit cannot be Approval may specify the facility required to be developed by such a co-developer and in such
utilised for making payment of any amount that does not qualify as output tax. a case, the co-developer will enter into an agreement with the developer for the specified
Discharge of liability in such cases has to be by way of cash payments (i.e., through the purpose.
electronic cash ledger, on depositing money by means of cash, cheque, etc.). Supplies made to SEZ developer/ unit would be regarded as zero-rated supplies.
• The law makes a specific inclusion in respect of supplies made by an agent on behalf of
(21) “supply” shall have the same meaning as assigned to it in section 7 of the Central Goods
the supplier, to treat the tax paid on such supplies as output tax in the hands of the
and Services Tax Act;
supplier.
The concept of ‘supply’ has been discussed in detail in the analysis of ‘Supply’.

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Ch 1: Preliminary Sec. 1-2

(22) “taxable territory” means the territory to which the provisions of this Act apply; Chapter 2
It covers the whole of India including the State of Jammu and Kashmir. However, the state of
Jammu and Kashmir have been excluded after Jammu and Kashmir Reorganization Act, 2019 Administration
comes into effect on 31 Oct 2019.
(23) “zero-rated supply” shall have the meaning assigned to it in section 16; 3. Appointment of officers
The following taxable supplies of goods and/ or services are considered as ‘zero rated 4. Authorisation of officers of State tax or Union territory tax as proper officer in
supplies’: certain circumstances
(a) Export of goods or services or both Statutory Provisions
(b) Supply of goods or services or both to a SEZ developer or SEZ unit 3. Appointment of officers
Input tax credit can be availed for making zero-rated supplies, even though such zero-rated The Board may appoint such central tax officers as it thinks fit for exercising the powers under
supplies may be an exempt supply. this Act.
A taxable person exporting goods or services would be eligible for refund under the following
4. Authorisation of officers of State tax or Union territory tax as proper officer in
two options:
certain circumstances
• Export under bond/ LUT without payment of integrated tax and claim refund of unutilised
input tax credit; or Without prejudice to the provisions of this Act, the officers appointed under the State Goods
and Services Tax Act or the Union Territory Goods and Services Tax Act are authorised to be
• Export on payment of integrated tax which can be claimed as refund accordingly.
the proper officers for the purposes of this Act, subject to such exceptions and conditions as
(24) words and expressions used and not defined in this Act but defined in the Central Goods the Government shall, on the recommendations of the Council, by notification, specify.
and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and
Services Tax (Compensation to States) Act shall have the same meaning as assigned to them Section or Rule Description
in those Acts;
Section 2(36) Definition of Council (CGST)
Certain words and expressions like person, supplier, recipient, reverse charge, time of supply,
Section 2(80) Definition of Notification (CGST)
value of supply etc. defined in the CGST/ UTGST/ GST (Compensation to States) laws will
have the same meaning for the purpose of IGST law. Section 3 Officers under this Act (CGST)

(25) any reference in this Act to a law which is not in force in the State of Jammu and Kashmir, Section 4 Appointment of Officers (CGST)
shall, in relation to that State be construed as a reference to the corresponding law, if any, in Section 5 Powers of Officers (CGST)
force in that State. Section 6 Authorisation of officers of State tax or Union territory tax as
proper officer in certain circumstances
Section 20 Application of provisions of Central Goods and Services Tax Act

Relevant circulars, notifications, clarifications, flyers issued by Government:

1) Notification No. 02/2017 – CGST dated 19.06.2017 - Jurisdiction of Central Tax Officers -
CGST officers
2) Notification No. 11/2017-Integrated Tax, dated 13.10.2017 - Officers of State Tax or
Union Territory Tax - authorisation as proper officer for purposes of sections 54 & 55 of
the CGST Act, 2017.

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Ch 2: Administration Sec. 1-2

3.1/4.1 Introduction
Chapter 3
Although CGST and IGST are both taxes of the Union, it is required that lawful authority be
vested in certain persons to discharge duties for purposes of Integrated Tax. Levy and Collection of Tax
3.2/4.2 Analysis
It is for this reason that the board has been empowered to appoint Central tax officers to 5. Levy and Collection
discharge duties under the IGST Act. Please note that appointment of officers remains with
6. Power to grant exemption from tax
the government but confirmation of responsibility to act as integrated tax officers is left with
the Board. Statutory provisions - Effective from 1st July, 2017 to 31st January, 2019
Suitable enabling provisions have also been made, whereby officers of State / UT Tax can be 5. Levy and Collection
authorised to discharge functions under the IGST Act. Such a provision is necessary in order
(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the
to maintain uniformity in administration of notified supplies or notified category of taxable
persons which are exclusively left under the CGST Act to be administered by officers of State / integrated goods and services tax on all inter-State supplies of goods or services or
UT Tax. If appreciable that careful consideration has been given to ensure that there is no both; except on the supply of alcoholic liquor for human consumption, on the value
duplication of administrative power at the same time sufficient flexibility is enabled to ensure determined under section 15 of the Central Goods and Services Tax Act and at such
smooth and seamless tax compliance experience for trade and industry in GST regime. rates, not exceeding forty 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:
Provided that the integrated tax on goods imported into India shall be levied and
collected in accordance with the provisions of section 3 of the Customs Tariff Act,
1975 on the value as determined under the said Act at the point when duties of
customs are levied on the said goods under section 12 of the Customs Act, 1962.
(2) The integrated 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 integrated tax 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 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.
(5) The Government may, on the recommendations of the Council, by notification, specify
categories of services, the tax on inter-State supplies of which shall be paid by the
electronic commerce operator if such services are supplied through it, and all the

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Ch 3: Levy and Collection of Tax Sec. 5-6 Ch 3: Levy and Collection of Tax Sec. 5-6

provisions of this Act shall apply to such electronic commerce operator as if he is the (5) The Government may, on the recommendations of the Council, by notification, specify
supplier liable for paying the tax in relation to the supply of such services: categories of services, the tax on inter-State supplies of which shall be paid by the
Provided that where an electronic commerce operator does not have a physical electronic commerce operator if such services are supplied through it, and all the
presence in the taxable territory, any person representing such electronic commerce provisions of this Act shall apply to such electronic commerce operator as if he is the
operator for any purpose in the taxable territory shall be liable to pay tax: supplier liable for paying the tax in relation to the supply of such services:
Provided further that where an electronic commerce operator does not have a physical Provided that where an electronic commerce operator does not have a physical
presence in the taxable territory and also does not have a representative in the said presence in the taxable territory, any person representing such electronic commerce
territory, such electronic commerce operator shall appoint a person in the taxable operator for any purpose in the taxable territory shall be liable to pay tax:
territory for the purpose of paying tax and such person shall be liable to pay tax Provided further that where an electronic commerce operator does not have a physical
Statutory provisions - Effective from 1st February, 2019 vide The Integrated Goods and presence in the taxable territory and also does not have a representative in the said
Services Tax Amendment Act, 2018 territory, such electronic commerce operator shall appoint a person in the taxable
territory for the purpose of paying tax and such person shall be liable to pay tax
5. Levy and Collection
(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the Relevant circulars, notifications, clarifications, flyers issued by Government:
integrated goods and services tax on all inter-State supplies of goods or services or 1) Notification No. 18/2017 -TRU Dated 5th July, 2017 - IGST exemption to SEZs on
both; except on the supply of alcoholic liquor for human consumption, on the value import of Services by a unit/developer in an SEZ;
determined under section 15 of the Central Goods and Services Tax Act and at such
rates, not exceeding forty per cent., as may be notified by the Government on the 2) Notification No. 03/2017 – Integrated Tax dated 28.06.2017 - Seeks to bring into force
recommendations of the Council and collected in such manner as may be prescribed certain sections of the IGST Act, 2017 w.e.f 01.07.2017
and shall be paid by the taxable person: 3) Notification No. 1/2017-Integrated Tax (Rate), dated 28-6-2017 for notified IGST Rate
Provided that the integrated tax on goods imported into India shall be levied and Schedule.
collected in accordance with the provisions of section 3 of the Customs Tariff Act, 4) Notification No. 4/2017, dated 28-6-2017-Integrated Tax (Rate), dated 28-6-2017 for
1975 on the value as determined under the said Act at the point when duties of Reverse Charge on certain specified supplies of goods.
customs are levied on the said goods under section 12 of the Customs Act, 1962.
5) Notification No. 8/2017-Integrated Tax (Rate), dated 28-6-2017 for IGST rate schedule
(2) The integrated tax on the supply of petroleum crude, high speed diesel, motor spirit for services.
(commonly known as petrol), natural gas and aviation turbine fuel shall be levied with
6) Notification No. 10/2017- Integrated Tax (Rate), dated 28-6-2017 for reverse charge
effect from such date as may be notified by the Government on the recommendations on certain specified supplies of services.
of the Council.
7) Notification No. 14/2017-Integrated Tax (Rate), dated 28-6-2017 for Notified
(3) The 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
categories of supply of goods or services or both, the tax on which shall be paid on
electronic commerce operator.
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 8) Notification No. 38/2017-Integrated Tax (Rate), dated 13-10-2017 Motor vehicle
paying the tax in relation to the supply of such goods or services or both. purchased by lessor prior to 1-7-2017 and supplied on lease before 1-7-2017.
(4) The Government may, on the recommendations of the Council, by notification, specify 9) Notification No. 40/2017-Integrated Tax (Rate), dated 18-10-2017 Notified rate of
a class of registered persons who shall, in respect of supply of specified categories of integrated tax of 5 per cent on inter-State supplies of goods in case of free distribution
goods or services or both received from an unregistered supplier, pay the tax on of food preparations to weaker sections of society under Government programme.
reverse charge basis as the recipient of such supply of goods or services or both, and 10) Notification No. 7/2019-Integrated Tax (Rate), dated 29-3-2019 - Notified categories of
all the provisions of this Act shall apply to such recipient as if he is the person liable persons (Builders) who shall pay tax on reverse charge basis on certain specified
for paying the tax in relation to such supply of goods or services or both." supplies of goods or services or both received from unregistered supplier.

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Ch 3: Levy and Collection of Tax Sec. 5-6 Ch 3: Levy and Collection of Tax Sec. 5-6

11) Circular No. 1/1/2017-IGST dated 07.07.2017 - Clarification on Inter-state movement 5.2 Analysis
of various modes of conveyance, carrying goods or passengers or for repairs and In terms of section 2(24) of the Act, any words or expression which are used in this Act, but
maintenance are not defined should be assigned the meaning as given to such words or expressions in
12) Circular No. 10/10/2017-GST, dated 18-10-2017 - clarification on issues wherein the CGST Act, the UTGST Act, and the GST (Compensation to States) Act.
goods are moved within State or from another State of registration to another State for With specific reference to this section, the following words/ expressions would be relevant-
supply on approval basis.
 Supply
13) Circular No. 21/21/2017-GST dated 22.11.2017 - Clarification on Inter-state movement
of rigs, tools and spares, and all goods on wheels [like cranes]  Inter-State supply
14) Circular No. 22/22/2017-GST dated 21.12.2017 - Clarification on issues regarding  Goods
treatment of supply by an artist in various States and supply of goods by artists from  Services
galleries
 Taxable person
15) Circular No. 27/01/2018-GST dated 04.01.2018 - Clarifications regarding levy of GST
The meaning to the expression ‘inter-State supply’ can be understood from section 7 of this
on accommodation services, betting and gambling in casinos, horse racing, admission
Act. However, the meaning of ‘supply’ and ‘taxable person’ should be borrowed from the
to cinema, homestays, printing, legal services etc.,
CGST Act. Reference may be made to the CGST Act for an in-depth understanding of such
16) Circular No. 34/8/2018-GST dated 01.03.2018 - Clarifications regarding GST in expressions and words.
respect of certain services
Levy of tax: Every inter-State supply will be liable to tax, if:
17) Circular No. 35/9/2018-GST dated 05.03.2018 - Joint Venture - taxable services
provided by the members of the Joint Venture (JV) to the JV and vice versa and inter (i) There is a Supply either of goods or services or both, even when a supply involves
se between the members of the JV goods or services or both the law provides that such supply would be classifiable only
as goods or services in terms of Schedule II of the Act.
5.1 Introduction
(ii) The supply is an inter-State supply – viz. ordinarily, the location of the supplier and the
The Constitution mandates that no tax shall be levied or collected by a taxing Statute except place of supply are in different States. (Refer section 7 of the IGST Act to understand
by authority of law. While no one can be taxed by implication, a person can be subject to tax the meaning of inter-State supply);
in terms of the charging section only.
(iii) The tax shall be payable by a ‘taxable person’ as explained in section 2(107) read with
This is the charging provision of the IGST Act. It provides that all inter-State supplies would section 22 and section 24 of the CGST Act.
be liable to IGST at rate recommended by the Council and notified subject to a ceiling rate of
Imports: Proviso to section 5(1) makes a very important exception in respect of “goods
40%. The provision of this section is comparable to the provision under section 9 of the
imported into India”. Import of goods is defined in section 2(10) in a manner identical with the
CGST Act and section 7 of the UTGST Act.
definition under Customs Act in section 2(23). The important exception made under the
The levy is on all goods or services or both except alcoholic liquor for human consumption. proviso is the carve out from the levy under section 5 supplies involving import of goods and
Further, GST may be levied in supply of petroleum crude, high spirit diesels, motor spirit place such transactions under Customs Act and not under IGST Act. In other words, goods
(petrol), natural gas and aviation turbine fuel with effect from the date notified by the imported into India will be liable to IGST but not under IGST Act instead under section 3(7) of
Government on the recommendations of GST Council. Customs Tariff Act. Vide Taxation Laws (Amendment) Act, 2017 sweeping changes have
The levy of tax on supply of goods and / or services is in three parts - (i) in the hands of the been brought about in Customs in the wake of introduction of GST. Amongst others, one
supplier and (ii) in the hands of the recipient of goods / services under reverse charge significant change is that, in addition to basic customs duty levied under section 12 of
mechanism and, (iii) in case of specified services, in the hands of electronic commerce Customs Act- section 3 of Customs Tariff Act - sub-section 7 levies IGST on import of goods.
operator. It merits to mention here is that sub-section 9 levies compensation cess wherever applicable
when the said goods are imported into India.

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Going back to the proviso to sub-section 1, the expression ‘the point at which import duties  ORDER No. CT/2275/18-C3 DATED 26th March 2018 passed by the AUTHORITY
are leviable’ is very significant. Examination of the ‘point of levy’ under Customs Act reveals FOR ADVANCE RULING – KERALA clarifies that no tax is applicable on Merchanting
that goods brought into India are liable to customs duties at the time specified in section 15. trade applying the principles laid down in the aforesaid Circular No.35/2017-Cus dated
Accordingly, no duties are levied until the bill of entry for home consumption is filed. Imported 1 Aug 2017. Further, such merchant trade transactions have been covered under
goods are defined in section 2(25) of Customs Act as: Schedule III as per the CGST Amendment Act, 2018.
“imported goods” means any goods brought into India from a place outside India but Merchant Trade transactions are those transactions where the trader in one country A,
does not include goods which have been cleared for home consumption” purchases goods from country B and supply the goods to a second buyer in country C,
Goods that have been cleared for home consumption will cease to be imported goods. directly, without goods entering country A. Since, goods never cross the Customs
Goods which have entered India but not yet cleared for home consumption will not attract the frontier of the country of trader In case country A is India then, GST law cannot apply
levy of customs duty until bill of entry for home consumption is filed. when supply takes place ‘outside taxable territory’ even though said person (trader) is
located in India. GST is tax on supply and not on supplier. It will form part of revenue
Customs Act permits goods that have entered India to be deposited in a bonded warehouse
(turnover) of person (legal entity) but as a ‘no supply’ transaction. Experts have
on filing ‘into-bond’ bill of entry without payment of duty. Hence, goods that have entered
indicated that since it is not ‘exempt supply’, such transactions will NOT attract credit
India will not attract liability to IGST until they reach the point – location or time – when bill of
reversal. To this end, explanation inserted to section 17(3) vide CGST Amendment
entry for home consumption is ready to be filed. In such cases, IGST is to be levied only
Act, 2018 may be referred.
when ex-bond bill of entry is filed or until date specified in section 15 is reached.
 Circular 03/01/2018-GST dated 25 May 2018 (superseded circular 46/2017-Cus dated
Further, goods imported by SEZ also do not attract liability to IGST as the goods are ‘not yet’
24 November 2017) stated that in-bond sales WILL NOT be liable to IGST until bill of
liable to be assessed to customs duty. Section 53 of the SEZ Act states that:
entry for home consumption is filed. This circular 03 was rescinded from 1 Feb 2019
53(1). A Special Economic Zone shall, on and from the appointed day, be deemed to since amendment to CGST Act by introduction of para 8 in schedule III.
be a territory outside the customs territory of India for the purposes of undertaking the
In view of the foregoing, proviso to section 5(1) is of paramount importance which makes way
authorized operations.
for Customs Tariff Act to take over levy of IGST on imported goods leaving IGST under IGST
Please note the following aspects: Act inapplicable to imported goods. And once Customs Tariff Act applies, it attracts the levy
 Goods deposited in warehouse by filing into-bond bill of entry do not attract liability to of IGST (CTA) not before the bill of entry for home consumption is due to be filed in
any customs duty until the date specified in section 15 is reached or ex-bond bill of accordance with the provisions of Customs Act. So, there are two kinds of IGST, namely:
entry is filed;  IGST levied under Customs Tariff Act which we call IGST (CTA); and
 Goods received by EOU attracts liability to customs duty because notification 44/2016-  IGST levied under IGST Act which we call IGST (GST).
Cus. dated 29 Jul, 2016 has delicensed warehouse facility of EOUs which has also
been clarified in detail vide circular 35/2016-Cus. dated 29 Jul, 2016; Generally, there is no overlap between the two but when there is overlap, one makes way for
another. Please see how this overlap is resolved. Now, it becomes important to clearly
 Notification 15/2017-Integrated Tax (Rate) dated 30 Jun 17 issued granting exemption identify whether imported goods are ‘treated’ as supply of services under schedule II. Now,
from IGST on import of goods by a SEZ and this exemption was immediately customs law makes way for these goods after being subject to basic customs duty applicable
rescinded vide notification 18/2017- Integrated Tax (Rate) dated 5 Jul 17 as granting to import of goods under Customs law to be subject to IGST under GST law when the import
such an exemption would have been out of harmony with the concept that goods have is by way of ‘lease’ arrangement (operating or finance lease). Customs notification 50/2017-
‘not yet’ reached the ‘point’ when liability to customs duty is attracted; Cus. dated 30 Jun 2017 has inserted a few entries (see table below) when IGST (CTA) will
 Circular 35/2017-Cus dated 1 Aug, 2017 regarding high-sea sales states that IGST is NOT be levied if the goods are liable to IGST (GST) under para 1(b) or 5(f) of schedule II.
applicable but deferred until bill of entry for home consumption is filed; Further,  DTA sales by SEZ will NOT be liable to GST under forward charge as IGST will be
supplies made before the goods are cleared for home consumption has been paid when DTA-buyer files bill of entry in terms of Rule 48(1) of SEZ Rules.
considered as a Schedule III negative list entry as per the CGST Amendment Act,
2018 w.e.f. 1 Feb 2019.

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Supply: Refer discussion under section 7 of the CGST Act for a detailed understanding of specify categories of supplies in respect of which the recipient of goods and/ or services will
the expression ‘supply’. Additionally, the comments relating to ‘composite supply’ and ‘mixed be liable to discharge the tax. Notification No. 4/2017-Integrated Tax (Rate) dated 28-Jun-17
supply’ will equally apply for supplies taxable under IGST Act. amended vide Notification No. 37/2017-Integrated Tax (Rate) dated 13-Oct-17, 2017,
Notification No. 45/2017- Integrated Tax (Rate) dated 14-Nov-17 & 10/2017-Integrated Tax
Tax shall be payable by: The tax shall be payable by a ‘taxable person’ as defined under
(Rate), dated 28-Jun-17 amended vide Notification No. 34/2017-Integrated Tax (Rate) dated
section 2(107) read with section 22 and section 24 of the CGST Act. Broadly, a taxable
13-Oct-17 has been issued to notify the goods and services respectively where tax has to be
person is one who is registered or who is required to be registered under the GST law. paid by recipient of supply under reverse charge mechanism.
Please refer to the discussion under the CGST Act for a thorough understanding of this
concept. Where the supplier is located in one state and the place of supply is in another state, the
recipient is liable to pay IGST showing the correct place of supply. It may be different from
Tax payable: Every inter-State supply falling under section 7 of the IGST Act will attract the State in which the recipient is registered. Refer detailed discussion on ‘place of supply’
IGST, if it gets covered by section 5. However, all transactions covered within definition of to identify and report correct State.
supply in the course of inter-State trade or commerce within the meaning of section 7 does
Accordingly, all other provisions of this Act and CGST Act, as applicable, will apply to the
not mean that it is always subject to levy of IGST unless it falls in section 5 i.e. charging
recipient of such goods and/ or services, as if the recipient is the person liable to pay tax in
section.
relation to supply of such goods and/ or services.
Tax on import of goods: This Act provides that IGST shall be levied on import of goods in After the amendment in Section 5(4) of the IGST Act 2017, the liability of reverse charge on
terms of section 3 of the Customs Tariff Act, 1975. It implies that on such importation of the registered recipient on receiving supplies from unregistered supplier will be applicable
goods, IGST will be payable in addition to the Basic Customs Duty (BCD). The proviso to only on (a) specified class of registered persons and (b) on specified categories of goods or
section 5(1) of the IGST Act also clarifies that the value and point at which IGST would be services or both.
payable will be determined in accordance with section 12 of the Customs Act, 1962.
E-commerce: Where any supply of services is effected through e-commerce operator
Summary table for levy of IGST of CTA or GST law are provided below: (commonly known as services provided by aggregator), the law provides that the Central /
Description Import of Goods Import of Services State Government may on recommendation of the Council specify (notify) that the e-
commerce operator will be liable to discharge the tax on such supplies. It is important to note
Treatment in sch II As Goods As Services
that, in such supplies, the e-commerce operator is neither the actual supplier of service/s nor
Levy under Customs Tariff Act IGST Act does he actually receive the services. The actual supplier of services is a third party who
Overlap exemption N.A IGST (CTA) exempt if N.A provides such service to the customer through e-commerce operator. Instead of levying tax
IGST (GST) paid on such actual supplier, the law has imposed levy on e-commerce operator. Therefore, this
under para 1(b) or would be an exception to the imposition of tax as specified in para supra. It is important to
5(f) of sch II * note that this exception is carved out only in respect of supply of services through an e-
commerce operator and will not be applicable / relevant to supply of any goods through an e-
* Refer entries 547A (from 1 Jul 2017 vide s.99 of Finance Bill 2018 and 65/2017-Cus. dt 8
commerce operator.
Jul 2017) and 557A (from 13 Oct 2017 vide 77/2017-Cus.) and 557B (from 14 Nov 2017 vide
85/2017-Cus.) to 50/2017-Cus. dated 30 Jun 2017 (also refer para 7 of circular 113/32/2019- It is important to recognize the following aspects about e-commerce operations:
GST dated 11 Oct 2019).  Every online transaction is not e-commerce. It could be a portal providing information
Rate and value of tax: The rate of tax notified separately, but shall not exceed 40%, and the online to carry out the transaction or it could be a online tracking of an offline
value of supplies would be as determined under section 15 of the CGST Act. transaction or it could be a service using internet;
Applicability in respect of e-commerce operators: Refer discussion under section 9(5) of  Supplier offering ‘online channel’ to sell goods or services in addition to offline stores
the CGST Act for an understanding of the applicability of this provision for e-commerce also does not qualify as e-commerce;
operators.  It does not necessarily require a ‘website’ or ‘app’ (application on mobile phones) to
Reverse charge mechanism: Normally, the supplier of goods and/ or services will be liable constitute e-commerce, any ‘digital network’ like a easy dial phone number is enough;
to discharge tax on the supplies effected. However, the Central Government is empowered to and

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 Digital wallets are NOT e-commerce. In fact, most e-wallet companies do not have RBI Under the erstwhile laws, there are multiple transactions which apparently qualify as both
approval but work jointly with Payments Banks or (regular) Banks to provide a e-wallet ‘sale of goods’ as well as ‘provision of services’. E.g. license of software, providing a right to
experience where technology comes from the enterprise and the cash-custody is with use a brand name, etc. Unlike this situation, GST clarifies as to whether a transaction would
the banking license holder (see list on RBIs website and find names many popular e- qualify as a ‘supply of goods’ or as ‘supply of services’. A transaction would either qualify as
wallets missing https://www.rbi.org.in/scripts/publicationsview.aspx?id=12043) goods or as services, under the GST law. Even in respect of composite contracts, it has been
clarified under Schedule II, definitions of composite supply and mixed supply in the CGST
Utmost care is required to come to conclusion that a given enterprise is an ‘e-commerce’
law.
enterprise. Notification No. 14/2017-Integrated Tax (Rate) dated 28-Jun-17 amended vide
Notification No. 23/2017-Integrated Tax (Rate) dated 22-Aug-17 has been issued to provide The payment of VAT by the purchaser (registered dealer) on purchase of goods from an
that in case of the following categories of services, the tax on inter-State supplies shall be unregistered dealer and the circumstances where the Service Tax is payable under the
paid by the electronic commerce operator. reverse charge mechanism, in respect of say, import of services, sponsorship services etc.,
are comparable to the ‘reverse charge mechanism’ prescribed herein. However, under GST
(i) services by way of transportation of passengers by a radio-taxi, motorcab, maxicab
and motorcycle; law, the Central Government can notify class of goods which are a subject matter of reverse
charge.
(ii) services by way of providing accommodation in hotels, inns, guest houses, clubs,
The detailed analysis of Chapter 3 – Levy and Collection of taxes under the Central Goods
campsites or other commercial places meant for residential or lodging purposes,
and Service Tax may also be referred.
except where the person supplying such service through electronic commerce
operator is liable for registration under clause (v) of section 20 of the Integrated Goods 5.4 Related provisions of the Statute
and Services Tax Act, 2017 read with sub-section (1) of section 22 of the said Central
Statute Section Description
Goods and Services Tax Act.
IGST Section 7 Meaning of inter-State supplies
(iii) services by way of house-keeping, such as plumbing, carpentering etc, except where
the person supplying such service through electronic commerce operator is liable for CGST Section 9 Levy and collection of CGST/ SGST
registration under clause (v) of section 20 of the Integrated Goods and Services Tax CGST Section 7 read with Schedule I, II and III Definition of ‘supply’
Act, 2017 read with sub-section (1) of section 22 of the said Central Goods and CGST Section 2(107) read with section 22 and Meaning of ‘taxable person’
Services Tax Act. section 24
In case where the e-commerce operator: CGST Section 2(17) Definition of ‘Business’
(a) Does not have a physical presence then the person who represents the e-commerce
5.5 FAQs
operator will be liable to pay tax.
Q1. Will sale of business as a whole be liable to 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. Ans. Yes, clause (d) of section 2(17) of the CGST Act provides that supply or acquisition of
goods including capital goods and services in connection with commencement or
5.3 Comparative review
closure of business is also included in the term “business”. Therefore, the goods
Under the erstwhile tax laws, Central Excise is on ‘manufacture of goods’, VAT/ CST is on element in the sale of business, would be regarded as ‘supply’. However, it may be
‘sale of goods’ and Service tax is on ‘provision of service’. Unlike different incidences under noted here that sale of undertaking as a whole wholly or partly on a going concern
erstwhile law in a GST regime, ‘it is supply which is a taxable event’. Further, free supplies basis will be regarded as an exempt supply in terms of the exemption notification.
would be liable to excise duty, while under the VAT laws, free supplies would require reversal Q2. Is the reverse charge mechanism applicable only to services?
of input tax credit; Unlike different incidences, under the GST law, it is ‘supply’ which would
be the taxable event. Under the erstwhile law, e.g.: while stock transfers are liable to Central Ans. No, section 5(3) or 5(4) of the IGST Act and section 9(3) or 9(4) of the CGST Act does
Excise (if they are removed from the factory), it would not be liable to VAT/ CST. However, not limit reverse charge to services, it applies to goods also. Notification No. 04/ 2017-
under the GST law, it would be taxable as a ‘supply’. Central Tax (Rate), dated 28-06-2017 as amended from time to tome has been issued
to provide the cases where tax has to be paid by recipient of supply of goods under

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reverse charge mechanism. This includes the Cashew nuts, not shelled or peeled, Bidi services or both of any specified description from the whole or any part of the tax
wrapper leaves (tendu), Tobacco leaves, Silk yarn, Supply of lottery, used vehicles, leviable thereon with effect from such date as may be specified in such notification.
seized and confiscated goods, old and used goods, waste and scrap, raw cotton when (2) Where the Government is satisfied that it is necessary in the public interest so to do,
supplied by specified suppliers. it may, on the recommendations of the Council, by special order in each case, under
Q3. What will be the implications in case of purchase of goods from unregistered dealers? 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.
Ans. As per section 5(4) of the IGST Act, 2017 as amended by The IGST Amendment Act,
2018 specified that the tax shall be payable under reverse charge by the specified (3) The Government may, if it considers necessary or expedient so to do for the purpose
class of registered persons, in respect of supply of specified categories of goods. 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
Q4. In respect of exchange, will the transaction be taxable as two different supplies or will
order, as the case may be, by notification at any time within one year of issue of the
it taxable only in the hands of the main supplier?
notification under sub-section (1) or order under sub-section (2), and every such
Ans. Taxable as two different supplies. Exchange from point of view of each party will need Explanation shall have effect as if it had always been the part of the first such
to be examined if it attracts the requirements of levy of tax. notification or order, as the case may be.
Q5. In respect of exchange or barter, if one supply is intra-State and another is inter-State, Explanation.–– For the purposes of this section, where an exemption in respect of
how will the taxes be applicable? any goods or services or both from the whole or part of the tax leviable thereon has
Ans. There are two separate supplies and taxes as applicable (as inter-State and/ or intra- been granted absolutely, the registered person supplying such goods or services or
State respectively). both shall not collect the tax, in excess of the effective rate, on such supply of goods
or services or both.
Q6. What are examples of ‘disposals’ as used in supply?
Relevant circulars, notifications, clarifications, flyers issued by Government:
Ans. Sale of old furniture by a garment manufacturer.
1) Notification No. 2/2017-Integrated Tax (Rate), dated 28-6-2017 for IGST exempt
Note: Disposal is where the articles are being cleared up and not necessarily as the
goods.
main object of the business.
2) Notification No. 3/2017-Integrated Tax (Rate), dated 28-6-2017 for concessional
Q7. Will a Bank qualify as a taxable person for sale of hypothecated/ pledged goods
Integrated Goods and Services Tax rate for supplies of goods to specified petroleum
(auction)?
and other explorations and productions under various Schemes.
Ans. Yes, the nature of business as a bank does not affect tax liability. GST is payable if
3) Notification No. 7/2017-Integrated Tax (Rate), dated 28-6-2017 for exemption to
there is any supply of goods or services even by a bank.
supply of goods by the CSD to unit run canteens and supplies by CSD/unit run
Q8. Will an Insurance company be a taxable person for sale of repossessed goods? canteens to authorised customers.
Ans. Yes. Although not the principal source of income, sale of repossessed goods is key 4) Notification No. 9/2017-Integrated Tax (Rate), dated 28-6-2017 for IGST exempt
aspect of insurance business. services.
Q9. Will a “not for profit entity” be liable to tax on any sales effected by it – e.g.: sale of 5) Notification No. 18/2017-Integrated Tax (Rate), dated 5-7-2017 for exemption to all
assets received as donation? services imported by a unit or a developer in the Special Economic Zone.
Ans. Yes. NPEs do not distribute profit to promoters but that does not exclude from doing
6) Notification No. 26/2017-Integrated Tax (Rate), dated 21-9-2017 - Exemption to Inter-
activities that conform to definition of business.
State supply of heavy water and nuclear fuels falling in Chapter 28 by the Department
Statutory provisions of Atomic Energy to the Nuclear Power Corporation of India Ltd.
6. Power to grant exemption from tax 7) Notification No. 30/2017-Integrated Tax, dated 22-9-2017 Exemption to inter-State
(1) Where the Government is satisfied that it is necessary in the public interest so to do, supply of skimmed milk powder.
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

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8) Notification No. 41/2017-Integrated Tax (Rate), dated 23-10-2017 for exemption to With specific reference to the fourth condition indicated above, it is important to note that the
inter-State supply of taxable goods by a registered supplier to a registered recipient for exemption would only be in respect of goods and/ or services, and not specifically for classes
export, from so much of integrated tax leviable thereon under section 5, as is in of persons.
excess of amount calculated at rate of 0.1 per cent. E.g.: An absolute exemption could be granted in respect of supply of fertiliser. A conditional
9) Notification No. 47/2017-Integrated Tax (Rate), dated 14-11-2017 for exemption on exemption could be supply of fertiliser subject to the condition that no input tax credit has
supply of goods to certain institutions. been claimed in respect of inputs and capital goods.
10) Notification No. 5/2018-Integrated Tax (Rate), dated 25-1-2018 - Partial exemption to Exemption by way of special order is where the exemption is issued for a specific purpose.
supply of services by way of grant of licenses or lease to explore or mine petroleum E.g. Exemption to imports made for a defence project during the times of emergency.
crude or natural gas or both.
Mandatory nature of absolute exemptions has been litigated in the past and where tax is paid
11) Notification No. 6/2018-Integrated Tax (Rate), dated 25-1-2018 - Exemption to even though exemption is available, credit becomes admissible. For this reason, absolute
integrated tax leviable on supply of services, imported into territory of India, to the exemptions have been made compulsory. As such, credit denial also becomes absolute. No
extent of aggregate of customs duties on consideration declared under section 14(1) plea of equity or revenue neutrality becomes admissible.
of Customs Act towards royalties and license fees included in transaction value.
There is generally not much doubt about exemptions – whether absolute or conditional –
12) Notification No. 9/2018-Integrated Tax (Rate), dated 25-1-2018 - Exemption from tax because the condition associated may be examined at one-time or continuously to be
on supplies of goods falling under heading No. 8703.
satisfied. Conditional exemptions abate if the associated condition is not complied. Care
13) Notification No. 22/2018-Integrated Tax (Rate), dated 26-7-2018 Exemption to inter- should be taken not to mistake conditional exemption with absolute exemption having
State supplies of Handicraft goods. specific applicability.
14) Notification No. 27/2018-Integrated Tax (Rate), dated 31-12-2018 - Exemption to inter- From the explanation provided after sub-section (2), there is one school of thought wherein it
State supply of gold falling under Heading No. 7108 when supplied by Nominated is opined/ understood that in case of conditional exemptions, there is an option available to
Agency under the scheme for "Export Against Supply by Nominated Agency" as the taxable person to pay the tax (by which way, there would be no requirement for input tax
referred to in paragraph 4.41 of the Foreign Trade Policy. credit reversals). However, an absolute exemption is required to be followed mandatorily.
15) Notification No. 11/2019-Integrated Tax (Rate), dated 29-6-2019 Exemption on supply The other view is that exemptions would never be optional and would be mandatory
of goods by a retail outlets established in the departure area of an International Airport automatically when the conditions relating to the exemption are satisfied. This provision does
beyond immigration counters to an outgoing International Tourist. not bring in any clarity on this issue.
6.1 Introduction 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 specified in the special
This provision states that the Central Government may grant exemptions for inter-State
order. While this provision is welcome, industry is apprehensive that this could be used
supply of certain goods and/ or services. Reference may also be made to section 11 of the
CGST Act and section 8 of the UTGST Act for a better understanding. without necessary superintendence.

6.2 Analysis 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 one year from the
The Central Government will be empowered to grant exemptions from payment of IGST on date of issue of notification or special order. The effect of this “Explanation” would be
inter-State supplies, subject to the following conditions: retrospective, viz., from the effective date of the relevant notification or special order.
(i) Exemption should be in public interest The law mandates that when the exemption is absolute (i.e., if whole or part of tax leviable is
(ii) By way of issue of notification exempt) the registered person cannot collect taxes in excess of the effective rate.
(iii) On recommendation from the Council Exemption under section 11 of the CGST/ SGST Act equally applicable
(iv) Absolute/ conditional exemption may be for any goods and/ or services Any exemption notification or special order issued under section 11 of the CGST Law will
(v) Exemption by way of special order (and not notification) may be granted by citing the apply equally for inter-State supplies, viz., any supply of goods or services or both which are
circumstances which are of exceptional nature exempt under CGST Law will be exempt even under the IGST Law

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Effective date of the notification or special order 6.3 Comparative review

The effective date of the notification or the special order would be the date which is The provisions relating to exemption are broadly similar to the exemption provisions under
mentioned in the notification or special order. However, if no date is mentioned therein, it the erstwhile tax regime. There are no significant differences.
would come into force on the date of its issue by the Central Government for publication in 6.4 Related provisions of the Statute:
the Official Gazette. It follows that such notification/ order shall be made available on the
Statute Section Description
official website of the department of the Central Government.
CGST Section 11 Exemption from payment of CGST/ SGST
Exemption under CGST Act Deemed to exempt under SGST Act UTGST Section 8 Power to grant exemption from tax
Deemed to exempt under UTGST Act 6.5 FAQs
Exemption under IGST Act No auto-application of exemption to CGST-SGST/UTGST Q1. Can an exemption be granted for inter-State supplies when such an exemption is not
granted for intra-State supplies?
Exemptions issued under IGST Act:
Ans. Yes.
Following exemptions have been issued under IGST Act:
Q2. Can the Central Government issue a special order for exemptions that are only meant
• Notification No. 07/2017-Integrated Tax (Rate), dated 28-06-2017: Exemption from for transactions liable to IGST?
IGST supplies by CSD to Unit Run Canteens and supplies by CSD/ Unit Run Canteens Ans. Yes.
to authorised customers under section 6(1).
Q3. Is the State Government empowered to grant exemption by way of a special order for
• Notification No. 9/2017-Integrated Tax (Rate) dated 28-Jun-17: Mega exemption list inter-State supplies?
for supply of service amended vide Notification No.21/2017 dated 22- Aug-17, 29/2017
Ans. No. The State Government is not empowered to grant exemptions on any inter-State
dated 29-Sept-17, 33/2017 dated 13-Oct-17, and 42/2017 dated 27-Oct-17. The
supplies.
exemption notification covers entries where services supplied by supplier of service
have been exempted from levy of GST.
• Notification No. 18/2017-Integrated Tax (Rate) dated 5-Jul-17: IGST exemption to
SEZs on import of Services by a unit/ developer in a SEZ.
• Notification No. 31/2017- Integrated Tax (Rate) dated 29-Sept-17: Exempting supply of
services associated with transit cargo to Nepal and Bhutan.
• Notification No.41/2017 – Integrated Tax (Rate) dated 23-Oct-17: Exempting
integrated tax on inter-state supply of taxable goods by a registered supplier to a
registered recipient in excess of 0.1%, subject to fulfilment of conditions in the
notification. This transaction commonly known as ‘penultimate sale’ / sale against
‘Form H’ under the existing law, was completely exempt from tax on production of
Form H.
• Notification No.42/2017 - Integrated Tax (Rate) dated 27-Oct-2017: Exempting supply
of service having place of supply in Nepal or Bhutan, against payment in Indian
Rupees
The detailed analysis of Chapter 3 – Levy and Collection of taxes under the Central Goods
and Service Tax may also be referred.

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 Ch 4: Determination of Nature of Supply Sec. 7-9

Chapter 4 Related Provisions of the Statute

Statute Section / Rule Description
Determination of Nature of Supply IGST Section 2(4) Definition of customs frontier of India
IGST Section 2(5) Definition of export of goods
7. Inter-State supply IGST Section 2(6) Definition of export of service
8. Intra-State supply IGST Section 2(10) Definition of import of goods
9. Supplies in territorial waters IGST Section 2(11) Definition of import of service
Statutory provisions IGST Section 2(15) Definition of location of supplier of service
IGST Section 2(19) Definition of Special Economic Zone
7. Inter-State Supply
IGST Section 2(20) Definition of Special Economic Zone developer
(1) Subject to the provisions of section 10, supply of goods, where the location of the
supplier and the place of supply are in–– CGST Section 2(56) Definition of India
(a) two different States; CGST Section 2(103) Definition of State
(b) two different Union territories; or CGST Section 2(114) Definition of Union Territory
(c) a State and a Union territory, IGST Section 10 Place of supply of goods other than supply of goods
imported into, or exported from India
shall be treated as a supply of goods in the course of inter-State trade or commerce.
IGST Section 12 Place of supply of services where location of supplier and
(2) Supply of goods imported into the territory of India, till they cross the customs frontiers recipient is in India
of India, shall be treated to be a supply of goods in the course of inter-State trade or
commerce. IGST Section 15 Refund of IGST paid on supply of goods to tourist leaving
India
(3) Subject to the provisions of section 12, supply of services, where the location of the
supplier and the place of supply are in–– IGST Section 5 Levy and collection of tax

(a) two different States; CGST Section 9 Levy and collection of tax
CGST Section 25 Registration
(b) two different Union territories; or
(c) a State and a Union territory,
Relevant circulars, notifications, clarifications, flyers issued by Government:
shall be treated as a supply of services in the course of inter-State trade or commerce.
1. Notification Nos. 11/2017-Integrated Tax (Rate), dated 28-6-2017 and 17/2018-Integrated
(4) Supply of services imported into the territory of India shall be treated to be a supply of Tax (Rate), dated 26-7-2018 for supplies which shall be treated neither as supply of goods
services in the course of inter-State trade or commerce. nor supply of services
(5) Supply of goods or services or both, –– 7.1 Introduction
(a) when the supplier is located in India and the place of supply is outside India;
Having examined levy and the scope and coverage of supply, the next aspect to determine is
(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or the nature of supply so as to identify the right kind of tax applicable in a given case. It is
(c) in the taxable territory, not being an intra-State supply and not covered elsewhere important to note that nature of supply is not a question of fact but the result of application of
in this section, shall be treated to be a supply of goods or services or both in the course the law to the fact, which provides us the answer. Concluding the answer about the nature of
of inter-State trade or commerce. tax is paramount importance not only for the selection of the right kind of tax but also to
recognise the departure of GST from the well understood principles under the erstwhile law.

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Nature of supply does not refer to ‘place of supply’. The next Chapter deals with place of and sell it on ex-works basis with instructions to retain it until further instructions. This
supply but before getting into place of supply it is important to understand the nature of would be a case where the manufacturer in Maharashtra would like to charge IGST
supply. There are very specific principles laid down that need to be identified from the facts in because the purchase order is from a customer in Delhi. In this supply, the location of
each transaction in order to determine the nature of supply that is involved. This section supplier is Maharashtra and place of supply is also Maharashtra. Therefore, the
provides as to when the supplies of goods and/or services shall be treated as Supply in the manufacturer is required to charge CGST/ SGST because this supply does not involve
course of inter-State trade/commerce. any movement and due to the instructions (or lapse of time) delivery is complete in
Section 7(1) and 7(2) of IGST Act, primarily covers two kinds of supplies – Supply of goods Maharashtra itself. Now, if instructions are subsequently issued to dispatch the goods to
within India and supply of goods imported into India respectively and Section 7(3) and 7(4) of a warehouse in Madhya Pradesh, the supply by the manufacturer having been
IGST Act, covers two kinds of supplies – supply of services within India and import of completed long before these dispatch instructions are received, there is a new supply
services into India respectively. Certain supplies of goods or services are treated as supplies emerging from Maharashtra to Madhya Pradesh but the supplier in this instance will be
in the course of inter-State trade or commerce as defined in Section 7(5) of the IGST Act. the Company in Delhi and not by the manufacturer-supplier in Maharashtra. One
supplier can effect supply only once of the given goods. In this new supply, the location
of supplier can either be Delhi – registered place of business – or Maharashtra – the
physical point where the goods are situated. The location of the registered place of
business (Delhi) cannot guide the decision regarding the nature of supply but will be
guided by their location ‘under the control’ of the supplier (Company in Delhi)). The
point where goods are situated better represents the location of supplier. The location
of supplier is therefore the physical point where the goods are situated under the control
of the person wherever incorporated or registered, ready to be supplied. This
interpretation augurs well with the concept of casual taxable person. The company in
Delhi that collects delivery of the goods in Maharashtra and supplies them from
Maharashtra to Madhya Pradesh must be regarded as casual taxable person in
Maharashtra liable to pay IGST on this supply.
If, however, the delivery by the manufacturer is not completed ex-works but retained to
be delivered to Madhya Pradesh at the instruction of the customer in Delhi, then it
would be a case of supply from Maharashtra to Delhi and a further supply from Delhi to
7.2 Analysis Madhya Pradesh, regardless of how the goods move. Generally, we can identify the
examples where the location of supplier of goods is more accurately determined by the
Inter-State supply of goods
physical point where the goods are located (under the control of the person wherever
At the outset one may need to bear in mind the treatment extended to the subject matter of incorporated or registered), and ready to be supplied.
supply, that is, whether the supply is of goods or services or both or supply involving goods
However, there may be a few exceptions to the rule stated above:
but treated as supply of services in terms of the fiction specified in Schedule II of CGST Act,
2017. In respect of goods (treated as goods), if the location of the supplier and the place of a) In case of in-transit sales, the principle of the location of supplier as the place
supply are in two different States or UT or either, then the supply will be in the course of inter- where the goods are held in the control of the supplier may not be possible to be
State trade or commerce (amongst others). determined. In such cases, the place where goods were held before being
dispatched should be taken. In this case, the place where the goods are actually
We need to pause here and examine the two terms that have been used, namely:
present cannot be taken.
(a) Location of supplier – Unlike in the case of services, location of supplier of goods is a
E.g. A person in West Bengal is instructing his supplier in Delhi to supply the goods
term that is not defined in the law. This is not an oversight of the draftsmen but a
directly to his customer in Maharashtra while the goods are in transit. For the
deliberate intention of the lawmakers to leave it to the facts of each case to determine
second leg of the transaction i.e. the supply between the person in West Bengal
the ‘location of supplier of goods’. For example, if a company incorporated in Delhi were
and the one in Maharashtra, the location of goods may not be determinable. In
to place a purchase order on a manufacturer in Maharashtra to produce certain articles

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such a case, the location of supplier for this leg of the transaction will be with the place of supply appointed by the statute in Chapter V. Now, if these two are situated
considered as West Bengal even though the goods never reach West Bengal. in different States or UTs or either, then the nature of supply is declared by section 7 to be
b) As per Circular no. 10/10/2017-GST dated 18th October 2017, clarification was in the course of inter-State trade or commerce.
given in a case where the suppliers are registered in a state but have to visit other
states other than their state of registration and need to carry the goods for Location of the Place of supply
approval. In such case, if the goods are approved the invoice is issued at the time supplier AND
of supply. It was clarified that all such supplies, where the supplier carries goods
from one State to another and supplies them in a different State, will be inter-state
supplies and attract integrated tax in terms of Section 5 of the Integrated Goods
and Services Tax Act, 2017. In such case also, the location of supplier is the place
where the supplier is registered and not the place where the goods are actually
present when they are approved. Even though this is in contradiction with the
concept of Casual Taxable person which requires the supplier to register in the
state where he is carrying the goods, this clarification was provided for the ease of
trade and industry. One may wonder if this can be considered as a reasonable OR OR
basis for questioning the generic principle of determination of the location of the
supplier.
c) One of the Advance ruling judgements presents a point of view which may have to
be considered while taking a decision. In case of Sonkamal Enterprises Private
Limited under the Maharashtra Authority for Advance Ruling (2018-TIOL-301-AAR-
GST). It was stated that invoice can be raised from Mumbai Head office for imports
received at Haldia Port, Kolkata by the company where no separate registration is This provision is subject to the provisions of section 10 because any interpretation or
there in West Bengal if supplies are directly made from the customs bonded application of this section 7 cannot be in derogation of the place of supply dictated by section
warehouse within West Bengal. Here, IGST will be charged from Mumbai to the 10. Section 7 can be correctly interpreted only by identifying the location of supplier of goods
customer and no separate registration will be required in West Bengal. So, even based on the physical point where the goods are situated and comparing that with the answer
though the goods are lying in West Bengal when the goods are supplied to the from referring to section 10 regarding place of supply of goods.
customer, the location of supplier of goods will be that of the registered place of
business of the supplier i.e. Mumbai. With regard to supply of goods that are imported into the territory of India, by legislative
override it is declared that if the goods crossed the customs frontiers of India, the supply will
(b) Place of supply – It appears to be a phrase that is easily understandable but due to the
always be in the course of inter-State trade or commerce. Reference may be made to the
presence of Chapter V (i.e. place of supply of goods or services or both) in this Act
definition of import of goods [section 2(10)] which adverts to the physical movement of goods
demands that the common sense understanding be disregarded but the meaning
into India from a place outside India by the active efforts on the part of any person (who may
ascribed to the phrase ‘place of supply’ from sections 10 to 14 of this Act be applied.
be situated in India or outside India).
‘Place of supply’ is a phrase of legal significance whose meaning is to be determined by
examining the respective sections in Chapter V and brought to bear while determining The use of the word ‘bringing’ in section 2(10) excludes naturally and involuntarily occurring
nature of supply. For example, manufacture in Maharashtra and supply to a company in phenomena causing the relocation of goods into India from a place outside India. There may
Delhi on Ex-Works basis, its place of supply has to be the location of completion of be any number of supplies taking place between persons who are incorporated outside India
delivery. And in respect of the new supply from Maharashtra to Madhya Pradesh, the and persons who are incorporated and even registered in India – they will all be transactions
place of supply is where the movement terminates for delivery – Madhya Pradesh. of supply in the course of inter-State trade or commerce – till such time the goods cross the
It is therefore important to identify the location of supplier of goods and not based on a customs frontiers of India.
statutory definition but by inquiring into the facts of a transaction of supply and comparing this

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Import of goods at the time of filing of Bill of Entry. Hence, IGST on high sea sale(s) transactions of imported
We need to pause here again and examine two kinds of transactions – those that commence goods, whether one or multiple, shall be levied and collected only at the time of importation
outside the territory of India and are concluded also outside territory of India and those that i.e. when the import declarations are filed before the Customs authorities for the customs
commence outside India but conclude by entering the territory of India. For example, company clearance purposes for the first time. Further, value addition accruing in each such high sea
in Germany supplies goods from Germany to another company in Sri Lanka – this is not a sale shall form part of the value on which IGST is collected at the time of clearance. The
supply in the course of inter-State trade or commerce because it commences and concludes importer (last buyer in the chain) would be required to furnish the entire chain of documents,
outside the territory of India. It would be so, even if the goods were supplied by the company such as original Invoice, high-seas-sales-contract, details of service charges/ commission paid
in Germany from Germany to a customer incorporated in India if the goods are not ‘brought’ etc, to establish a link between the first contracted price of the goods and the last transaction.
into India but sold in high seas to yet another company in Singapore. In order for every supply In the above example, supply by Nasik company to recipient of Pune is high sea sale
to come within the operation of sub-section 2 to section 7 it requires that the resultant effect of transaction and is not subject to levy of IGST. When Pune recipient files bill of entry, IGST has
the supply must cause the goods to enter the territory of India. This Act does not enjoy to be paid on the assessable value which shall include the margin charged by Nasik supplier
extra-territorial jurisdiction and is limited to imposing tax if the goods are imported into the also. In fact, after the CGST Amendment Act 2018, all high seas transactions and merchant
territory of India. In this regard Customs circular issued by the CBEC and an Advance Ruling trading transactions will be covered by Schedule III i.e. activities which are neither supply of
by the Kerala Authority for Advance Ruling (AAR) is relevant, which is discussed in detail in goods nor supply of services w.e.f. 01/02/2019
Section 11 infra. After the CGST Amendment Act 2019 as effective from 1st February 2019, Inter-State supply of services
goods sold before the same is cleared for customs clearance i.e. high sea sales, sale of goods Continuing with inter-State supply, but in respect of services, it is firstly important to recollect
when they are in the bonded warehouses before customs clearance etc. will not be treated as that this provision will apply not only in respect of supply of services but also in respect of
a supply under Schedule III read with Section 7(2) of the CGST Act 2017. transactions involving goods which are treated as supply of services by the fiction in Schedule
Further, if goods have been brought into India but have not left the customs frontiers of India, II of the CGST Act, 2017. The discussion regarding location of supplier of goods and place of
that is, the limits of a customs area, any supplies that are taking place after being brought into supply of goods will be applicable in the context of services but only to a limited extent for the
India until they cross the customs frontiers of India even though the place of entry into India reason that location of supplier of services has been defined in this Act.
and the place that comprises the customs frontier may be in the same State will continue to be The location of supplier of services and the place of supply of services are in two different
supply is in the course of inter-State trade or commerce. States or UTs or either, such as supply of services shall be in the course of inter-State trade
For example, goods have been imported from France by a company incorporated and or commerce. It is interesting to note that inter-State trade is not simply called ‘intra-State
registered in Nasik which have landed at Mumbai port but during their clearance are supplied trade’ but is prefixed with ‘in the course of’. This prefix is not without reason, because such
by the Nasik company to a company in Pune, this supply continues to be in the course of prefix is missing in relation to intra-State supply. The significance of ‘in the course of’ is well
inter-State trade or commerce. Even though the supplier is in Nasik and the recipient is in explained in the decision of State of Bihar Vs Telco Ltd. 27 STC 127 at pg. 148 where the
Pune, since the goods have not yet crossed the customs frontiers of India at the time of Hon’ble Supreme Court has held that it signifies a series of activities that are all inter-related
supply. This supply comes within the operation of sub-section 2 of section 7. A test that can be in an unbroken chain of events so intimately linked to each other that all of them are bound
applied to determine whether the supply has been concluded before the goods crossed the together ‘in the course of’ such an inter-State trade transaction.
customs frontiers of India or not crossed the customs frontiers of India is – who has filed a bill
of entry in respect of the goods imported as required under the Customs Act. Transactions
taking place before filing of bill of entry are termed as “high sea sale” transactions under
common trade practice where the original importer sells the goods to a third person before the
goods are entered for customs clearance. This supply is covered within definition of inter-State
supply. Provisions of sub-section (12) of section 3 of Customs Tariff Act, 1975 in as much as
in respect of imported goods provides that all duties, taxes, cess’ etc. shall be collected at the
time of importation i.e. when the import declarations are filed before the customs authorities
for the customs clearance purposes. High sea sale transactions, though regarded as supply in
the course of inter-State trade or commerce, are not subject to levy of IGST as the supply
takes place before filing of Bill of entry and IGST in case of importation of goods can be levied

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For example, a company incorporated in Chennai engaged in the business of investment in

immovable property and letting them out on rent may have such investments in Chennai and
in Hyderabad. By the definition of location of supplier of services being the ‘place of business’,
the company has its place of business where its ‘seat of management’ is located – Chennai.
Accordingly, the location of service provider in relation to the transaction involving renting of
immovable property is not where the property let out is situated but the registered office of the
company where the management has its seat for decision making. Therefore, in relation to
property in Chennai that is let out, it is an intra-State supply because location of supplier of
services and place of supply both in Chennai. In respect of its property located in Hyderabad,
it is an inter-State supply because the location of supplier of service is in Chennai but the
place of supply is Hyderabad. Surely, there is no argument to support the view that in every
place where property is located the decision to let out such property is taken in each such
location. On the contrary, all decisions are taken where the seat of management is located
and therefore, the location of supplier of service remains Chennai wherever the let-out
properties may be situated. This view may not be acceptable to all but merits attention.
Special category of inter-State supplies 2(105) supplier in relation to any
Fiction in law is no stranger to taxation and GST law goods or services or both, shall
indulges in use of fiction without any hesitation. The mean the person supplying the
following categories of supplies of goods or services or said goods or services or both
both, are treated as being in the course of inter-State and shall include an agent acting
trade or commerce: as such on behalf of such
supplier in relation to the goods
(a) when the supplier is located in India and the or services or both supplied;
place of supply is outside India
Here, it is extremely important to note that usage of the ‘supplier is located’ is not to be
equated with ‘location of supplier’. From the previous discussion, it is learnt that location of
supplier of goods is – physical point where the goods are situated under the control of the
person wherever incorporated or registered, ready to be supplied. But, the deliberate
departure in usage of the same set of words is almost misleading. Supplier is located in India
does not refer to location of supplier. Instead, it is a simple question of fact as to where the
supplier is located. Please note, that the ‘supplier’ is none other than the ‘one who supplies’
and not his agent or representative or any other person. The question that arises is – what is
the GST impact in case the supplier is located outside India and the place of supply is outside
India? The Act applies to supplies within the taxable territory and when both – supplier as well
Location of supplier of services is defined to mean ‘place of business from where supply is as place of supply – being located outside India, the Act does not enjoy any jurisdiction to
made and duly registered for the purpose’. It also includes other places ‘from where’ supplies impose tax even if the recipient is located in India. The destination of consumption being
are made being a fixed establishment – a place with sufficient degree of permanence and decided by the place of supply provisions and not location of the recipient
suitable structure to supply services. And lastly, the usual place of residence of the service (b) where the supply is ‘to’ or ‘by’ an SEZ developer or unit
provider. It is interesting to note that the location of supplier of services has nothing to do with Here, it is important to note that supply to SEZ (developer or unit) is treated as inter-State
the business premises ‘wherefrom’ supply is made. supply. Supply ‘by’ SEZ (developer or unit) will also be treated as inter-State supply. Further,

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the implication of this provision is also that supply by SEZ’s inter se – one SEZ unit (or Provided that the intra-State supply of services shall not include supply of services to
developer) to another SEZ unit (or developer) – will also be treated as a supply in the course or by a Special Economic Zone developer or a Special Economic Zone unit.
of inter-State trade or commerce.
Explanation 1 ––For the purposes of this Act, where a person has, ––
Let us take a few examples to illustrate the implications from this provision:
(i) an establishment in India and any other establishment outside India;
o Taxable person (non-SEZ) located in Jaipur supplying goods to a SEZ unit located in (ii) an establishment in a State or Union territory and any other establishment
Jodhpur is a supply in the course of inter-State trade or commerce.
outside that State or Union territory; or
o SEZ unit in Kolkata supplying services to another SEZ unit in Kolkata is a supply in the (iii) an establishment in a State or Union territory and any other establishment
course of inter-State trade or commerce.
being a business vertical 4 registered within that State or Union territory,
o Lease of premises by SEZ developer in Chennai to SEZ unit in that same zone in then such establishments shall be treated as establishments of distinct persons.
Chennai will be a supply in the course of inter-State trade or commerce.
Explanation 2 ––A person carrying on a business through a branch or an agency or a
o Supply by SEZ unit in Kochi to a non-SEZ in Kochi will be a supply in the course of representational office in any territory shall be treated as having an establishment in
inter-State trade or commerce.
that territory.
o Disposal of scrap by a SEZ developer in Mumbai to a scrap dealer in Mumbai (outside
the zone) is a supply in the course of inter-State trade or commerce. 8.1 Introduction
o Export of goods by a SEZ unit to a customer in Italy is a supply in the course of inter- With the background discussion on inter-State supplies, it would be appropriate to contrast
State trade or commerce. this understanding with a discussion on intra-State supplies.
(c) Any supply not being an intra-State supply 8.2 Analysis
Here, it is to be considered that any supply that falls outside the scope of intra-State supply Intra-State supply of goods
will not escape GST, but would be an inter-State supply by virtue of this residual provision in In relation to goods, Section 8 of the IGST Act provides that where the ‘location of the
the Act. supplier’ and the ‘place of supply’ are in the same State or same UT, such a supply will be
Statutory provisions treated as an intra-State supply. Reference may be had with respect to the discussion on
location of supplier of goods in the context of Section 7 of the IGST Act which may be relied
8. Intra-State Supply upon for the purpose of this discussion. This provision too, is made subject to the provisions of
(1) Subject to the provisions of section 10, supply of goods where the location of the Section 10, that is, regarding the place of supply, and the conclusion reached by applying the
supplier and the place of supply of goods are in the same State or same Union said provisions is required to be read into this Section for the purpose of determination of
territory shall be treated as intra-State supply: intra-State in nature. The two factors – ‘location of supplier’ and ‘place of supply’ – must at the
conclusion of a supply, be in the same State or UT. And when it is so, the supply would be an
Provided that the following supply of goods shall not be treated as intra-State supply, intra-State supply of goods.
namely: –
For example, a company having its regular registration in Uttar Pradesh has taken a causal
(i) supply of goods to or by a Special Economic Zone developer or a Special registration in Odisha. It has purchased certain goods in Odisha and supplying the same to
Economic Zone unit; the customer also in Odisha under two separate transactions of supply, both of them will be
(ii) goods imported into the territory of India till they cross the customs frontiers of intra-State supplies.
India; or Therefore, it is important to bear in mind that the place of incorporation of the supplier in any
(iii) supplies made to a tourist referred to in section 15. transaction relating to goods is not relevant as the location of the supplier which has been
explained earlier as – physical point where the goods are situated under the control of the
(2) Subject to the provisions of section 12, supply of services where the location of the
supplier and the place of supply of services are in the same State or same Union 4 Omitted vide The Integrated Goods And Services Tax (Amendment) Act, 2018 w.e.f 01.02.2019
territory shall be treated as intra-State supply:

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distinct person, wherever incorporated or registered, ready to be supplied. Not only this, three reference may be had to the discussion in respect of inter-State supply of services for the
cases have been discussed in the above chapter wherein the location of supplier of goods implications of this definition.
may not be the location of supplier (i.e. in-transit sales, sales on approval or return basis To provide some additional illustration, consider audit services being provided by a Chartered
wherein the goods are carried from one state to another and sales from the port directly
Accountant located in Delhi to a company in Delhi. For the purpose of the audit, the Chartered
without bringing the same to the registered place of business of the importer). For discussion
Accountant visits the company’s factory located in Noida. Here, although the Chartered
on this, the discussion under 7.2 above may be referred.
Accountant is physically moving to Noida, he is not supplying the audit services from Noida.
Further, three exceptions have been carved out in this provision to state that a few supplies Here, the transaction will be an intra-State supply from Delhi to Delhi. Please refer to more
are to be treated as inter-state even if the supplier and recipient are in the same state: detailed discussion under Section 12.
(1) supply ‘to’ or ‘by’ a SEZ developer or unit; Further, here too we find caution exercised in expressly excluding supply of services ‘to’ or
(2) supply involving goods imported into India but not beyond the customs frontiers; ‘by’ SEZ developer or unit from the scope of intra-State supply of services. The two
(3) supply to outbound tourist in terms of Section 15 of the IGST Act. explanations provided are significant as the concept of distinct persons in Section 25(4) and
(5) of the CGST Act is further clarified in stating that the following will also be distinct persons,
These three exceptions make it abundantly clear that they have been treated to be an inter- namely:
State supply, expressly stated under Section 7. This proviso excludes any opportunity to
question the probable intra-State nature of the said supply. As discussed in the various • establishment in India and an establishment outside India;
examples, even though the movement of goods may be within the same State, due to the • establishment in a State or UT and an establishment outside that State or UT;
deeming fiction imposed in Section 7 – these supplies are treated as supplies in the course of
• establishment in a State or UT and any other establishment (registered separately) in
inter-State trade or commerce – and cannot be disturbed by Section 8. The express exclusion
the same State or UT.
is evidence of a suspect inclusion – with this proviso, there is no question of the intra-State
nature of the supplies listed. Please note that the term ‘establishment’ may be interpreted as being similar to ‘fixed
2(15) location of supplier of services establishment’ which is defined in this Act in identical manner with the definition in section
Please note that the supplies are not three means –
specific supplies but three classes of 2(50) of CGST Act. It refers to it being ‘a place with sufficient degree of permanence and
supplies. Examples of supply to or by a SEZ (a) where a supply is made from a place suitable structure to supply services or to receive and use the services’.
developer or unit has already been of business for which the registration Section 2(7) fixed establishment means a place (other than the registered place of business)
discussed in detail earlier the same may be has been obtained, the location of such which is characterised by a sufficient degree of permanence and suitable structure in terms of
referred. Supply involving goods imported place of business; human and technical resources to supply services or to receive and use services for its own
into India also been discussed and the same (b) where a supply is made from a place needs;
may be referred. For examples, regarding other than the place of business for
supplied to tourist, kindly refer discussion which registration has been obtained Place of supply concept – goods or services
under Section 15. (a fixed establishment elsewhere), the Location of Supplier Place of Supply Whether inter-State/ intra-State
Intra-State supply of services location of such fixed establishment;
Kerala Bihar Inter-State (IGST)
(c) where a supply is made from more
With regard to supply of service, if the twin Puducherry Puducherry Intra-State (CGST + Puducherry GST)
factors – location of supplier of services’ than one establishment, whether the
and ‘place of supply of services’ – are in the place of business or fixed Daman and Diu Daman and Diu Intra-State (CGST + UTGST)
same State or UT, then such supply will be establishment, the location of the Chandigarh Punjab Inter-State (IGST)
treated as intra-State supply. Location of establishment most directly concerned
Chandigarh Daman and Diu Inter-State (IGST)
supplier of services has been defined in the with the provision of the supply; and
Act to mean ‘place of business from where (d) in the absence of such places, the Goa Goa Intra-State (CGST + Goa GST)
supply is made and duly registered for the location of the usual place of residence Karnataka (SEZ) Karnataka (non-SEZ) Inter-State (IGST)
purpose’. It also includes other places and of the supplier;

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8.3 Comparative Review Statutory provisions

There is no such proposition in the erstwhile laws as the concept of supply is unique to our tax 9. Supplies in Territorial Waters
system and considered as a ‘taxable event’ for the first time in indirect tax regime. The
Notwithstanding anything contained in this Act, ––
provisions of Section 7 and 8 have to be read alongside Sections 10 and 12 and whenever a
conflict arises between the said provisions, Section 7, or as the case may be, Section 8 has to (a) where the location of the supplier is in the territorial waters, the location of
make way for section 10/ 12, which is signified by usage of the words “subject to the such supplier; or
provisions of sections 10/ 12”. (b) where the place of supply is in the territorial waters, the place of supply,
However, broadly this can be compared with the provisions of CST Act, 1956 which provides shall, for the purposes of this Act, be deemed to be in the coastal State or Union
for determining when a sale will be an inter-State sale or when a sale in outside the State. territory where the nearest point of the appropriate baseline is located.
8.4 Issues and concerns Related Provisions of the Statute
1. By virtue of Section 7(5) of the IGST Act, all supplies made by or to SEZ units or
developers are treated as inter-State supplies. So to say, a small tea vendor (kinara Statute Section / Rule Description
shop) supplying evening beverages to an SEZ unit, or an inward supply of office IGST Section 2(5) Definition of export of goods
stationery from a small stationery supplier, by an SEZ unit, will be regarded as inter- IGST Section 2(6) Definition of export of service
State supplies. In this regard, it is important to note that the GST Law mandates
registration, regardless of the turnover, where a supplier is engaged in effecting inter- IGST Section 2(10) Definition of import of goods
State taxable supplies. Although the inclusion of such transactions was, perhaps, not IGST Section 2(11) Definition of import of service
the intent of the legislature, it is noted that there is no relaxation provided in this regard, IGST Section 2(15) Definition of location of supplier of service
in respect of mandatory registration in respect of supply of goods.
CGST Section 2(56) Definition of India
2. Evidently, the law provides for the definition of the phrase ‘location of the supplier of
CGST Section 2(103) Definition of State
services’ and turns a blind eye to the phrase ‘location of the supplier of goods’.
Accordingly, the debate arises as to what constitutes the location of the supplier, in CGST Section 2(114) Definition of Union Territory
respect of goods. Drawing inference from Section 22(1) of the CGST Act, every supplier IGST Section 7 Meaning of inter-State supplies
shall be liable to be registered in the State or UT from where he effects taxable
IGST Section 8 Meaning of intra-State supplies
supplies, subject to crossing the aggregate turnover threshold limits. This means that,
while a supplier may be registered in one State, and stocks his goods in another State IGST Section 10 Place of supply of goods other than supply of goods
for any reason, shall be required to take a registration in the second State as well, when imported into, or exported from India
he effects a supply of such goods from the State. Merely because the supplier has not IGST Section 11 Place of supply of goods imported into, or exported from
obtained a registration in the second State does not alter the fact that the supply is in India
fact, effected from a State other than the State in which he has obtained registration.
IGST Section 12 Place of supply of services where location of supplier
Therefore, the location of the supplier is regarded as the location of the goods at the
and recipient is in India
time of removal of such goods for supply.
IGST Section 13 Place of supply of services where location of supplier or
3. The meaning of the term ‘fixed establishment’ and its usage have not been adequately
location of recipient is outside India
justified in the Statute. By definition, a fixed establishment is one, other than a
registered place of business, and by such definition, it is built to supply services or IGST Section 5 Levy and collection of tax
receive services. However, it is also noted that a supplier is liable to obtain registration CGST Section 9 Levy and collection of tax
from every place (State or UT) from where he effects any taxable supplies, as explained
CGST Section 25 Registration
supra. On a combined reading of the two, there is no possibility for one to operate
through a fixed establishment in India, for the supply of services, given that a fixed
establishment is not a registered place of business. Clarity is awaited in this regard.

IGST Act 835 836 BGM on GST

Ch 4: Determination of Nature of Supply Sec. 7-9 Ch 4: Determination of Nature of Supply Sec. 7-9

9.1 Introduction ‘sale of goods’ and Service tax is on ‘provision of service’. Unlike different incidences, under
GST being a destination-based consumption tax (discussed in greater detail in section 10), the the GST law, it is ‘supply’ which would be the taxable event. Under the erstwhile law, e.g.:
supply may at times take place in the territorial waters of India, including cases where a while stock transfers are liable to Central Excise (if they are removed from the factory), it
supplier is required to travel into the territorial waters in order to supply goods or services. would not be liable to VAT/ CST. However, under the GST law, it would be taxable as a
While the nature of supply in these cases may be inter-State supplies (in terms of Section ‘supply. Further, free supplies would be liable to excise duty, while under the VAT laws, free
7(5)(c) of the IGST Act – residuary clause), by virtue of this Section, the law provides a supplies would require reversal of input tax credit; under the GST law, the treatment would be
deeming fiction to reinstate the steps to be applied in Sections 7 and 8 by artificially specifying similar to the erstwhile VAT laws, where the supplies are made without any consideration
the location of ‘location of supplier’ and the location of ‘place of supply’. For this reason, clear (monetary/ otherwise).
provisions are laid down as to where on the land mass of India, the actual location will be Under the erstwhile laws, there are multiple transactions which apparently qualified as both
linked to. Please note, the statute uses the expression ‘deemed to be’ which would supply an
‘sale of goods’ as well as ‘provision of services’. E.g.: license of software, providing a right to
artificial meaning. Also, this provision does not seek to violate exclusive jurisdiction of the
use a brand name, etc. Unlike this situation, GST clarifies as to whether a transaction would
Union on matters of territorial waters but merely establishes a link to the land mass of India to
qualify as a ‘supply of goods’ or as ‘supply of services’. A transaction would either qualify as
overcome judicial intervention or assumptions by industry.
goods or as services, under the GST law. Even in respect of composite contracts, it has been
9.2 Analysis clarified under the GST law (Schedule II of the Act, concept of composite supply and mixed
The provision identifies two facts that have been discussed at length in the context of section supply).
7 and 8, namely: The payment of VAT in the hands of the purchaser (registered dealer) on purchase of goods
• Location of supplier of goods or services or both from an unregistered dealer and the circumstances where the Service Tax is payable under
• Place of supply of goods or services or both the reverse charge mechanism in respect of say, import of services, sponsorship services etc.
are comparable to the ‘reverse charge mechanism’ prescribed herein. However, the concept of
By applying the provisions of Sections 10 and 12, if it is established that the ‘place of supply’
partial reverse charge/ joint charge has not continued in the GST regime, viz., every supply
or ‘the location of the supplier’ is found to be in the territorial waters and not on the land mass,
will be liable to forward charge/ reverse charge, wholly. Further, the concept of reverse charge
an ambiguity could arise as to where the supplier is required to be registered, or which State
only existed in relation to services under Service tax as Central Excise did not provide for
the tax on the supply should be apportioned to. To address these situations, the statue lays
payment of duty under reverse charge on goods. However, the VAT laws of most states did
down, vide this deeming fiction, that such locations – ‘supplier’ or ‘place of supply’ – will be the
provide for payment of tax under reverse charge on goods purchases effected from
most proximate State or UT.
unregistered dealers in specified circumstances. The GST law, however, permits the supply of
For example, consider a case where a ship is moored off the coast of Kochi (Kerala) needs a both, goods as well as services, to be subjected to reverse charge.
replacement of a crucial part, and such replacement is carried out along with the supply of the
part by a Company located in Karnataka for the shipping company from United Kingdom. In 9.4 Issues and concerns
this case, the place of supply of the part, being the location of the ship (as determined in terms 1. While it is clear that the location on the landmass that is most proximate to the location
of Section 10) will create doubt about the applicability of GST. By virtue of the provisions of in the territorial waters will be the deemed location of the supplier / place of supply, as
Section 9, it is clear that both the location of the supplier and the place of supply will not be the case may be, it may be noted that the GST Law does not prescribe the methodology
the territorial waters but would be Kochi itself. With this doubt having been resolved, it would for determining the distance between the location in the territorial waters and the
be an inter-State taxable supply effected by the Company in Karnataka albeit to the UK landmass. Therefore, the basis adopted for determining the nautical distance computed
Company, while the State tax would be apportioned to the Kerala Government. to determine the territorial waters is to be adopted to determine the distance.

The non-obstante clause at the beginning of this Section is important to overcome any 2. There could be an exceptional case wherein the location in the territorial waters (being
alternative interpretations that may be attempted by reading other provisions of the Act. the location of the supplier / place of supply) is equally proximate from two different
States / UTs. Such a scenario has not been addressed in this Section and can only be
9.3 Comparative Review dealt with as and when it is brought to light.
Under the erstwhile tax laws, Central Excise is on ‘manufacture of goods’, VAT/ CST is on

IGST Act 837 838 BGM on GST

 Ch 6: Refund of Integrated Tax to International Tourist Sec. 15

Chapter 6 • Children born in India to foreign nationals during their stay in India.
Tourist will include the following:
Refund of Integrated Tax to International • Crew of an international conveyance entering and exiting India within short duration
Tourist even though not for purposes of tourism in India
• Foreign diplomatic visitors on official duty in India
• Foreign sports persons visiting India for participating in tournaments or training
Statutory provisions
purposes
15. Refund of integrated tax paid on supply of goods to tourist leaving India
• Foreign journalist and camera crew visiting India in connection with their profession
The integrated tax paid by tourist leaving India on any supply of goods taken out of India by
• Foreign artists, musicians and actors visiting India to perform in shows or content
him shall be refunded in such manner and subject to such conditions and safeguards as may
production
be prescribed.
Note: Provisions of this section are yet to be notified by the Government
Explanation.–For the purposes of this section, the term “tourist” means a person not normally
resident in India, who enters India for a stay of not more than six months for legitimate non-
immigrant purposes.
15.1 Introduction
Outbound passengers leaving India accompanied by GST-paid goods received during their
stay in India would result in India exporting its taxes and this is sought to be overcome.
15.2 Analysis
All outbound passengers carrying goods on which
“tourist” means a person not
IGST has been paid are entitled to claim refund at the
normally resident in India, who
port-of-exit. It is likely that the verification will be enters India for a stay of not
simple and refund will be online. It is interesting to more than six months for
note that only ‘integrated tax’ is eligible for this refund. legitimate non-immigrant
non-immigrant
Also, as per proviso to section 8(1), all supplies to
such an outbound tourist will always be treated as inter-State supply. The challenge to
supplies-to-tourist’s is to identify an outbound tourist and charge IGST instead of CGST/SGST
of the State where the goods are delivered. Please note that person seeking such refund must
be a ‘tourist’ – who has entered India for genuine non-immigrant purposes. ‘Purpose’ of visit to
India is key factor to be examined. Nationality, residency for tax purposes, etc. are irrelevant
considerations. The provision of this section has not been made applicable as of now.
Detailed inclusions and exclusions can be expected in due course but few illustrations may be
considered.
Tourist will exclude:
• Persons resident in India (not limited to Indian passport holders) who are exiting India
for any purpose whether for short duration or long duration or uncertain duration.
• Deputation of Indian resident to overseas diplomatic postings.

IGST Act 895

 Ch 7: Zero Rated Supply Sec. 16

Chapter 7 Relevant circulars, notifications, clarifications, flyers issued by Government:

1) Notification No. 9/2017 – Central Tax dated 28.06.2017 - Seeks to bring into force
Zero Rated Supply certain sections of the CGST Act, 2017 w.e.f 01.07.2017
2) Notification No. 37 /2017 – Central Tax dated 04.10.2017 - Facility of LUT extended to
Statutory provisions all exporters / registered persons subject to conditions
3) NOTIFICATION No. 48/2017–Central Tax dated 18.10.2017 - Notified supplies, when
16. Zero Rated Supply
the supply of goods shall be treated as deemed export under GST e.g. supplies
(1) “Zero rated supply” means any of the following supplies of goods or services or both, against Advance Authorisation, to EOU, under EPCG scheme etc
namely: ––
4) Notification No. 49/2017-Central Tax dated 18.10.2017 - Evidences required to be
(a) export of goods or services or both; or produced by the supplier of deemed export supplies for claiming refund under rule
(b) supply of goods or services or both to a Special Economic Zone developer or a 89(2)(g) of the CGST rules, 2017
Special Economic Zone unit. 5) Notification No. 41/2017--Integrated Tax (Rate) dated 23.10.2017 - IGST at the rate of
(2) Subject to the provisions of sub-section (5) of section 17 of the Central Goods and 0.1% shall be payable on inter-State supply of taxable goods by a registered supplier
Services Tax Act, credit of input tax may be availed for making zero-rated supplies, to a registered recipient for export subject to specified conditions
notwithstanding that such supply may be an exempt supply. 6) C.B.E. & C. Advisory on Customs related matters on introduction of Goods and
(3) A registered person making zero rated supply shall be eligible to claim refund under Services Tax regime dated 20.06.2017
either of the following options, namely: –– 7) Circular No. 1/1/2017-Compensation Cess dated 26.07.2017 - Clarification regarding
(a) he may supply goods or services or both under bond or Letter of Undertaking, applicability of section 16 of the IGST Act, 2017, relating to zero rated supply for the
subject to such conditions, safeguards and procedure as may be prescribed, purpose of Compensation Cess on exports
without payment of integrated tax and claim refund of unutilized input tax credit;
8) Circular No. 2/1/2017-IGST dated 27.09.2017 - Clarification on supply of satellite
or
launch services by ANTRIX Corporation Ltd
(b) he may supply goods or services or both, subject to such conditions, safeguards
9) Circular No. 8/8/2017-GST dated 04.10.2017 - Clarification on issues related to
and procedures as may be prescribed, on payment of integrated tax and claim
furnishing of Bond/Letter of Undertaking for exports
refund of such tax paid on goods or services or both supplied, in accordance with
the provisions of section 54 of the Central Goods and Services Tax Act or the 10) Circular No. 14/14 /2017 – GST dated 06.11.2017 - Procedure regarding procurement
rules made thereunder. of supplies of goods from DTA by Export Oriented Unit (EOU) / Electronic Hardware
Technology Park (EHTP) Unit / Software Technology Park (STP) Unit / Bio-Technology
Related provisions of the Statute
Parks (BTP) Unit under deemed export benefits under section 147 of CGST Act, 2017
Section or Rule Description
11) Circular No. 17/17/2017 – GST dated 15.11.2017 - Manual filing and processing of
Section 2(47) Definition of Exempt Supply (CGST) refund claims in respect of zero-rated supplies
Section 54 Refund of tax (CGST) 12) Circular No. 18/18/2017-GST dated 16.11.2017 - Clarification on refund of unutilized
Section 2(5) Definition of Export of Goods (IGST) input tax credit of GST paid on inputs in respect of exporters of fabrics
Section 2(6) Definition of Export of Services (IGST) 13) Circular No.24/24/2017-GST dated 21.12.2017 - Manual filing and processing of refund
Section 2(19) Definition of Special Economic Zone (IGST) claims on account of inverted duty structure, deemed exports and excess balance in
Section 2(20) Definition of Special Economic Zone Developer (IGST) electronic cash ledger
Section 2(23) Definition of Zero Rate Supply (IGST) 14) Circular No. 37/11/2018-GST dated 15.03.2018 - Clarifications on exports related
Section 7 Inter-State supply refund issues

IGST Act 897

Ch 7: Zero Rated Supply Sec. 16 Ch 7: Zero Rated Supply Sec. 16

15) Circular No. 40/14/2018-GST dated 06.04.2018 - Clarification on issues related to exports made. Both these alternatives have been enabled in this section. Zero-rated supplies
furnishing of Bond/Letter of Undertaking for exports may be undertaken in either of the following ways:
16) Circular No. 78/2018-GST, dated 31-12-2018 for clarification on export of services. Taxable person to avail input tax credit used in making outward supply of goods or service
or both and make zero-rated supply-
16.1 Introduction
• Without any payment of IGST on such • Make payment of IGST on the outward
Exports have been the area of focus in all policy initiatives of the Government for more than
outward supply by executing LUT (Letter supply by debiting ‘electronic credit
30 years. Now with the Make in India initiative, exports continue to enjoy this special treatment
of Undertaking) or bond (dispensed off ledger’ but without collecting this tax
because exports should not be burdened with domestic taxes. On the other hand, GST
vide notification 37/2017-Central tax) from the recipient
demands that the input-output chain not be broken and exemptions have a tendency to break
this chain. Zero-rated supply is the method by which the Government has approached to • Claim refund of input tax credit used in • After completing the outward supply,
address all these important considerations. the outward supply claim refund of the IGST so debited
(unjust enrichment having been duly
16.2 Analysis
satisfied)
Zero-rated supply does not mean that the goods and services have a tariff rate of ‘0%’ but the Subject to fulfilment of all associated conditions and safeguards that may be prescribed in
recipient to whom the supply is made is entitled to pay ‘0%’ GST to the supplier. In other either case
words, as it has been well discussed in section 17(2) of the CGST Act that input tax credit will
not be available in respect of supplies that have a ‘0%’ rate of tax. However, this • Physical exports are well understood due to the vast experience from Customs Act.
disqualification does not apply to zero-rated supplies covered by this section. It is interesting Physical exports, as discussed under section 11, are not determined or defined by
to note that section 7(5) (and even proviso to section 8(1)) declares that supplies ‘to’ or ‘by’ realization of foreign exchange (unlike export of services). SEZ is defined in section
SEZ developer or unit will be treated as an inter-State supply. So, when two SEZ units or one 2(20) to have the meaning from 2(g) of SEZ Act, 2005. Supply of goods by SEZ to non-
SEZ developer and another SEZ unit supply goods or services to each other (among SEZ area is governed by Customs Act in terms of Rule 47 in Chapter V of SEZ Rules,
themselves within the zone) and the zone being located within the same State or UT, such 2006. Accordingly, although the supply is ‘treated as inter-State supply of goods’ in
supplies will always be inter-State supplies. But, it is important to note that this – being treated terms of section 7(5), no tax is to be charged by the SEZ supplier but instead, the non-
as inter-State supplies always – by itself does not mean that non-SEZ sales by SEZ unit will SEZ recipient is to pay IGST at the time of assessment of the bill of entry filed for such
be liable to IGST in all cases. Please refer to the table below of supplies involving suppliers in
goods in terms of Customs Tariff Act, 1975 duly amended by the Taxation Laws
the zone that is covered by the provisions of section 7(5) and proviso to section 8(1):
Amendment Act, 2017 wherein section 3 of the Customs Tariff Act, 1975 has been
Supply ‘by’ Supply ‘to’ substantially altered to enable imposition of additional customs duties only on goods
SEZ unit Outside India not subsumed into GST and for the imposition of IGST on goods subsumed into GST by
sub-section 7, 8 and 9. However, with respect to supply of services by SEZ to non-SEZ
SEZ unit Another SEZ unit area, though not prohibited, is not expressly dealt with by this Chapter V of SEZ Rules
SEZ developer SEZ unit as to the taxes/ duties applicable. To draw the relevant inference, one should observe
Non-SEZ unit SEZ unit the definition of India as per section 2(56) of CGST Act. It has been defined to mean
territory of India as referred to in Article 1 of the Constitution. SEZ units are also
SEZ unit Non-SEZ unit
covered within above definition of India. As the CGST and IGST Act extend to whole of
Non-SEZ unit SEZ developer India, it could be said to be applicable to SEZ unit also and thereby making SEZ unit as
SEZ developer Non-SEZ unit falling within definition of taxable territory. If this view is taken, it may very simply be an
inter-State supply of services liable to payment of IGST on forward charge basis by the
Note: Physical location within the political boundaries of a State are irrelevant
SEZ unit because there is no reference in IGST to borrow the operation of section 53
The intention of government not to burden the export with tax could be achieved either by from SEZ Act. Reverse charge Notification No. 10/2017- Integrated Tax (Rate) dated
allowing not to charge tax on the exports of goods/services and claim the refund of input tax 28-Jun-17 covers any services supplied by any person who is located in a non-taxable
credits of taxes paid on inward supplies or by allowing the refund of tax charged on the territory to any person located in the taxable territory under reverse charge mechanism.

898 BGM on GST IGST Act 899

Ch 7: Zero Rated Supply Sec. 16 Ch 7: Zero Rated Supply Sec. 16

SEZ unit may be said to be falling within definition of taxable territory and liable to tax and EGM is filed (Rule 96
under forward charge. of the CGST Rules to be
followed)
Accordingly, certain examples have been discussed below:
These provisions of zero-rated supplies are introduced in the statute on the basis of the XYZ from Delhi supplies • XYZ to charge • XYZ to charge
prevalent Central Excise and Service Tax laws. It is widely believed that introduction of this services required by CGST/SGST (Rs.250/-) CGST/SGST (Rs.250/-) to
provision will alleviate the difficulty of a supplier who exempts goods or services or both in PQR in Delhi to effect to PQR PQR
terms of export competitiveness. This provision also specifically expresses that taxes are not export of services to • PQR to avail input tax • PQR to avail input tax
exported. Care must be exercised that while paying taxes, such taxes are not collected from USA credit credit
the recipient of goods or services or both. This would result in unjust enrichment. • PQR to issue invoice for • PQR to issue invoice for
The following illustrations may be considered: $20 $20
• PQR to ensure no IGST • IGST to be charged on tax
Table A – Physical Exports
is charged in the USD invoice issued in INR
Zero-rated supply Option A Option B invoice meant only for the purpose
(Physical exports) (without payment of IGST) (with payment of IGST) • PQR to bring proof-of- of GST. PQR to debit
export and satisfy all electronic credit ledger with
ABC from Chennai • ABC to charge IGST • ABC to charge IGST
other conditions IGST applicable of Rs.
supplies goods required (Rs.100/-) to PQR (Rs.100/-) to PQR
prescribed including 300/- on the export
by PQR in Delhi to effect • PQR to avail input tax • PQR to avail input tax
exports to Germany realisation of • PQR to bring proof-of-
credit credit
consideration in foreign export and satisfy all other
• PQR to issue invoice for • PQR to issue, invoice for currency conditions prescribed
€15 €15
• PQR to claim refund of • PQR to claim refund of
• PQR to ensure no IGST • IGST to be charged on tax input tax credit of Rs.250 IGST paid in respect of
is charged in the Euro invoice issued in INR being maximum amount export (though actual
invoice meant only for the purpose related to the outward relatable credit is much
• PQR to bring proof-of- of GST. export supply by filing higher at Rs.250/-)
export and satisfy all • PQR to debit electronic refund claim in Form
other conditions credit ledger with IGST GST RFD-01
prescribed applicable of Rs.180/- on
the export (assume Table B – Supply ‘to’ SEZ
• PQR to claim refund of
input tax credit of sufficient balance in credit Zero-rated supply Option A Option B
Rs.100/- being maximum ledger from all other inputs, (supply ‘to’ SEZ) (without payment of IGST) (with payment of IGST)
amount related to the input service and capital
ABC from Hyderabad • ABC to charge IGST • ABC to charge IGST
outward export supply goods)
supplies goods required (Rs.100/-) to PQR (Rs.100/-) to PQR
• Such refund to be • PQR to bring proof-of- by PQR in Kolkata for • PQR to avail input tax • PQR to avail input tax
claimed by filing Form export and satisfy all other onward supply to XYZ in credit credit
GST RFD-01 conditions prescribed Kolkata-SEZ (for use in • PQR to supply goods to • PQR to issue invoice to
• Refund of Rs. 180/- to be authorized operations) XYZ (SEZ) for Rs.1,500/- XYZ (SEZ) for Rs.1,500/-
allowed on automatic • PQR to ensure no IGST is • PQR to debit electronic
processing of shipping bill charged in invoice to XYZ credit ledger with IGST
by Customs once GSTR-3 applicable of Rs.270/-

900 BGM on GST IGST Act 901

Ch 7: Zero Rated Supply Sec. 16 Ch 7: Zero Rated Supply Sec. 16

• PQR to obtain proof-of- (say, 18%) on the export Table C – Supply ‘by’ SEZ
admittance from SEZ (assume sufficient balance
Zero-rated supply Option A Option B
officer and satisfy all in credit ledger from all
other conditions other inputs, input service Supply between two
prescribed and capital goods) SEZ units: (without payment of IGST) (with payment of IGST)
• PQR to claim refund of • PQR to obtain proof-of- ABC-SEZ in Indore • Goods or services • Goods or services
input tax credit of Rs.100 admittance from SEZ supplies goods received by ABC-SEZ received by ABC-SEZ
being maximum amount officer and satisfy all other manufactured in the zone from various suppliers from various suppliers
related to the supply to conditions prescribed to PQR-SEZ in Mumbai will be as stated in Table will be as stated in Table
XYZ (SEZ) • PQR to claim refund of (for use in authorized B (above) B (above)
Rs.270 debited in operations) • ABC-SEZ to issue • ABC-SEZ to issue
electronic credit ledger in Supply by ABC-SEZ to invoice to PQR-SEZ invoice to PQR-SEZ.
respect of supply to XYZ PQR-SEZ is inter-State without any IGST IGST to be charged but
(SEZ) supply (whether in same • No input tax credit that not collected from PQR-
• SEZ unit not to avail the State/ UT or in different needs to be availed by SEZ.
credit of IGST paid by States/ UTs) PQR-SEZ • ABC-SEZ to debit
PQR [Rule 89 (2)] of • ABC-SEZ to obtain electronic credit ledger
CGST Rules proof-of-admittance from with IGST applicable of
XYZ from Surat supplies • XYZ to charge • XYZ to charge SEZ officer with Rs.240/-.
goods required by PQR CGST/SGST (Rs.250/-) CGST/SGST (Rs.250/-) to assistance of PQR-SEZ • ABC-SEZ to obtain proof-
in Rajkot for onward to PQR PQR and satisfy all other of-admittance from SEZ
supply of services to • PQR to avail input tax • PQR to avail input tax conditions prescribed officer with assistance of
MNO in Ahmedabad- credit credit • There is no refund to be PQR-SEZ and satisfy all
SEZ (for use in • PQR to supply services to • PQR to issue invoice to claimed either by ABC- other conditions
authorized operations) MNO (SEZ) for Rs.2,000/- MNO (SEZ) for Rs.2,000/- SEZ or PQR-SEZ as no prescribed
• PQR to ensure no IGST • PQR to debit electronic IGST has been paid in • ABC-SEZ to claim refund
(even though within same credit ledger with IGST this chain claim of Rs. 240/- and
State, it is inter-State applicable of Rs.240/- debit it in electronic credit
supply) is charged in (say, 12%) on the export ledger in respect of
invoice to MNO • PQR to obtain proof-of- supply to PQR (SEZ)
• PQR to obtain proof-of- receipt-of-service (as XYZ-SEZ developer in • Goods or services • Goods or services
receipt-of-service (as specified by SEZ officer) Noida provides lease of received by XYZ-SEZ received by XYZ-SEZ
specified by SEZ officer) and satisfy all other premises to MNO-SEZ for from various suppliers from various suppliers
and satisfy all other conditions (proviso to Rule its authorized operations will be as stated in Table will be as stated in Table
conditions (proviso to 89 of CGST Rules) B (above) B (above)
Rule 89 of Refund Rules) • PQR to claim refund of Note: This applies to all • XYZ-SEZ to issue • XYZ-SEZ to issue invoice
• PQR to claim refund of Rs.240/- debited in supplies by developer to invoice to MNO-SEZ to MNO-SEZ. IGST to be
input tax credit of electronic credit ledger in unit – premises lease, without any IGST charged but not collected
Rs.250/- being maximum respect of supply to MNO premises maintenance • No input tax credit that from MNO-SEZ.
amount related to the (SEZ) and other value added needs to be availed by • XYZ-SEZ to debit
supply to MNO (SEZ) services MNO-SEZ electronic credit ledger

902 BGM on GST IGST Act 903

Ch 7: Zero Rated Supply Sec. 16 Ch 7: Zero Rated Supply Sec. 16

• XYZ-SEZ to obtain proof- with IGST applicable of Also, all invoices to have a declaration as to –
of-receipt of service from Rs.400/-. • Export of goods or services on payment of IGST;
SEZ officer with • XYZ-SEZ to obtain proof-
assistance of MNO-SEZ of-receipt of service from • Export of goods or services without payment of IGST;
and satisfy all other SEZ officer with • Supplies to a SEZ developer or unit on payment of IGST; or
conditions prescribed assistance of MNO-SEZ
• Supplies to a SEZ developer or unit without payment of IGST.
• There is no refund to be and satisfy all other
claimed either by XYZ- conditions prescribed Further, all supplies to SEZ developer or unit being zero-rated does not mean that the entire
SEZ or MNO-SEZ as no • ABC-SEZ to claim refund company can enjoy this form of ab initio exemption. For example, Company incorporated in
IGST has been paid in claim of Rs.400/- and Delhi may have established a SEZ unit in Jaipur. All goods and services supplied to SEZ in
this chain debit it in electronic credit Jaipur will enjoy the ab initio exemption but the goods and services supplied to Delhi will be
ledger in respect of liable to tax. Now, if the incorporated address of the Company were also in Jaipur and inside
supply to PQR (SEZ) the zone, the Company must be cautious to differentiate the supplies that are not related to
Supply by SEZ into non- the authorized operations in the zone but related to the other affairs of the Company and
SEZ: instruct the suppliers to charge applicable GST on such non-SEZ supplies. Complete use of
this zero-rated exemption will invite recovery action against the SEZ developer or unit. The
ABC-SEZ in Gurugram • ABC-SEZ to supply • Nothing to discuss in this supplier who supplied as a zero-rated supply is not responsible for this misuse because the
supplies goods to PQR goods to PQR option SEZ developer or unit would have issued the GSTIN of the zone. Further, in case GST is paid
(non-SEZ unit) in Delhi • IGST to be collected by on the non-zone operations of the Company and these costs are included in the export billing,
(with necessary non-SEZ ABC-SEZ to PQR there may be some aspects to be taken care of in case post-export refund of this GST paid is
supply permission • ABC to file bill of entry sought to be claimed. Please note that all supplies to SEZ developer or unit alone is treated as
obtained by ABC from for import of goods from an inter-State supply but the supply to the Company relating to non-SEZ activities will continue
SEZ officer) SEZ to non-SEZ to be inter-State or intra-State supply as the case may be. With all information available online
• Bill of entry filed by ABC through GSTN, misuse is not difficult to identify. Care must be taken to diligently use the
Note: All supplies ‘by’ will be assessed for BCD provisions of zero-rated supply.
SEZ is treated as inter- + IGST With regard to ‘bill to-ship to’ transactions, it is important to mention that though the supply
State supply • PQR can then claim may be ‘billed to’ person located outside India (for exports) or inside zone (for SEZ supplies),
input tax credit of IGST where the supplies are ‘shipped to’ must be clearly identified in order to qualify for the benefit
paid on in bill of entry under this section. It is not that ‘exports’ are zero rated but ‘supply by way of export’ are zero
• PQR to utilize IGST rated. There is a lot of difference between these two expressions. With the difference between
credit these two expressions having been discussed in the context of sections 11, it is sufficient to
mention here that ‘supply by way of export’ is a subset of ‘exports’. And in order to claim
All refunds are subject to the ‘due process’ prescribed in section 54 of CGST Act read with
benefit of zero rating under this section, it is important to examine an ‘export’ to meet the
Chapter X of CGST Rules including verification of unjust enrichment. Care must be taken not
requirements of ‘supply by way of export’. In other words, both the ‘bill to’ and ‘ship to’
to include the refundable amount in the price charged to overseas customer. This may be locations must be to the destination – outside India (for exports) or inside zone (for SEZ
checked by looking into:
supplies) – in order to qualify for zero rating benefit. This principle applies equally to supply of
• If the refundable amount is expensed directly or carried forward as a current asset goods as well as supply of services for exports.
• If overseas customer is given credit in any subsequent invoice to the extent of refund The above view is best explained through an illustration. Say, a contractor is awarded civil
• If the reversal of refundable amount from the credit ledger is charged to P&L or not works by a zone-developer and this contractor buys cement from a trader with instructions to
deliver the cement directly at site (zone). Now, the supply of cement by trader is 'ship to: zone'

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Ch 7: Zero Rated Supply Sec. 16 Ch 7: Zero Rated Supply Sec. 16

but 'bill to: contractor'. Question that arises is, can the cement trader claim zero-rating benefit? vii. Where the registered person fails to pay the tax due along with interest, as specified
The answer is no because the 'bill to' and 'ship to' locations must both be in the zone to satisfy under sub-rule (1) of rule 96A of Central Goods and Services Tax Rules, 2017, within
the requirements of Section 16 of the IGST Act and Rule 89 of the CGST Rules. the period mentioned in clause (a) or clause (b) of the said sub-rule, the facility of
export without payment of integrated tax will be deemed to have been withdrawn and
Even if the goods or service which are either exported or supplied to SEZ unit developer are when the amount mentioned in the said sub-rule is paid, the facility of export without
exempted goods or services, input tax credit is still available for making such zero rated payment of integrated tax shall be restored.
supplies. The requirement to reverse ITC in relation to exempted supplies is not warranted if it
viii. Where a supplier wishes to effect zero-rated supplies without payment of IGST, the
is zero rated. This can also be inferred from Section 16(2) of the IGST Act 2017 which states
supplier is required to furnish the LUT in Form GST RFD – 11. In terms of Section 16,
that the input tax credit is eligible notwithstanding that such supply is exempted.
the LUT should be filed before effecting the zero-rated supplies in order to claim an
16.3 Procedure for zero-rated supply of goods or services: exemption from payment of taxes. Rule 96A of the CGST / SGST Rules, 2017 provides
16.3.1. Export of goods or services without payment of Integrated Tax that LUT should be furnished prior to effecting export of goods / services. It is inferred
that if the LUT is not furnished prior to effecting zero rated supplies, the supplier cannot
Exporter of goods is eligible to export goods or services without payment of IGST by claim exemption on zero rated supplies. In this regard, the Board has issued circular
complying with following procedure vide No. 37/11/2018 – GST dated 15.03.2018 wherein it is clarified that the substantial
(Note: Same procedures have to be followed by SEZ in respect to export of goods without benefits of zero rating supplies should not be denied if it is established that the goods
payment of tax.) or services have been exported in terms of the relevant provisions.

A. Furnishing of Letter of undertaking: B. Furnishing of RFD-11

i. Notification 37/2017 dated 4.10.2017 of Central Tax provides for the conditions and i. Rule 96A of CGST Rules provides that any registered person availing option to export
goods or services without payment of IGST has to furnish letter of undertaking prior to
safeguards for export \of goods or services without payment of IGST which supersedes
commencement of export in Form RFD-11. Format of RFD-11 is provided in CGST
notification 16/2017 dated 4.7.2017 of Central tax
Rules 2017.
ii. Conditions and safeguards for issuing letter of undertaking: all registered persons who
ii. Circular 26/2017 of customs dated 01-07-2017 provides that procedure prescribed
intend to supply goods or services for export without payment of integrated tax shall be
under Rule 96A needs to be followed for export of goods or services w.e.f. 01-07-2017.
eligible to furnish a Letter of Undertaking in place of a bond except those who have
been prosecuted for any offence under the Central Goods and Services Tax Act, 2017 iv. Condition to comply:
(12 of 2017) or the Integrated Goods and Services Tax Act, 2017 (13 of 2017) or any of a. In case of goods: good to be exported within 3 months from date of issue of
the existing laws in force in a case where the amount of tax evaded exceeds two invoice
hundred and fifty lakh rupees;
b. In case of services: Payment to be received in convertible foreign exchange
iii. As per Circular No.40/14/2018GST dated April 6, 2018, the registered person is within 1 year from date of invoice
required to fill and submit Form GST RFD-11 on the common portal. An LUT is deemed
v. Bond or LUT has to be furnished along Form GST RFD-11 binding himself that tax
to be accepted as soon as an acknowledgement for the same, bearing Application
along with interest @18% would be liable to paid by him;
Reference Number (ARN) is generated online. It is further clarified in the aforesaid
Circular that no document needs to be physically submitted to the Jurisdictional office a. In case of goods: within 15 days after completion of 3 months on failure to export
for acceptance of LUT. such goods.
iv. Letter of undertaking would be executed by the working partner, the Managing Director b. In case of services: within 15 days of completion of 1 year if such payment is not
or the Company Secretary or the proprietor or by a person duly authorised by such received in accordance with point (iv).
working partner or Board of Directors of such company or proprietor. C. Tax Invoice:
vi. Existing LUT would be valid for the whole of the financial year in which it is tendered. i. Exporters would be required to raise tax invoice with prescribed particulars mentioning
Therefore, every registered person should apply for fresh LUT at the start of each "Supply meant for export under bond or Letter of Undertaking without payment of
financial year i.e, 1st of April. integrated tax".

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Ch 7: Zero Rated Supply Sec. 16 Ch 7: Zero Rated Supply Sec. 16

ii. No tax needs to be charged on the invoice in this case. B. Tax Invoice:
iii. Tax invoice may be in addition to other export documents provided to customer. i. Exporters would be required to raise tax invoice with prescribed particulars mentioning"
Supply meant for export on payment of integrated tax".
D. Sealing (in case of goods):
ii. Applicable IGST needs to be disclosed on the invoice in this case.
Till mandatory self-sealing is operationalized, sealing of containers shall be done under the
supervision of the central excise officer having jurisdiction over the place of business where iii. Tax invoice would be in addition to other export documents provided to customer.
the sealing is required to be done. C. Sealing/ Shipping Bill: same as referred above in 16.3.1.
E. Shipping Bill (in case of goods): D. Refunds:
i. Shipping Bill format has been revised by customs to capture GST related details. a. In case of goods: Rule 96 of CGST Rules provides for the mechanism for refund of tax
ii. Shipping bill to be prepared in Form SB-I. in case of export of goods with payment of tax.
iii. In case of export of duty free goods shipping bills has to be prepared in Form SB-II. i. Shipping bill filed with custom would be considered as application for refund of
integrated tax paid on export of goods.
iv. Shipping bill needs to be issued in 4 copies (Original, Drawback purpose, Department
purpose and export promotion) ii. Refund application shall be valid only when:
F. Refunds (a) Filing of export manifest/export report by person in charge of the conveyance
carrying the export goods.
Refund of taxes in respect of accumulated input tax credit has to be claimed by following
procedure prescribed by section 54 of CGST Act read with Chapter X of CGST Rules, 2017. (b) Furnishing of valid return in Form GSTR-3 or Form GSTR-3B, whichever is
applicable, by the applicant.
• Time limit: 2 years from the relevant date
iii. GST and custom portal would be inter-linked in which custom portal would electronically
• Method of filing: Form GST RFD-01A in online portal of GST in format provided in
confirm to GST portal about the movement of goods outside India.
CGST Rules 2017. Further, the requisite documents need to be physically submitted
with the relevant jurisdictional officer for processing of the claim. iv. Upon the receipt of the information regarding the furnishing of a valid return FORM
GSTR-3B, as the case may be from the common portal, the system designated by the
• Provisional refund: 90% of refund claim to be sanctioned within 7 days subject to certain
Customs shall process the claim for refund and an amount equal to the integrated tax
conditions Balance 10% within 60 days on verification of documents by proper officer.
paid in respect of each shipping bill or bill of export shall be electronically credited to
• Details of Bank Realization Certificate (BRC) or Foreign Inward Remittance Certificate the bank account of the applicant mentioned in his registration particulars and as
(FIRC) needs to be provided along with details of export invoice while filing Form GST intimated to the Customs authorities.
RFD-01
v. Withheld of refund: Refund can be withheld upon receipt of request from Jurisdictional
16.3.2. Export of goods or services with payment of Integrated Tax Commissioner or where customs provisions are violated.
The procedure to be followed under this option is as follows: vi. The exporter would not be eligible for refund in case of notified goods where refund of
(Note: Same procedures have to be followed by SEZ in respect to export of goods with integrated tax is provided to Government of Bhutan.
payment of tax.) b. In case of services: Refund of taxes in respect of tax paid has to be claimed by
A. Commercial Invoice: Exporter can issue 2 sets of invoices to have a smooth flow of following procedure prescribed by section 54 of CGST Act read with Chapter X of CGST
transactions with his foreign customers. Rules.
i. Commercial invoice can be issued (along with tax invoice) without showing tax amount. • Time limit: 2 years from the relevant date
ii. Points to keep in mind while following practice of issuing commercial invoice along with • Method of filing: Form GST RFD-01A on online portal of GST in format provided
tax invoice: in CGST Rules 2017. Further, the requisite documents need to be physically
submitted with the relevant jurisdictional officer for processing of the claim.
• Total value of both the invoices should be equal.
• Every commercial invoice should have a corresponding tax invoice.

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Ch 7: Zero Rated Supply Sec. 16 Ch 7: Zero Rated Supply Sec. 16

• Provisional refund: 90% of refund claim to be sanctioned within 7 days subject to taxable supply under section 15. The age old CBEC Circular with the subject "Whether
certain conditions. Balance 10% within 60 days on verification of documents by rebate-sanctioning authority may re-determine the amount of rebate in certain cases —
proper officer. Instructions regarding" dated 3.2.2000 also highlight this fact. The C.B.E. & C. has then
• Details of Bank Realization Certificate (BRC) or Foreign Inward Remittance clarified in their Circular No. 510/06/2000-Cx, dated 3-2-2000 issued from F. No.
Certificate (FIRC) needs to be provided along with details of export invoice while 209/29/99-Cx-6 that the rebate sanctioning authority is not required to reassess the
filing Form GST RFD-01. value for the export and the value assessed by the range officer on ARE-1 at the time of
export has to be accepted. Further, this duty is also not affected by the less realization
16.4 Procedure for supplies to SEZ unit/ SEZ developer
of export proceeds owing to exchange rate fluctuation and the duty and value has to be
Same procedure as referred above in 16.3 can be followed in following cases: on the date, time and place of removal and the exchange rate on that date alone would
(a) Supply to SEZ without payment of integrated tax be applicable. In other words any exchange gain or loss will remain outside the purview
of GST law.
(b) Supply to SEZ with payment of integrated tax.
16.6 Comparative Review
(Note: Same will be followed in cases the above supplies are made by an SEZ unit or SEZ
developer) The concept of zero-rated supplies is there in the VAT laws with credit benefit and refund. As
16.5 Issues and concerns far as Central Excise law is concerned there is a rebate mechanism in place. That apart the
accumulated unutilised credit is available as refund to the exporters of services/ goods under
1. In terms of Section 16 of the IGST Act, 2017 in case of supplies to SEZ developer or rule 5 of the Cenvat Credit Rules, 2004.
SEZ unit / exports in terms of Section 2(5) or 2(6) of the IGST Act, the supplier can
either effect supplies on payment of tax, which can subsequently be claimed as a 16.7 Related Provisions of the Statute:
refund. Alternatively, the supplier may effect the supplies without payment of tax under Statute Section / Description Remark
a bond or LUT and is entitled to claim refund of the input tax credit used in effecting Sub-
such supplies. In this regard, attention is drawn to the fact that the supplier would be Section
disentitled from claiming refund of IGST paid on such supplies effected on payment of
CGST 17(2) Apportionment of credit Restrictions on credit attributable to
IGST (without LUT), if the supplier recovers the amount of tax from the recipients.
and blocked credits exempt supplies.
2. The time of supply provisions require that tax is remitted on receipt of advances, in
IGST 2(23) Zero-rated supply Adopts the provisions of section 16 of
respect of supply of services. Consider a case where a supplier of services has
IGST Act
received an advance from a recipient located outside India, in respect of services to be
exported. In this regard, it is important to understand whether the LUT should be
obtained prior to receipt of advance payment for supply of services, or if it would be
sufficient for the registered person to obtain the same before effecting the supply. Rule
96A of the CGST / SGST Rules, 2017 specifies that LUT should be furnished prior to
export of services. In terms of Rule 96A, the LUT in Form GST RFD – 11 should be
furnished to undertake to remit the applicable taxes along interest if the consideration in
convertible foreign exchange is not received within one year from the date of issue of
invoice. Accordingly, it can be discerned that LUT is not required to be furnished where
the consideration in convertible foreign exchange is received in advance. Further,
attention is drawn to Circular No. 37/11/2018 – GST dated 15.03.2018 wherein it is
clarified that the substantial benefits of zero-rating supplies should not be denied if it is
established that the goods or services have been exported in terms of the relevant
provisions.
3. Any variation in foreign currency subsequent to the date of time of supply in case of
imports and export transaction would not be relevant in the determination of value of

910 BGM on GST IGST Act 911

 Ch 8: Apportionment of Tax and Settlement of Funds Sec. 17-19

Chapter 8 (a) State where such supply takes place; and

(b) Central Government where such supply takes place in a Union territory:
Apportionment of Tax and Settlement of Provided that where the place of such supply made by any taxable person cannot be

Funds determined separately, the said balance amount shall be apportioned to, ––
(a) each of the States; and
(b) Central Government in relation to Union territories,
17. Apportionment of tax and settlement of funds
in proportion to the total supplies made by such taxable person to each of such States or
18. Transfer of input tax credit
Union territories, as the case may be, in a financial year:
19. Tax wrongfully collected and paid to Central Government or State Government
Provided further that where the taxable person making such supplies is not identifiable,
Statutory Provisions- Effective from 1st July, 2017 to 31st January, 2019 the said balance amount shall be apportioned to all States and the Central Government
17. Apportionment of tax and settlement of funds in proportion to the amount collected as State tax or, as the case may be, Union territory
tax, by the respective State or, as the case may be, by the Central Government during
(1) Out of the integrated tax paid to the Central Government, –– the immediately preceding financial year.
(a) in respect of inter-State supply of goods or services or both to an unregistered of (3) The provisions of sub-sections (1) and (2) relating to apportionment of integrated tax
person or to a registered person paying tax under section 10 of the Central Goods shall, mutatis mutandis, apply to the apportionment of interest, penalty and compounding
and Services Tax Act; amount realized in connection with the tax so apportioned.
(b) in respect of inter-State supply of goods or services or both where the registered (4) Where an amount has been apportioned to the Central Government or a State
person is not eligible for input tax credit; Government under sub-section (1) or sub-section (2) or sub-section (3), the amount
(c) in respect of inter-State supply of goods or services or both made in a financial year collected as integrated tax shall stand reduced by an amount equal to the amount so
to a registered person, where he does not avail of the input tax credit within the apportioned and the Central Government shall transfer to the central tax account or
specified period and thus remains in the integrated tax account after expiry of the Union territory tax account, an amount equal to the respective amounts apportioned to
due date for furnishing of annual return for such year in which the supply was the Central Government and shall transfer to the State tax account of the respective
made; States an amount equal to the amount apportioned to that State, in such manner and
(d) in respect of import of goods or services or both by an unregistered person or by a within such time as may be prescribed.
registered person paying tax under section 10 of the Central Goods and Services (5) Any integrated tax apportioned to a State or, as the case may be, to the Central
Tax Act; Government on account of a Union territory, if subsequently found to be refundable to
(e) in respect of import of goods or services or both where the registered person is not any person and refunded to such person, shall be reduced from the amount to be
eligible for input tax credit; apportioned under this section, to such State, or Central Government on account of such
Union territory, in such manner and within such time as may be prescribed.
(f) in respect of import of goods or services or both made in a financial year by a
registered person, where he does not avail of the said credit within the specified Statutory Provisions- Effective from 1st February 2019 vide The Central Goods &
period and thus remains in the integrated tax account after expiry of the due date Services Tax Amendment Act, 2018
for furnishing of annual return for such year in which the supply was received,
17. Apportionment of tax and settlement of funds
the amount of tax calculated at the rate equivalent to the central tax on similar intra-State
(1) Out of the integrated tax paid to the Central Government, ––
supply shall be apportioned to the Central Government.
(a) in respect of inter-State supply of goods or services or both to an unregistered of
(2) The balance amount of integrated tax remaining in the integrated tax account in respect
person or to a registered person paying tax under section 10 of the Central
of the supply for which an apportionment to the Central Government has been done
Goods and Services Tax Act;
under sub-section (1) shall be apportioned to the, ––

IGST Act 913

Ch 8: Apportionment of Tax and Settlement of Funds Sec. 17-19 Ch 8: Apportionment of Tax and Settlement of Funds Sec. 17-19

(b) in respect of inter-State supply of goods or services or both where the registered territories as the case may be, on ad hoc basis and shall be adjusted against the
person is not eligible for input tax credit; amount apportioned under the said sub-sections
(c) in respect of inter-State supply of goods or services or both made in a financial (3) The provisions of sub-sections (1) and (2) relating to apportionment of integrated tax
year to a registered person, where he does not avail of the input tax credit within shall, mutatis mutandis, apply to the apportionment of interest, penalty and
the specified period and thus remains in the integrated tax account after expiry of compounding amount realized in connection with the tax so apportioned.
the due date for furnishing of annual return for such year in which the supply was (4) Where an amount has been apportioned to the Central Government or a State
made; Government under sub-section (1) or sub-section (2) or sub-section (3), the amount
(d) in respect of import of goods or services or both by an unregistered person or by collected as integrated tax shall stand reduced by an amount equal to the amount so
a registered person paying tax under section 10 of the Central Goods and apportioned and the Central Government shall transfer to the central tax account or
Services Tax Act; Union territory tax account, an amount equal to the respective amounts apportioned to
(e) in respect of import of goods or services or both where the registered person is the Central Government and shall transfer to the State tax account of the respective
not eligible for input tax credit; States an amount equal to the amount apportioned to that State, in such manner and
within such time as may be prescribed.
(f) in respect of import of goods or services or both made in a financial year by a
registered person, where he does not avail of the said credit within the specified (5) Any integrated tax apportioned to a State or, as the case may be, to the Central
period and thus remains in the integrated tax account after expiry of the due date Government on account of a Union territory, if subsequently found to be refundable to
for furnishing of annual return for such year in which the supply was received, any person and refunded to such person, shall be reduced from the amount to be
apportioned under this section, to such State, or Central Government on account of
the amount of tax calculated at the rate equivalent to the central tax on similar intra-
such Union territory, in such manner and within such time as may be prescribed.
State supply shall be apportioned to the Central Government.
(2) The balance amount of integrated tax remaining in the integrated tax account in respect
Amendment by the Finance (No.2) Act, 2019
of the supply for which an apportionment to the Central Government has been done After section 17 of the Integrated Goods and Services Tax Act, 2017, the
under sub-section (1) shall be apportioned to the, –– following section shall be inserted, namely:––
(a) State where such supply takes place; and “17A. Where any amount has been transferred from the electronic cash ledger
(b) Central Government where such supply takes place in a Union territory: under this Act to the electronic cash ledger under the State Goods and Services
Tax Act or the Union Territory Goods and Services Tax Act, the Government
Provided that where the place of such supply made by any taxable person cannot be
shall transfer to the State tax account or the Union territory tax account, an
determined separately, the said balance amount shall be apportioned to, ––
amount equal to the amount transferred from the electronic cash ledger, in such
(a) each of the States; and manner and within such time, as may be prescribed.”.
(b) Central Government in relation to Union territories,
Relevant circulars, notifications, clarifications, flyers issued by Government:
in proportion to the total supplies made by such taxable person to each of such States
or Union territories, as the case may be, in a financial year: 1) Notification No. 3/2017 – Integrated Tax dated 28.06.2017 - Seeks to bring into force
certain sections of the IGST Act, 2017 w.e.f 01.07.2017
Provided further that where the taxable person making such supplies is not identifiable,
the said balance amount shall be apportioned to all States and the Central Government 2) Notification No. G.S.R. 964(E), F. No. 31013/16/2017-ST-I-DoR, Dated, 27th July,
in proportion to the amount collected as State tax or, as the case may be, Union 2017 - Goods and services Tax Settlement of funds Rules, 2017
territory tax, by the respective State or, as the case may be, by the Central Government 3) Notification No. G.S.R. 145(E), F. No. 31013/16/2017-ST-I-DoR Dated, 6th February,
during the immediately preceding financial year. 2018 - Goods and services Tax Settlement of funds (Amendment) Rules, 2017
(2A) The amount not apportioned under sub-section (1) and sub-section (2) may, for the time 17.1 Introduction
being, on the recommendations of the Council be apportioned at the rate of fifty percent
to the Central Government and fifty percent to the State Governments or the Union GST is a destination based consumption tax – this principle is evident in the place of supply
provisions. Therefore, GST is to be paid to the State where the destination or consumption

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Ch 8: Apportionment of Tax and Settlement of Funds Sec. 17-19 Ch 8: Apportionment of Tax and Settlement of Funds Sec. 17-19

takes place. And registration of each tax payer in every destination-State is impossible to Statutory provisions
comply or administer. It is for this reason that IGST is applicable on supplies whose
18. Transfer of input tax credit
destination is outside the home-State. Therefore, IGST is not actually a tax but an equitable
tax revenue transfer mechanism from the State of origin of supply to the State of its (1) On utilization of credit of integrated tax availed under this Act for payment of, ––
destination where revenue rightly belongs. With IGST having been collected as if it were a tax,
(a) central tax in accordance with the provisions of sub-section (5) of section 49 of
it now needs to be transferred to the destination-State. This is provided by section 17 and
the Central Goods and Services Tax Act, the amount collected as integrated tax
discussed below.
shall stand reduced by an amount equal to the credit so utilized and the Central
17.2 Analysis Government shall transfer an amount equal to the amount so reduced from the
integrated tax account to the central tax account in such manner and within such
Inter-State Supply IGST Paid (on) Quantum of IGST Transfer (to)
time as may be prescribed;
(to)
(b) Union territory tax in accordance with the provisions of section 9 of the Union
Unregistered recipient Equivalent Central tax
applicable on said Territory Goods and Services Tax Act, the amount collected as integrated tax
Composition taxable Union shall stand reduced by an amount equal to the credit so utilized and the Central
supplies in intra-State
person supply Government shall transfer an amount equal to the amount so reduced from the
integrated tax account to the Union territory tax account in such manner and
Registered taxable IGST paid on inter- State, its respective within such time as may be prescribed;
person not eligible to State supplies share of inward
input tax credit IGST paid on import supplies@ (c) State tax in accordance with the provisions of the respective State Goods and
of goods or services Services Tax Act, the amount collected as integrated tax shall stand reduced by
Registered taxable Balance amount of
IGST an amount equal to the credit so utilized and shall be apportioned to the
person eligible to input Union, share of appropriate State Government and the Central Government shall transfer the
tax credit but does not inward supplies to
amount so apportioned to the account of the appropriate State Government in
avail it within period UTs@
such manner and within such time as may be prescribed.
specified
Explanation ––For the purposes of this Chapter, “appropriate State” in relation to a
@ If this amount cannot be reliably allocated, then rule-of-proportion – total supplies of that taxable person, means the State or Union territory where he is registered or is liable to
State/UT compared to total inter-State supplies during the financial year. be registered under the provisions of the Central Goods and Services Tax Act.
Please note the following further aspects:
Relevant circulars, notifications, clarifications, flyers issued by Government:
• Above formula applies to interest, penalty and compounding amount collected in
respect of inter-State supplies 1) Notification No. 3/2017 – Integrated Tax dated 28.06.2017 - Seeks to bring into force
certain sections of the IGST Act, 2017 w.e.f 01.07.2017
• Any apportioned IGST is found to be refundable, then the same will be recouped from
the subsequent transfers 2) Notification No. G.S.R. 964(E), F. No. 31013/16/2017-ST-I-DoR, Dated, 27th July, 2017
- Goods and services Tax Settlement of funds Rules, 2017
• Time and manner of transfer to States/UTs will be prescribed
3) Notification No. G.S.R. 145(E), F. No. 31013/16/2017-ST-I-DoR Dated, 6th February,
• Now that the government is providing an option for transfer of balance from electronic 2018 - Goods and services Tax Settlement of funds (Amendment) Rules, 2017
cash ledger under one head to the other, it also requires the physical transfer of funds
between the governments also. Where CGST is transferred to SGST by any person in 18.1 Introduction
the electronic cash ledger, the State Government should compensate the Central After apportionment of IGST paid, it leaves credit of IGST availed to be accounted for on its
Government for the deficit transferred. utilization. This section addresses the apportionment on utilization of IGST credit.

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Ch 8: Apportionment of Tax and Settlement of Funds Sec. 17-19

18.2 Analysis Chapter 9

IGST Appropriation Allocation (to)
Credit of IGST Utilized to pay CGST Union – Central tax account Miscellaneous
paid availed Utilized to pay SGST State – State tax account@
Utilized to pay UTGST Union – UT tax account@ 20. Application of provisions of Central Goods and Services Tax Act

@ of respective State or UT 21. Import of services made on or after the appointed day
Statutory provisions 22. Power to make rules

19. Tax wrongfully collected and paid to Central Government or State Government 23. Power to make regulations
(1) A registered person who has paid integrated tax on a supply considered by him to be an 24. Laying of rules, regulations and notifications
inter-State supply, but which is subsequently held to be an intra-State supply, shall be
25. Removal of difficulties
granted refund of the amount of integrated tax so paid in such manner and subject to
such conditions as may be prescribed. Statutory Provisions- Effective from 1st July, 2017 to 31st January, 2019
(2) A registered person who has paid central tax and State tax or Union territory tax, as the
20. Application of provisions of Central Goods and Services Tax Act
case may be, on a transaction considered by him to be an intra-State supply, but which
is subsequently held to be an inter-State supply, shall not be required to pay any Subject to the provisions of this Act and the rules made thereunder, the provisions of Central
interest on the amount of integrated tax payable. Goods and Services Tax Act relating to,––
Relevant circulars, notifications, clarifications, flyers issued by Government: (i) scope of supply; (ii) composite supply and mixed supply; (iii) time and value of supply; (iv)
input tax credit; (v) registration; (vi) tax invoice, credit and debit notes; (vii) accounts and
1. Notification No. 3/2017 – Integrated Tax dated 28.06.2017 - Seeks to bring into force
records; (viii) returns, other than late fee; (ix) payment of tax; (x) tax deduction at source; (xi)
certain sections of the IGST Act, 2017 w.e.f 01.07.2017
collection of tax at source; (xii) assessment; (xiii) refunds; (xiv) audit; (xv) inspection, search,
19.1 Introduction seizure and arrest; (xvi) demands and recovery; (xvii) liability to pay in certain cases; (xviii)
advance ruling; (xix) appeals and revision; (xx) presumption as to documents; (xxi) offences
Payment of tax based on erroneous determination of ‘nature of supply’ is not permitted to be
and penalties; (xxii) job work; (xxiii) electronic commerce; (xxiv) transitional provisions; and
adjusted because of the above appropriation of payments. Remedy lies in refund.
(xxv) miscellaneous provisions including the provisions relating to the imposition of interest
19.2 Analysis and penalty,
Taxable person who has paid tax in error is entitled to refund by first restoring the discharge of shall, mutatis mutandis, apply, so far as may be, in relation to integrated tax as they apply in
the correct tax due so that the incorrect tax paid reflects on the Common Portal as ‘paid in relation to central tax as if they are enacted under this Act:
excess’ and:
Provided that in the case of tax deducted at source, the deductor shall deduct tax at the rate
• IGST paid in error will be refunded subject to conditions prescribed of two per cent. from the payment made or credited to the supplier:
• IGST payable due to payment of CGST/SGST/UTGST is exempted from payment of
Provided further that in the case of tax collected at source, the operator shall collect tax at
interest on IGST due
such rate not exceeding two per cent, as may be notified on the recommendations of the
Provisions of section 54 of CGST Act have not been extended to this refund although the Council, of the net value of taxable supplies:
conditions to be prescribed would not be too far from the requirements in section 54.
Provided also that for the purposes of this Act, the value of a supply shall include any taxes,
duties, cesses, fees and charges levied under any law for the time being in force other than
this Act, and the Goods and Services Tax (Compensation to States) Act, if charged separately
by the supplier:

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Provided also that in cases where the penalty is leviable under the Central Goods and Provided also that where the appeal is to be filed before Appellate Authority or the
Services Tax Act and the State Goods and Services Tax Act or the Union Territory Goods and Appellate Tribunal, the maximum amount payable shall be fifty crore rupees and one
Services Tax Act, the penalty leviable under this Act shall be the sum total of the said hundred crore rupees respectively. 7
penalties.
Relevant circulars, notifications, clarifications, flyers issued by Government:
Statutory Provisions- Effective from 1st February 2019 vide The Central Goods &
1) Notification No. 5/2017-Integrated Tax, dated 28-6-2017 (Quoting of HSN Code).
Services Tax Amendment Act, 2018
2) Notification No. 6/2017-Integrated Tax, dated 28-6-2017 and Notification No. 13/Central
20. Application of provisions of Central Goods and Services Tax Act Tax, dated 28-6-2017 (Interest on delayed payment of tax).
Subject to the provisions of this Act and the rules made thereunder, the provisions of Central 3) Notification No. 7/2017-Integrated Tax, dated 14-9-2017 (Notification of job workers
Goods and Services Tax Act relating to,–– engaged in making inter-State supply of services to a registered person as the category
of person exempted from obtaining registration).
(i) scope of supply; (ii) composite supply and mixed supply; (iii) time and value of supply; (iv)
input tax credit; (v) registration; (vi) tax invoice, credit and debit notes; (vii) accounts and 4) Notification No. 3/2018-Integrated Tax, dated 22-10-2018 (Persons exempted from
records; (viii) returns, other than late fee; (ix) payment of tax; (x) tax deduction at source; (xi) obtaining registration).
collection of tax at source; (xii) assessment; (xiii) refunds; (xiv) audit; (xv) inspection, search, 5) Notification No. 10/2017-Integrated Tax, dated 13-10-2017 (Notifying persons making
seizure and arrest; (xvi) demands and recovery; (xvii) liability to pay in certain cases; (xviii) inter-State supplies of taxable services and having an aggregate turnover, not
advance ruling; (xix) appeals and revision; (xx) presumption as to documents; (xxi) offences exceeding twenty lakh rupees in a financial year as the category of persons exempted
and penalties; (xxii) job work; (xxiii) electronic commerce; (xxiv) transitional provisions; and from obtaining registration.
(xxv) miscellaneous provisions including the provisions relating to the imposition of interest 6) Notification No. 2/2018-Integrated Tax, dated 20-9-2019 - Every electronic commerce
and penalty, operator, not being an agent, shall collect an amount calculated at a rate of one per
cent of net value of inter-State taxable supplies made through it by other suppliers
shall, mutatis mutandis, apply, so far as may be, in relation to integrated tax as they apply in where consideration with respect to such supplies is to be collected by said operator.
relation to central tax as if they are enacted under this Act:
7) Notification No. 9/2018-Central Tax, dated 23-1-2018 (Notified Portal).
Provided that in the case of tax deducted at source, the deductor shall deduct tax at the rate 8) Notification No. 5/2017-Integrated Tax (Rate), dated 28-6-2017 for notified supplies of
of two per cent. from the payment made or credited to the supplier: goods in respect of which no refund of unutilised input tax credit shall be allowed where
Provided further that in the case of tax collected at source, the operator shall collect tax at rate of tax on input is higher than rate of tax on output supplies of such goods.
such rate not exceeding two per cent, as may be notified on the recommendations of the 9) Notification No. 6/2017-Integrated Tax (Rate), dated 28-6-2017 for refund of 50% of
Council, of the net value of taxable supplies: IGST on supplies of goods to Canteen Stores Department (CSD) under Ministry of
Defence.
Provided also that for the purposes of this Act, the value of a supply shall include any taxes,
10) Notification No. 11/2017-Integrated Tax (Rate), dated 28-6-2017 for supplies which
duties, cesses, fees and charges levied under any law for the time being in force other than
shall not be treated neither as supply of goods nor supply of services.
this Act, and the Goods and Services Tax (Compensation to States) Act, if charged separately
by the supplier: 11) Notification No. 12/2017-Integrated Tax (Rate), dated 28-6-2017 for no refund of
unutilised input tax credit under section 54(3) of CGST Act in case of supply of services
Provided also that in cases where the penalty is leviable under the Central Goods and specified in sub-item (b) of item 5 of Schedule II of the CGST Act.
Services Tax Act and the State Goods and Services Tax Act or the Union Territory Goods and 12) Notification No. 13/2017-Integrated Tax (Rate), dated 28-6-2017 for notified specialised
Services Tax Act, the penalty leviable under this Act shall be the sum total of the said agencies entitled to claim a refund of taxes paid on the notified supplies of goods or
penalties. services or both received by them.

7
Inserted vide The Integrated Goods and Services Tax (Amendment) Act, 2018 w.e.f. 01.02.2019

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13) Notification No. 37/2017-Central Tax, dated 4-10-2017 for conditions and safeguards for  appeals and revision;
furnishing a Letter of Undertaking in place of a Bond by a registered person who intends
 presumption as to documents;
to supply goods or services for export without payment of integrated tax.
14) Notification No. 4/2018-Integrated Tax (Rate), dated 25-1-2018 - Builders, time of  offences and penalties;
accrual of tax liability, in case of TDR.  job work;
15) Notification No. 6/2019-Integrated Tax (Rate), dated 29-3-2019 - Notified classes of  electronic commerce;
registered persons (Builders) in whose case liability to tax shall arise on specified date.
 transitional provisions; and
16) Notification No. 10/2019-Integrated Tax (Rate), dated 29-6-2019 - Refund in certain
cases - Refund of applicable Integrated Tax to retail outlets established in the departure  miscellaneous provisions including the provisions relating to the imposition of interest
area of International Airport beyond the Immigration Counters making tax free supply of and penalty.
goods to an outgoing International Tourist. The following exceptions are provided:
20.1. Introduction (a) In case of TDS (tax deducted at source) the deductor shall deduct tax at the rate of two
Certain provisions of CGST Act in relation to levy of tax would be applicable to IGST Act also. per cent from the payment made or credited to the supplier.
20.2. Analysis (b) In case of TCS (tax collected at source), the operator shall collect tax at such rate not
The following provisions of CGST Act shall apply to IGST Act: exceeding two per cent, as may be notified on the recommendations of the Council, of
the net value of taxable supplies.
 scope of supply;
(c) The value of a supply shall include any taxes, duties, cesses, fees and charges levied
 composite supply and mixed supply; under any law for the time being in force other than this Act, and the Goods and
 time and value of supply; Services Tax (Compensation to States) Act, if charged separately by the supplier.
 input tax credit; (d) In cases where the penalty is leviable under the CGST Act and the SGST Act or the
 registration; UTGST Act, the penalty leviable under this Act shall be the sum total of the said
penalties.
 tax invoice, credit and debit notes;
(e) The maximum amount of pre-deposit in case of filing of appeal has been prescribed as:
 accounts and records;
i. Rs. 50 crores in case of Appellate Authority
 returns, other than late fee;
ii. Rs. 100 crores in case of Appellate Tribunal
 payment of tax;
 tax deduction at source; 20.3. Comparative Review
 collection of tax at source; Under IGST Act Corresponding Section under Comparison
 assessment; erstwhile Central Sales Tax Act, 1956
 refunds; Section 20 Section 9(2) of CST Act which provides Section 9(2) of CST Act
 audit; providing CGST that all provisions of General tax law of does not include aspects
Act provisions each State shall apply in respect of CST such as registration,
 inspection, search, seizure and arrest; which would be to dealers registered in that state, except valuation, credit, etc.
 demands and recovery; applicable to IGST those provided in CST Act and Rules. which are included in
 liability to pay in certain cases; Act. These include procedural aspects such Section 20 of IGST
as returns, assessment, offences, etc.
 advance ruling;

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20.4 FAQs (b) However if the tax on such import of services had been paid in full under the pre-GST
Q1. What are the provisions under CGST which would be applicable to IGST also? regime, no tax shall be payable on such import under the IGST Act.
(c) That apart if the tax on such import of services had been paid in part under the
Ans. The provisions relating to scope of supply, composite supply and mixed supply, time
erstwhile law, the balance amount of tax shall be payable on such import under this Act.
and value of supply, input tax credit, registration, tax invoice, credit and debit notes,
accounts and records, returns, other than late fee, payment of tax, tax deduction at (d) As per the explanation appended to the section a transaction shall be deemed to have
source, collection of tax at source, assessment, refunds, audit, inspection, search, been initiated before the appointed day if either the invoice or payment, either in full or
seizure and arrest, demands and recovery, liability to pay in certain cases, advance in part, has been received or made before the appointed day.
ruling, appeals and revision, presumption as to documents, offences and penalties, job 21.3. FAQs
work, electronic commerce, transitional provisions and miscellaneous provisions
Q1. Whether import of services made after appointed day is liable to tax under this Act?
including the provisions relating to the imposition of interest and penalty, shall apply, in
relation to the Integrated Tax as they apply in relation to tax under the CGST Act, 2017. Ans.. Yes. Any import of services made after appointed day is liable to tax under this Act.
However, the taxability is subject to the provisos in section 21 of IGST Act.
Q2. What is the percentage of tax to be deducted or collected in case of tax deducted at
source and tax collected at source? Q2. What would be the status of import of services, where the tax on the said transaction is
paid in full under earlier laws?
Ans. The percentage of tax to be deducted by the deductor from the payment made or credit
to the supplier is 2% in case of tax deduction at source. Ans. Not liable to tax under this Act. As per the first proviso of section 21 of IGST Act, where
the tax on import of services is paid in full under earlier laws, no tax under this Act
In case of tax collection at source the operator should collect 2% tax on the value of net would be made applicable though such import takes place after the appointed day.
supplies.
Q3. What would be the status of import of services where the tax on the said transaction is
Statutory provisions paid in part under earlier laws?
21. Import of services made on or after the appointed day Ans. As per the second proviso to section 21 of IGST Act, where the tax is paid in part for
Import of services made on or after the appointed day shall be liable to tax under the import of services under the earlier laws, only the balance amount of tax would be
provisions of this Act regardless of whether the transactions for such import of services had payable under this Act.
been initiated before the appointed day: Q4. When would the transaction be deemed to have been initiated before the appointed
Provided that if the tax on such import of services had been paid in full under the existing law, day?
no tax shall be payable on such import under this Act: Ans. Under any of the following circumstances it would be deemed that the transaction is
Provided further that if the tax on such import of services had been paid in part under the initiated before the appointed day-
existing law, the balance amount of tax shall be payable on such import under this Act. (i) Where invoice relating to such supply; or
Explanation.––For the purposes of this section, a transaction shall be deemed to have been (ii) Payment, either in full or in part;
initiated before the appointed day if either the invoice relating to such supply or payment, has been received or made before the appointed day.
either in full or in part, has been received or made before the appointed day.
21.4 MCQs
21.1. Introduction
Q1. Where the tax is fully paid under earlier laws, amount of tax payable for import of
This provision deals with taxability of import of services made after the appointed day. services made after appointed day is?
21.2. Analysis
(a) No tax payable under this Act
(a) It provides that import of services made on or after the appointed day shall be liable to
(b) Tax as per this Act, to be paid again
tax under the provisions of IGST Act even if the transactions for such import of services
had been initiated before the appointed day. Ans. (a) No tax payable under this Act

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Q2. Where the tax is paid in part under earlier laws, amount of tax payable for import of 22.3 Comparative review
services made after appointed day is?
Under IGST Act Corresponding Section under erstwhile Central Sales Tax
(a) No tax payable under this Act
Act, 1956
(b) Balance amount of tax payable on such import of services
Section 22 of IGST Act Section 13 authorizes Central Government to make rules.
Ans. (b) Balance amount of tax payable on such import of services which deals with powers of However, specific scenarios for making rules have been
Central Government to specified like manner of application for registration, form of
Statutory provisions make rules declaration or certificate.
22. Power to make rules
22.4 FAQs
(1) The Government may, on the recommendations of the Council, by notification, make
Q1. Who is given the power to make rules under IGST Act?
rules for carrying out the provisions of this Act.
Ans. The Central Government may, by notification, make rules for carrying out the purposes
(2) Without prejudice to the generality of the provisions of sub-section (1), the Government
of this Act on the recommendation of the Council.
may make rules for all or any of the matters which by this Act are required to be, or may
be, prescribed or in respect of which provisions are to be or may be made by rules. 22.5 MCQs
(3) The power to make rules conferred by this section shall include the power to give Q1. Under section 22, the Central Government has power to make rules on
retrospective effect to the rules or any of them from a date not earlier than the date on recommendation of whom of the following?
which the provisions of this Act come into force. (a) Ministry of Finance
(4) Any rules made under sub-section (1) may provide that a contravention thereof shall be (b) GST Council
liable to a penalty not exceeding ten thousand rupees. (c) CBEC
22.1. Introduction (d) None of the above
Ans. (b) GST Council
(i) It provides power to the Central Government to make Rules for the purposes of IGST
Act upon recommendations by the GST Council. Statutory provisions
22.2 Analysis 23. Power to make regulations
(i) Power to make rules by the Central Government is discussed hereunder: The Board may, by notification, make regulations consistent with this Act and the rules made
thereunder to carry out the provisions of this Act.
 The Central Government may make rules for carrying out the purposes of this
Act, by notification on the recommendations of the Council. 23.1. Introduction
 The Government may make rules for all or any of the matters which by this Act This provision refers to the Board’s power to make regulations.
are required to be, or may be, prescribed or in respect of which provisions are to 23.2. Analysis
be or may be made by rules. To carry out the provisions of the IGST Act, the Board is empowered to make regulations,
 The power to make rules shall include the power to give retrospective effect to which would be notified. Such regulations should not be inconsistent with the provisions of the
IGST Act and the Rules made thereunder.
the rules or any of them from a date not earlier than the appointed day.
 Any rules made may provide for penalty upto Rs.10,000 for contravention thereof. Statutory provisions

 “Council” would mean the Goods and Services Tax Council established under 24. Laying of rules, regulations and notifications
Article 279A of the Constitution. Every rule made by the Government, every regulation made by the Board and every
notification issued by the Government under this Act, shall be laid, as soon as may be, after

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it is made or issued, before each House of Parliament, while it is in session, for a total Provided that no such order shall be made after the expiry of a period of three years
period of thirty days which may be comprised in one session or in two or more successive from the date of commencement of this Act.
sessions, and if, before the expiry of the session immediately following the session or the
successive sessions aforesaid, both Houses agree in making any modification in the rule or (2) Every order made under this section shall be laid, as soon as may be, after it is made,
regulation or in the notification, as the case may be, or both Houses agree that the rule or before each House of Parliament.
regulation or the notification should not be made, the rule or regulation or notification, as the 25.1. Introduction
case may be, shall thereafter have effect only in such modified form or be of no effect, as
the case may be; so, however, that any such modification or annulment shall be without The responsibility to implement the legislatures’ will is of the appropriate Government. In doing
prejudice to the validity of anything previously done under that rule or regulation or this, the Act empowers the appropriate Government with the necessary power to remove any
notification, as the case may be. difficulty that may arise.
24.1. Introduction 25.2. Analysis
This section lays down the general procedure of laying delegated legislations before the (i) If the Government identifies that there is a difficulty in implementation of any provision
Parliament for a prescribed duration. of the GST Legislation, it has powers to issue a general or special order, to carry out
anything to remove such difficulty.
24.2. Analysis
(ii) Such activity of the Government must be consistent with the provisions of the Act and
(a) The Act permits making of rules by Government, issuance of regulation by Board and
should be necessary or expedient.
issuance of notification by the Government.
(iii) Maximum time limit for passing such order shall be 3 years from the date of effect of the
(b) Such rule, regulation and notification, which is a part of delegated legislation is placed
IGST Act.
before the Parliament.
25.3. Comparative review
(c) It is laid before the Parliament, as soon as may be after it is made or issued, when the
Parliament is in session, for a total period of thirty days which may be comprised in one The above provisions were present in all the tax legislations, to ensure that any practical
session or in two or more successive sessions difficulties in implementation can be addressed.
(d) Before the expiry of the session or successive sessions both Houses may make 25.4. Related provisions of the Statute:
suitable modifications and would have effect in such modified form. This is an independent section and would be applicable for implementation of the GST law.
(e) However, any such modification or annulment shall be without prejudice to the validity
25.5. FAQs
of anything previously done under that rule or regulation or notification, as the case may
be. Q1. Will the powers include the power to notify the effective date for implementation of
particular provisions?
24.3. Comparative Review
Ans. Yes, all powers regarding implementation of any provision of the GST law is covered.
Similar provisions were there in the erstwhile tax laws as well.
Q2. Will the powers include bringing changes in any provision of law?
Statutory provisions
Ans. No, the Government has power only to decide on the practical implementation of law.
25 Removal of Difficulties But it cannot amend the Legislation through this section.
(1) If any difficulty arises in giving effect to any provision of this Act, the Government may, Q3. What is the maximum time limit for exercising the powers under Section 25?
on the recommendations of the Council, by a general or a special order published in the
Ans. The maximum time limit is 3 years from the date of effect of IGST Act.
Official Gazette, make such provisions not inconsistent with the provisions of this Act or
the rules or regulations made thereunder, as may be necessary or expedient for the Q4. Whether the reasons be mentioned in the order?
purpose of removing the said difficulty: Ans. The order is issued only when there is a necessity or expediency for it. Specific reasons
may not be mentioned in the order.

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25.6. MCQs
Q1. Whether prior approval of the Parliament is necessary?
(a) Yes
(b) No
Ans. (b) No
Q2. What is the maximum period for exercising this power?
(a) 4 years
(b) 3 years
(c) 2 years
(d) 1 year
Ans. (b) 3 years

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