1

GOODS AND SERVICES TAX (GST)

1.1 Introduction
In earlier indirect tax regime, the credit mechanism for indirect taxes levied by the Union Government
was governed by the CENVAT Credit Rules, 2004; and the credit mechanism for state-level VAT on sale
of goods was governed by the States under their respective VAT Acts and Rules. The VAT legislations
allowed ITC of VAT on inputs and capital goods in transactions within the state, but not on inputs and
capital goods coming in the State from outside the state, on which central sales tax was paid. CENVAT
Credit Rules, 2004 allowed availing and utilization of credit of duty/tax paid on both goods (capital
goods and inputs) and services by the manufacturers and the service providers across the country.

The credit across goods and services was integrated vide the CENVAT Credit Rules, 2004 in the year
2004 to mitigate the cascading effects of central levies namely, central excise and service tax.
However, the credit chain remained fragmented on account of State-Level VAT as the credit of central
taxes could not be set off against a State levy and vice versa. The chain further got distorted as ITC
was not available on inter-State purchases. This resulted in cascading of taxes leading to increase in
costs of goods and services.

The GST regime promises seamless credit on goods and services across the entire supply chain with some
exceptions like supplies charged to tax under composition scheme and supply of exempted goods and/or
services. ITC is considered to be the backbone of the GST regime. In fact, it is the provisions of ITC
which essentially make GST a value added tax i.e., collection of tax at all points of supply chain after
allowing credit of tax paid at earlier points.

1.2 Features of Indirect taxes

(i) An important source of revenue: Indirect taxes are a major source of tax revenues for Governments
worldwide and continue to grow as more countries move to consumption oriented tax regimes. In
India, indirect taxes contribute more than 50% of the total tax revenues of Central and State
Governments.
 2 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

(ii) Tax on commodities and services: It is levied on commodities at the time of supply or manufacture or
purchase or sale or import/export thereof. Hence, it is also known as commodity taxation. It is also
levied on supply of services.
(iii) Shifting of burden: There is a clear shifting of tax burden in respect of indirect taxes. For example,
GST paid by the supplier of the goods is recovered from the buyer by including the tax in the cost
of the commodity.
(iv) No perception of direct pinch: Since, value of indirect taxes is generally inbuilt in the price of the
commodity, most of the time the tax payer/consumer pays the same without actually knowing that
he is paying tax to the Government. Thus, tax payer does not perceive a direct pinch while paying
indirect taxes.
(v) Inflationary: Tax imposed on commodities and services causes an all-round price spiral. In other
words, indirect taxation directly affects the prices of commodities and services and leads to
inflationary trend.
(vi) Wider tax base: Unlike direct taxes, the indirect taxes have a wide tax base. Majority of the
products or services are subject to indirect taxes with low thresholds.
(vii) Promotes social welfare: Higher taxes are imposed on the consumption of harmful products (also
known as ‘sin goods’) such as alcoholic products, tobacco products etc. This not only checks their
consumption but also enables the State to collect substantial revenue.
(viii) Regressive in nature: Generally, the indirect taxes are regressive in nature. The rich and the poor
have to pay the same rate of indirect taxes on certain commodities of mass consumption. This may
further increase the income disparities between the rich and the poor.

1.3 Genesis of GST in India

 It is now been more than a decade since the idea of national Goods and Services Tax (GST) was
mooted by Kelkar Task Force in 2004. The Task Force strongly recommended fully integrated ‘GST’
on national basis.

 Subsequently, the then Union Finance Minister, Shri. P. Chidambaram, while presenting the Central
Budget (2007-2008), announced that GST would be introduced from April 1, 2010. Since then, GST
missed several deadlines and continued to be shrouded by the clouds of uncertainty.

 The talks of ushering in GST, however, gained momentum in the year 2014 when the NDA
Government tabled the Constitution (122nd Amendment) Bill, 2014 on GST in the Parliament on 19th
December, 2014. The Lok Sabha passed the Bill on 6th May, 2015 and Rajya Sabha on 3rd August,
2016. Subsequent to ratification of the Bill by more than 50% of the States, Constitution (122nd
Amendment) Bill, 2014 received the assent of the President on 8th September, 2016 and became
Constitution (101st Amendment) Act, 2016, which paved the way for introduction of GST in India.

 In the following year, on 27th March, 2017, the Central GST legislations - Central Goods and
Services Tax Bill, 2017, Integrated Goods and Services Tax Bill, Union Territory Goods and Services
Tax Bill, 2017 and Goods and Services Tax (Compensation to States) Bill, 2017 were introduced in
Lok Sabha. Lok Sabha passed these bills on 29th March, 2017 and with the receipt of the
 GST in India : An Introduction 3

President’s assent on 12th April, 2017, the Bills were enacted. The enactment of the Central Acts is
being followed by the enactment of the State GST laws by various State Legislatures. Telangana,
Rajasthan, Chhattisgarh, Punjab, Goa and Bihar are among the first ones to pass their respective
State GST laws.

 Government has introduced GST in India w.e.f. 1st July, 2017 by achieving consensus on all the
issues relating thereto.

 GST is a path breaking indirect tax reform which will create a common national market by
dismantling interstate trade barriers. GST has subsumed multiple indirect taxes like excise duty,
service tax, VAT, CST, luxury tax, entertainment tax, entry tax, etc.

 France was the first country to implement GST in the year 1954. Within 62 years of its advent,
about 160 countries across the world have adopted GST because this tax has the capacity to raise
revenue in the most transparent and neutral manner.

In the year 2000, the then Prime Minister The Constitution (122nd
Introduced the concept of GST and set up a Amendment) Bill was
committee to design a GST Model for the introduced in the Lok
country 2006 Sabha Aug 2016

2000 Announcement by Union 2014 The

Finance Minister, during Constitution
budget of 2006-07 that GST (101st
would introduced from 1st GST Council Amendment Act
April 2010 Recommends was enacted)

GST Council CGST, SGST, IGST,

Recommends all UTGST &
the rules Compensation Cess
April 2017 Sep 2016
Bill

May 2017 CGST, IGST, UTGST 1st GST Council

All States & Compensation Cess Meeting
except J&K 30th June Act Passed
passed their 2017
SGST Act 1st July
8th July 2017
2017
JOURNEY CONTINUES

GST Launched
SGST Act Passed by J&K
CGST and IGST ordinances
Promulgated to extend
GST to J&K
 4 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

1.4 Concept of GST

 Valued Added Tax : GST is a value added tax levied on manufacture, sale and consumption of goods
and services.

 Continuous Chain of Tax Credits : GST offers comprehensive and continuous

chain of tax credits from the producer’s point/service provider’s point upto
the retailer’s level/consumer’s level thereby taxing only the value added at
each stage of supply chain.

 Burden Borne by Final Consumer : The supplier at each stage is permitted to

avail credit of GST paid on the purchase of goods and/or services and can
set off this credit against the GST payable on the supply of goods and
services to be made by him. Thus, only the final consumer bears the GST
charged by the last supplier in the supply chain, with set-off benefits at all
the previous stages.

 No Cascading of Taxes : Since, only the value added at each stage is taxed under GST, there is no
tax on tax or cascading of taxes under GST system. GST does not differentiate between goods and
services and thus, the two are taxed at a single rate.

1.5 Need for GST in India

I. DEFICIENCIES IN THE EXISTING VALUE ADDED TAXATION
(1) In the present regime, a manufacturer of excisable goods charges excise
duty and value added tax (VAT) on intra-state sale of goods. However, the
VAT dealer on his subsequent intra-state sale of goods charges VAT (as per
prevalent VAT rate as applicable in the respective state) on value
comprising of (basic value + excise duty charged by manufacturer + profit
by dealer).

(2) Further, in respect of tax on services, service tax is payable on taxable services provided w.e.f. 1
July, 2012, service tax is levied on all ‘services’ other than the Negative list of services as provided
under Section 66D of the Finance Act, 1994 or else otherwise exempted vide the Mega Exemption
Notification No. 25/2012 - ST dated 20 June, 2012 (“the Mega Exemption Notification”).

(3) Presently, from 1st June, 2016, service tax is levied @ 15% [Service tax @ 14%, Swachh Bharat
Cess (SBC) @ 0.5% (w.e.f. November 15, 2015) and Krishi Kalyan Cess (KKC) @ 0.5% (w.e.f. June 1,
2016)] on specified services provided by service providers in India.

(4) The existing indirect tax framework in India suffer from various shortcomings. Under the existing
indirect tax structure, the various indirect taxes being levied are not necessarily mutually exclusive.
To illustrate, when the goods are manufactured and sold both central excise duty (CENVAT) and
State-Level VAT are levied. Though CENVAT and State-Level VAT are essentially value added taxes,
set off of one against the credit of another is not possible as CENVAT is a central levy and State-
Level VAT is a State levy. Moreover, CENVAT is applicable only at manufacturing level and not at
distribution levels. The existing sales tax regime in India is a combination of origin based (Central
 GST in India : An Introduction 5

Sales Tax) and destination based multipoint system of taxation (State Level VAT). Service tax is also
a value added tax and credit across the service tax and the central excise duty is integrated at the
central level.

(5) Despite the introduction of the principle of taxation of value added in India - at the Central level in
the form of CENVAT and at the State level in the form of State VAT - its application has remained
piecemeal and fragmented on account of the following reasons :

(a) No-inclusion of several local levies in State VAT such as luxury tax, entertainment tax, etc.
(b) Cascading of taxes on account of (i) levy of Non-VATable CST and (ii) inclusion of CENVAT in the
value for imposing VAT.
(c) No CENVAT after manufacturing stage.
(d) Non-integration of VAT and service tax.
(e) Double taxation of a transaction as both goods and services.
II. GST - A CURE FOR ILLS OF EXISTING INDIRECT TAX REGIME
(1) A comprehensive tax structure covering both goods and services viz. Goods and Service Tax (GST)
would address these problems. Simultaneous introduction of GST at both Centre and State levels
would integrate taxes on goods and services for the purpose of set-off relief and will ensure that
both the cascading effects of CENVAT and service tax are removed and a continuous chain of set-
off from the original producer’s point/ service provider’s point upto the retailer’s level/consumer’s
level is established.
(2) In the GST Regime, the major indirect taxes have been subsumed in the ambit of GST. The present
concepts of manufacture or sale of goods or rendering of services are not longer applicable since the
tax is now levied on “Supply of Goods and/or services”.

1.6 Taxes Subsumed in GST

CENTRAL LEVIES SUBSUMED CENTRAL LEVIES NOT SUBSUMED
IN GST IN GST

(1) Central Excise Duty and Additional Excise (1) Customs Duty
Duties

(2) Excise Duty under Medicinal and Toilet (2) Central Excise Duty on 5 Petroleum Products
Preparation Act and Tobacco & Tobacco Products.

(3) Service Tax

(4) CVD and Special CVD

(5) Central Sales Tax

(6) Surcharges and Cesses in so far as they relate

to supply of goods and services.
 6 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

STATE LEVIES SUBSUMED IN GST STATE LEVIES NOT SUBSUMED IN

GST

(1) State surcharges and cesses in so far as they (1) State Excise Duty on Alcohol Liquor for Human
relate to supply of goods and services Consumption and Opium, Indian Hemp and other
Narcotic Drugs and Narcotics

(2) Entertainment Tax (except those levied by (2) Sales Tax on 5 Petroleum Products and
local bodies) Alcohol Liquor for Human Consumption

(3) Tax on lottery, betting and gambling (3) Profession Tax

(4) Entry Tax (All Forms) and Purchase Tax (4) Electricity Duty

(5) VAT/Sales Tax (5) Stamp Duty

(6) Luxury Tax (6) Toll Tax

(7) Taxes on advertisements. (7) Road and Passenger Tax.

1.7 GST – A tax on Goods and Services

GST is levied on all goods and services, except alcoholic liquor for human consumption and petroleum
crude, diesel, petrol, ATF and natural gas.

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

Goods (Supply) (Manufacture) (Sale)

 GST in India : An Introduction 7

GST ED VAT CST

Alcoholic Liquor for human consumption ❌ ✔ ✔ ✔

Petroleum crude, High speed diesel, Motor ❌ ✔ ✔ ✔

spirit (Petrol), Natural gas, Aviation Turbine
fuel

Tobacco & Tobacco products ✔ ✔ ❌ ❌

Opium, Indian Hemp and other Narcotic Drugs ✔ ✔ ❌ ❌

All other Goods & Services ✔ ❌ ❌ ❌

1.8 Compensation Cess

A GST Compensation Cess at specified rate has been imposed under the Goods and Services Tax
(Compensation to States) Cess Act, 2017 on the specified luxury items or demerit goods, like pan masala,
tobacco, aerated waters, motor cars etc., computed on value of taxable supply. Compensation cess is
leviable on intra-state supplies and inter-state supplies with a view to provide for compensation to the
States for the loss of revenue arising on account of implementation of the GST. Compensation is to be
provided to a State for a period of 5 years from the date on which the State brings its SGST Act into
force.

1.9 Dual GST Model in India

 India has adopted a dual model GST which is imposed concurrently by the Central and States, i.e.
Centre and States simultaneously tax goods and services. Centre have the power to tax intra-state
sales and states are empowered to tax services. GST extends to whole of India.
 GST is a destination based tax applicable on all transactions involving supply of goods and services
for a consideration subject to exceptions thereof. GST in India will comprise of Central Goods
Service Tax (CGST) - levied and collected by Central Government, State Goods and Service Tax
(SGST) - levied at collected by State Governments/Union Territories with State Legislatures and
Union Territory Goods and Services Tax (UTGST) - levied and collected by Union Territories without
State Legislatures, on intra-state supplies of taxable goods and/or services. Inter-State supplies of
taxable goods and/or services will be subject to Integrated Goods and Service Tax (IGST). IGST will
approximately be a sum total a CGST and SGST/UTGST and will be levied by Centre on all inter-
state supplies.
 There is single legislation - CGST Act, 2017 - for levying CGST. Similarly, Union Territories without
State Legislatures [Andaman and Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli & Daman
and Diu, Ladakh and Chandigarh] will be governed by UTGST Act, 2017 for levying UTGST. States
and Union Territories with their own legislatures [Delhi, Puducherry and Jammu & Kashmir] have to
enact their own GST legislation for levying SGST. Though there would be multiple SGST legislations,
the basic features of law, such as chargeability, definition of taxable event and taxable person,
classification and valuation of goods and services, procedure for collection and levy of tax and the
like would be uniform in all the SGST legislations, as far as feasible. This would be necessary to
preserve the essence of dual GST.
 8 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

 In GST regime, tax (i.e. CGST and SGST/UTGST for intra-state supplies and IGST for inter-state
supplies) shall be paid by every taxable person and in this regard provisions have been prescribed in
the law. However, for providing relief to small businesses, a simpler method of paying taxes and
accounting thereof is also prescribed, known as Composition Scheme. Along with providing relief to
small-scale business, the law also contains provisions for granting exemption from payment of tax on
specified goods and/or services.
 Input Tax Credit (ITC) of CGST and SGST/UTGST will be available throughout the supply chain, but
cross utilisation of credit of CGST and SGST/UTGST will not be possible, i.e. CGST credit cannot be
utilised for payment of SGST/UTGST and SGST/UTGST credit cannot be utilised for payment of
CGST. However, cross utilisation will be allowed between CGST/SGST/UTGST, i.e. credit of IGST can
be utilised for the payment of CGST/SGST/UTGST and vice versa.
 Since GST is a destination based consumption tax, revenue of SGST will ordinarily accrue to the
consuming states. The inter-state supplier in the exporting state will be allowed to set off the
available credit of IGST, CGST and SGST/UTGST (in that order) against the IGST payable on inter-
state supply made by him. The buyer in the importing state will be allowed to avail the credit of
IGST paid on inter-state purchase made by him. Thus, unlike the existing scenario where the credit
chain breaks in case of inter-state sales on account of non-VATable CST, under GST regime there is
a seamless credit flow in case of inter-State supplies too. The revenue of inter-state sale will not
accrue to the exporting state and the exporting state will be required to transfer to the centre
the credit of SGST/UTGST used in payment of IGST. The centre will transfer to the importing state
the credit of IGST used in payment of SGST/UTGST.
Illustration 1 : (Intra-state Supply) : In case of local supply of goods/services, the supplier would charge
dual GST i.e., CGST and SGST at specified rates on the supply.
I. Supply of goods/services by A to B

Particulars Amount (Rs.)

Value charged for supply of goods/services 10,00,000

Add : CGST @ 9% 90,000
Add : SGST @ 9% 90,000

Total price charged by A from B for local supply of goods/services 11,80,000

The CGST and SGST charged on B for supply of goods/services will be remitted by A to the appropriate
account of the Central and State Government respectively.

A is the first stage supplier of goods/services and hence, does not have credit of CGST, SGST or IGST.

II. Supply of goods/services by B to C - Value addition @ 20%

B will avail credit of CGST and SGST paid by him on the purchase of goods/services and will utilise such
credit for being set off against the CGST and SGST payable on the supply of goods/services made by
him to C.
 GST in India : An Introduction 9

Particulars Amount (Rs.)

Value charged for supply of goods/services (Rs. 10,00,000 × 120%) 12,00,000

Add : CGST @ 9% 1,08,000

Add : SGST @ 9% 1,08,000

Total price charged by B from C for local supply of goods/services 14,16,000

Computation of CGST, SGST Payable by B to Government

Particulars Amount (Rs.)

CGST Payable 1,08,000

Less : Credit of CGST 90,000

CGST payable to Central Government 18,000

SGST Payable 1,08,000

Less : Credit to SGST 90,000

SGST payable to State Government 18,000

Note : Rates of CGST and SGST have been assumed to be 9% each.

Statement of Revenue Earned by Central and State Government

Transaction Revenue to the Central Revenue to the State

Government (Rs.) Government (Rs.)

Supply of goods/services by A to B 90,000 90,000

Supply of goods/services by B to C 18,000 18,000

Total 1,08,000 1,08,000

Illustration 2 : (Inter-state Supply) : In case of inter-state supply of goods/services, the supplier would
charge IGST at specified rates on the supply.
I. Supply of goods/services by X of State 1 to A of State 1

Particulars Amount (Rs.)

Value charged for supply of goods/services 10,00,000

Add : CGST @ 9% 90,000

Add : SGST @ 9% 90,000

 10 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

Total price charged by X from A for Intra- State supply of goods/services 11,80,000

X is the first stage supplier of goods/services and hence, does not have any credit of CGST, SGST and
IGST.

II. Supply of goods/services by A of State 1 to B of State 2 - Value addition @ 20%

Particulars Amount (Rs.)

Value charged for supply of goods/services (Rs. 10,00,000 × 120%) 12,00,000

Add : IGST @ 18% 2,16,000

Total price charged by A from B for inter-state supply of goods/services 14,16,000

Computation of IGST Payable to Government

Particulars Amount (Rs.)

IGST Payable 2,16,000

Less : Credit of CGST 90,000

Less : Credit of SGST 90,000

IGST payable 36,000

The IGST charged on B of State 2 for supply of goods/services will be remitted by A of State 1 to the
appropriate account of the Central Government. State 1 (Exporting State) will transfer SGST credit of
Rs. 90,000 utilised in the payment of IGST to the Central Government.

III. Supply of goods/services by B of State 2 to C of State 2 - Value Addition @ 20%

B will avail credit to IGST paid by him on the purchase of goods/services and will utilise such credit for
being set off against the CGST and SGST payable on the local supply of goods/services made by him to
C.

Particulars Amount (Rs.)

Value charged for supply of goods/services (Rs. 12,00,000 × 120%) 14,40,000

Add : CGST @ 9% 1,29,600

Add : SGST @ 9% 1,29,600

Total price charged by B from C for local supply of goods/services 16,99,200

Computation of CGST, SGST Payable by B to Government

 GST in India : An Introduction 11

Particulars Amount (Rs.)

CGST Payable 1,29,600

Less : Credit of IGST 1,29,600

CGST payable to Central Government Nil

SGST Payable 1,29,600

Less : Credit to IGST (Rs. 2,16,000 – Rs. 1,29,600) 86,400

SGST payable to State Government 43,200

Central Government will transfer IGST credit of Rs. 86,400 utilised in the payment of SGST to State 2
(Importing State).

Note : Rates of CGST, SGST and IGST have been assumed to be 9%, 9% and 18% respectively.
Statement of Revenue Earned by Central and State Government

Revenue to the Revenue to the Revenue to the

Transaction Central Government State 1 State 2 Government
(Rs.) Government (Rs.) (Rs.)

Supply of goods/services by X to A 90,000 90,000

Supply of goods/services by A to B 36,000

Transfer by State 1 to Center 90,000 (90,000)

Supply of goods/services by B to C 43,200

Transfer by Centre to State 2 (86,400) 86,400

Total 1,29,600 Nil 1,29,600

1.10 GST Common Portal - www.gst.gov.in

 12 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

Before GST, since, the Centre and State indirect tax administrations worked under different laws,
regulations, procedures and formats, their IT infrastructure and systems were also independent of each
other. Integrating them for GST implementation was complex since it required integrating the entire
indirect tax ecosystem so as to bring all the tax administrations (Centre, State and Union Territories) to
the same level of IT maturity with uniform formats and interfaces for taxpayers and other external
stakeholders.

Besides, GST being a destination-based tax, the inter-State trade of goods and services (IGST) needed a
robust settlement mechanism amongst the States and the Centre. A Common Portal was needed which
could act as a clearing house and verify the claims and inform the respective Governments to transfer
the funds. This was possible only with the help of a strong IT Infrastructure.

Resultantly, Common GST Electronic Portal – www.gst.gov.in – a website managed by Goods and Services
Network (GSTN) [a company incorporated under the provisions of section 8 of the Companies Act, 2013]
is set by the Government to establish a uniform interface for the tax payer and a common and shared
IT infrastructure between the Centre and States.

The GST portal is accessible over Internet (by taxpayers and their CAs/Tax Advocates etc.) and
Intranet by Tax Officials etc. The portal is one single common portal for all GST related services.

A common GST system provides linkage to all State/ UT Commercial Tax Departments, Central Tax
authorities, Taxpayers, Banks and other stakeholders. The eco-system consists of all stakeholders
starting from taxpayer to tax professional to tax officials to GST portal to Banks to accounting
authorities.

The functions of the GSTN include facilitating registration; forwarding the returns to Central and State
authorities; computation and settlement of IGST; matching of tax payment details with banking
network; providing various MIS reports to the Central and the State Governments based on the
taxpayer return information; providing analysis of taxpayers' profile.

However, it is important to note that the Common GST Electronic Portal for furnishing electronic way
bill is www.ewaybillgst.gov.in [managed by the National Informatics Centre, Ministry of Electronics &
Information Technology, Government of India]. E-way bill is an electronic document generated on the
GST portal evidencing movement of goods.

1.11 GSPs/ASPs
GSTN has selected certain Information Technology, Information Technology enabled Services and
financial technology companies, to be called GST Suvidha Providers (GSPs). GSPs develop applications to
be used by taxpayers for interacting with the GSTN.
They facilitate the tax-payers in uploading invoices as well as filing of returns and act as a single stop
shop for GST related services.
 GST in India : An Introduction 13

They customize products that address the needs of different segment of users. GSPs may take the help
of Application Service Providers (ASPs) who act as a link between taxpayers and GSPs.

1.12 Benefits of GST

GST is a win-win situation for the entire country. It brings benefits to all the
stakeholders of industry, Government and the consumer. The significant benefits
of GST are discussed hereunder:
Benefits to economy
 Creation of unified national market : GST aims to make India a common market with common tax
rates and procedures and remove the economic barriers thus paving the way for an integrated
economy at the national level.
 Boost to ‘Make in India' initiative : GST gives a major boost to the ‘Make in India' initiative of the
Government of India by making goods and services produced in India competitive in the national as
well as international market. This will create India as a ― Manufacturing hub.
 Enhanced investment and employment : The subsuming of major Central and State taxes in GST,
complete and comprehensive setoff of input tax on goods and services and phasing out of Central
Sales Tax (CST) reduces the cost of locally manufactured goods and services and increases the
competitiveness of Indian goods and services in the international market and thus, gives boost to
investments and Indian exports. With a boost in exports and manufacturing activity, more
employment is generated and GDP is increased.
Simplified tax structure
 Ease of doing business : Simpler tax regime with fewer exemptions along with reduction in multiplicity
of taxes under GST has led to simplification and uniformity in tax structure. The uniformity in laws,
procedures and tax rates across the country makes doing business easier.
 Certainty in tax administration : Common system of classification of goods and services across the
country ensures certainty in tax administration across India.
Easy tax compliance
 Automated procedures with greater use of IT: There are simplified and automated procedures for
various processes such as registration, returns, refunds, tax payments. All interaction is through the
common GSTN portal, therefore, less public interface between the taxpayer and the tax
administration.
 Reduction in compliance costs: The compliance cost is lesser under GST as multiple record-keeping
for a variety of taxes is not needed, therefore, there is lesser investment of resources and manpower
in maintaining records. The uniformity in laws, procedures and tax rates across the country goes a
long way in reducing the compliance cost.
Advantages for trade and industry
 Benefits to industry: GST has given more relief to trade and industry through a more comprehensive
and wider coverage of input tax set-off and service tax set-off, subsuming of several Central and
State taxes in the GST and phasing out of CST. The transparent and complete chain of set-offs
 14 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

which results in widening of tax base and better tax compliance also leads to lowering of tax burden
on an average dealer in trade and industry.
 Mitigation of ill effects of cascading: By subsuming most of the Central and State taxes into a single
tax and by allowing a set-off of prior-stage taxes for the transactions across the entire value chain,
it helps in mitigating the ill effects of cascading, improving competitiveness and improving liquidity of
the businesses.
 Benefits to small traders and entrepreneurs: GST has increased the threshold for GST registration for
small businesses. Further, single registration is needed in one State. Small businesses have also been
provided the additional benefit of composition scheme. With the creation of a seamless national
market across the country, small enterprises have an opportunity to expand their national footprint
with minimal investment.

1.13 Constitutional Provisions

Power to levy and collect taxes whether, direct or indirect emerges from the Constitution of India. In
case any tax law, be it an act, rule, notification or order is not in conformity with the Constitution, it is
called ultra vires the Constitution and is illegal and void.
The significant provisions of the Constitution relating to taxation are:

I. Article 265: Article 265 of the Constitution of India prohibits arbitrary collection of tax. It states
that “no tax shall be levied or collected except by authority of law”. The term “authority of law”
means that tax proposed to be levied must be within the legislative competence of the Legislature
imposing the tax.

II. Article 246: It gives the respective authority to Union and State Governments for levying tax.
Whereas Parliament may make laws for the whole of India or any part of the territory of India, the
State Legislature may make laws for whole or part of the State.

III. Seventh Schedule to Article 246: It contains three lists which enumerate the matters under which
the Union and the State Governments have the authority to make laws.

List – I Union List It contains the matters in respect of which the parliament (Central
Government) has the exclusive right to make laws.
List – II State List It contains the matters in respect of which the State Government
has the exclusive right to make laws.
List - III Concurrent List It contains the matters in respect of which both the Central &
State Governments have power to make laws.

Power to levy GST has been conferred by Article 246A of the Constitution which was introduced by the
Constitution (101st Amendment) Act, 2016. Article 279A empowered President to constitute GST Council.

Significant amendments made by Constitution (101st Amendment) Act, 2016 are discussed below:

IV. Article 246A: Power to make laws with respect to Goods and Services Tax
 GST in India : An Introduction 15

 This article grants power to Centre and State Governments to make laws with respect to GST
imposed by Centre or such State.
 Centre has the exclusive power to make laws with respect to GST in case of inter-State supply of
goods and/or services.
 However, in respect to the following goods, the aforesaid provisions shall apply from the date
recommended by the GST Council:
1. Petroleum Crude
2. High Speed Diesel
3. Motor Spirit (commonly known as Petrol)
4. Natural Gas
5. Aviation Turbine Fuel
V. Article 269A: Levy and collection of GST on inter-State supply

 Article 269A stipulates that GST on supplies in the course of inter-State trade or commerce shall be
levied and collected by the Government of India and such tax shall be apportioned between the Union
and the States in the manner as may be provided by Parliament by law on the recommendations of
the Goods and Services Tax Council.
 In addition to above, import of goods or services or both into India will also be deemed to be supply
of goods and/ or services in the course of Inter-State trade or Commerce.
 Parliament is empowered to formulate the principles regarding place of supply and when supply of
goods, or of services, or both occurs in inter-State trade or commerce.
VI. GST Council: Article 279A
 Article 279A of the Constitution empowers the President to constitute a joint forum of the Centre
and States namely, Goods & Services Tax Council (GST Council).
 The Union Finance Minister is the Chairman of this Council and Ministers in charge of
Finance/Taxation or any other Minister nominated by each of the States & UTs with Legislatures are
its members. Besides, the Union Minister of State in charge of Revenue or Finance is also its member.
 The function of the Council is to make recommendations to the Union and the States on important
issues like tax rates, exemptions, threshold limits, dispute resolution etc.
 GST Council shall also recommend the date on which GST be levied on petroleum crude, high speed
diesel, motor spirit, natural gas and aviation turbine fuel.

“Abhi to IDT Shuru Hui hai…”

 16

Note : Our discussion in this Book will principally be confined to the provisions of CGST and IGST laws, as the
specific State GST laws are outside the scope of syllabus. (Provisions of SGST laws are same as provisions of
CGST Act, except few exceptional provisions.)

Extent of CGST Act / SGST Act / UTGST Act/ IGST Act (Section 1)

Applicability CGST SGST UTGST IGST

Intra-State supply Inter-State supply

All States of India   

Union Territories with Legislature (Delhi, Puducherry   
and Jammu & Kashmir)
Union Territories without Legislature (UT)   
(a) the Andaman and Nicobar Islands;
(b) Lakshadweep;
(c) Dadra and Nagar Haveli and Daman and Diu;
(d) Ladakh;
(e) Chandigarh; and
(f) Other territory.

Definition of India [Sec. 2(56)] :

“India” means
 the territory of India as referred to in article 1 of the Constitution,
 its territorial waters, sea-bed and sub-soil underlying such
waters,
 continental shelf,
 exclusive economic zone or
 any other maritime zone as referred to in the Territorial
Waters, Continental Shelf, Exclusive Economic Zone and
 Levy OF GST 17

other Maritime Zones Act, 1976, and

 the air space above its territory and territorial waters.
Commencement of Acts – 01.07.2017 (J & K - 08.07.2017)
Levy and collection of CGST / IGST

Particulars CGST [SEC. 9(1)] of CGST Act, 2017 IGST [SEC. 5(1)] of IGST Act, 2017

Levied on Intra State supplies of Inter State supplies of

goods/services/both goods/services/both

Goods not leviable to Alcoholic liquor for human consumption

GST

Value for levy Value u/s 15 of the CGST Act

Rates Rates as notified by Government IGST rate= CGST rate + SGST rate
Maximum rate of CGST can be 20% Maximum rate of IGST can be 40%

Collected and paid by Taxable person [As per Sec. 2(107) “taxable person” means a person who is
registered or liable to be registered u/s 22 or 24;]

5 Supplies on which tax  petroleum crude GHUM LO OR JHUM LO…

would be levied w.e.f. a  high speed diesel
notified date [Sec.  motor spirit (commonly known as petrol)
9(2)/5(2)] [Which is not  natural gas and
yet notified]  aviation turbine fuel

Tax payable under  Supply of goods or services or both, notified by the Government. [Sec.
reverse charge 9(3)/5(3)]
mechanism (RCM) by  Supply of specified categories of goods or services or both by an
recipient of supply unregistered supplier to specified class of registered persons. [Sec.
9(4)/5(4)]
 All the provisions of the act shall apply to such recipient as if he is the
person liable for paying the tax.

Tax payable by the The Government may notify categories of services, the tax on supplies of
electronic commerce which shall be paid by ECO as if such services are supplied through it and
operator (ECO) [Sec. all the provisions of the act shall apply to such ECO as if ECO is the
9(5)/5(5)] supplier liable for paying the tax. [Eg. Uber, Ola, Swiggy, etc.]

Person liable to pay tax :

Forward Charge Sec. 9(1) / 5(1) Supplier of Goods/Service

Reverse Charge Sec. 9(3) / 9(4) / 5(3) / 5(4) Recipient of Goods/Service

 18 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

E- Commerce Sec. 9(5) / 5(5) ECO

Goods or Services imported in India:

Import of goods or services are treated as inter-state supplies as per provisions of IGST Act, 2017.
On import of goods, IGST is levied alongwith Customs duty. But, on import of services, only IGST is
levied.
On the goods imported into India (other than “online money gaming”), IGST shall be levied and
collected (as additional duty of customs in addition to basic customs duty) and the value shall also be
determined as per the Customs Laws.
Further, under GST, “online money gaming” is treated as goods on import of which only IGST is levied
but Customs duty is not levied.

TAXABLE EVENT UNDER GST = SUPPLY [SECTION 7]

...Supply GST …NO SUPPLY NO GST

Statutory Provisions
Sec. 7 Meaning and Scope of Supply

(1) Supply includes ( “ ” ... “ ”…)-

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange,
licence, rental, lease or disposal made or agreed to be made for a consideration by a
person in the course or furtherance of business;

(aa) the activities or transactions, by a person, other than an individual, to its members or
constituents or vice-versa, for cash, deferred payment or other valuable consideration.
Explanation.––For the purposes of this clause, it is hereby clarified that, notwithstanding
anything contained in any other law for the time being in force or any judgment, decree
or order of any Court, tribunal or authority, the person and its members or constituents
shall be deemed to be two separate persons and the supply of activities or transactions
inter se shall be deemed to take place from one such person to another;

(b) importation of services, for a consideration whether or not in the course or furtherance
of business and

(c) the activities specified in Schedule I, made or agreed to be made without a consideration.

(1A) Where certain activities or transactions constitute a supply in accordance with the provisions
of sub section (1), they shall be treated either as supply of goods or supply of services as
referred to in Schedule II.

(2) Notwithstanding anything contained in sub-section (1),

(a) activities or transactions specified in Schedule III; or

 Levy OF GST 19

(b) such activities or transactions undertaken by the Central Government, a State

Government or any local authority in which they are engaged as public authorities, as
may be notified by the Government on the recommendations of the Council

shall be treated neither as a supply of goods nor a supply of services.

(3) Subject to sub-sections (1), (1A) and (2), the Government may, on the recommendations of the
Council, specify, by notification, the transactions that are to be treated as –

(a) a supply of goods and not as a supply of services; or

(b) a supply of services and not as a supply of goods.

Supply in Brief
SUPPLY SHOULD BE OF GOODS OR SERVICES OR BOTH

Includes Excludes

1 Supply for consideration in course or furtherance of business Activities to be Negative list of

[Section 7(1)(a)] treated as services
2 Activities or transactions by AOP/BOI/Club etc. to its supply of goods [Section 7(2) +
members or constituents or vice-versa [Section 7(1)(aa)] or supply of Schedule III]
services
3 Importation of services for consideration whether or not in
[Section 7(1A)+
course or furtherance of business [Section 7(1)(b)]
Schedule II]
4 Supply without consideration [Section 7(1)(c) + Schedule I]

ANALYTICAL DISCUSSIONS
ANALYSIS OF SEC. 7(1)(a)

Supply Includes All forms of supply of goods or services or both such as

Sale A laptop dealer sells laptop to XYZ

Transfer A branch transfers goods to another branch

Barter Mr. XYZ exchanges his laptop with Mr. PQR’s camera without cash exchange between the
two parties

Exchange A laptop dealer sells new laptop for Rs. 40,000 along with an exchange of old laptop [Price
of new laptop without exchange is Rs. 50,000]

License A developer (license holder) of information technology software gives license to use the
software to his various clients

Rental Bike is given on rent

Lease A machinery is given on finance lease or operating lease

Disposal Sale of Old machineries after expiry of its useful life

 20 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

Made or agreed to be made

Made Agreed to be made

Goods/Services are supplied Advance is received for supply of goods/services

By a Person for a consideration in the course or furtherance of Business.

1. Following are the essential ingredients for any transaction to be considered as “Supply” as per Sec.
7(1)(a):

(i) Supply should be of goods or services. Supply of anything other than goods or services like money,
securities etc. does not attract GST.

(ii) Supply should be made for a consideration.

(iii) Supply should be made in the course or furtherance of business.

2. Supply of anything other than goods or services does not attract GST. Let us analyse the terms
“Goods” and “Services” as defined under the Act

DEFINITIONS
Goods [Sec. 2(52)] Services [Sec. 2(102)]
Means Every kind of Anything other than goods
movable property

Excludes Money and securities

Includes (i) actionable claim Activities relating to :

(ii) growing crops, grass and things (i) Use of money or
attached to/ forming part of (ii) Conversion of money by cash/by any other mode,
the land which are agreed to from one form/currency/ denomination, to another,
be severed before supply or for which a separate consideration is charged.
under a contract of supply.
(iii) facilitating or arranging transactions in securities

Note : Money shall not include any currency that is held for its numismatic value.

3. Analysis of the term “Consideration”:

(i). To be taxable, a supply should be carried out by a person for a ‘consideration’.

(ii). Consideration does not always means money. It covers anything which may be in money or may
be in kind.
 Levy OF GST 21

(iii). The Supply must be carried out for a consideration. The concept ‘supply for a consideration’
involves an element of contractual relationship wherein the person supplying goods or service
does so at the desire of the person for whom the supply is made in exchange for a
consideration. The supply made without such a relationship i.e. without the express or implied
contractual reciprocity of a consideration would not be a ‘supply for consideration’. Providing
free tourism information, access to free channels on TV, discussion on any topic with friends or
family members and large no. of governmental activities for citizens, etc. are some of the
examples of supply of services without consideration.
(iv). Supply made without any consideration like donations, gifts or free charities are therefore
outside the ambit of the term “supply” [except if covered by sec. 7(1)(c)].
(v). There should be a direct link between supply and consideration, and not only any casual link.
(vi). There should be an immediate connection between supply and consideration, and not only a
remote connection. Consideration may actually be payable at a later point of time but linkage
should be immediate. If there is no such immediate connection, then there is no supply [except if
covered by sec. 7(1)(c)].
(vii). Donations to a charitable organization are not consideration unless charity is obligated to
provided something in return e.g. display or advertise the name of donor in a specified manner or
such that it gives a desired advantage to the donor.
(viii). Levy of GST on the service of display of name or placing of name plates of the donor in the premises of
charitable organisations receiving donation or gifts from individual donors [Circular]

When the name of the donor is displayed in recipient institution premises, in such a manner,
which can be said to be an expression of gratitude and public recognition of donor’s act of
philanthropy, then, it can be said that there is no supply of service for a consideration (in the
form of donation) and hence, donation will not be chargeable to GST.
NO GST

Example: “Donated by Smt. Malati Devi in the memory of her father” written on the door or
floor of a room or any part of a temple complex which was constructed from such donation
But, if institution is under an obligation for display of name which is aimed at giving publicity to
the donor in such manner that it would be an advertising or promotion of his business, then it
will be supply of service for a consideration (in the form of donation) and will be chargeable to
GST. P GST

(vi) Art works sent by artists to galleries for exhibition is not a supply as no consideration flows from the
gallery to the artists [Circular]

Artists give their work of art to galleries where it is exhibited for supply. However, no
consideration flows from the gallery to the artist when the art works are sent to the gallery
for exhibition and therefore, the same is not a supply.
It is only when a buyer selects a particular art work displayed at the gallery, that the actual
supply takes place and applicable GST would be payable at the time of such supply.
 22 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

4. Analysis of “In The Course Or Furtherance Of Business” :

(i) GST is essentially a tax only on commercial transactions. Hence, only those supplies that are in
the course or furtherance of business qualify as supply under GST. Resultantly, any supplies made
by an individual in his personal capacity do not come under the ambit of GST unless they fall
within the definition of business.

Example : Deepika padukone buys jewellery for her personal use and after a few years, sells it to
a jeweller. Sale of jewellery by Deepika padukone to jeweller is not a supply under CGST Act
because supply is not made by Deepika padukone in the course or furtherance of business. But if
the same jewellery is supplied by jeweller to any buyer, then it will be covered under the term
“supply” because it is made by the jeweller in the course or furtherance of his business.

Example : Mr. Darshan sells a car of his personal use to a any person. Sale of car by Mr. Darshan
to any person is not a supply under CGST Act because this supply is not made in the course or
furtherance of business. But, in the same case, if Mr. Darshan sells a car which he is been using
in his business (as a business asset) to any person, then, it will be covered under the term
“supply”, although selling car is not his business, but, it will be deemed that this sale is made in
the course or furtherance of his business.

(ii) Any activity undertaken in course/for furtherance of business would constitute a supply. Since,
‘business’ includes vocation, sale of goods or service even as a vocation (whether or not there is
volume, frequency, continuity or regularity of such transactions) is a supply under GST.

Example: Mr. Kapil, a Chartered Accountant, paints some paintings and sells them. The
consideration from such sale is to be donated to a Charitable Trust. The sale of paintings by Mr.
Kapil qualifies as supply even though it is a one-time occurrence. Further, donating the
consideration does not have any impact while determining the transaction to be treated as supply
or not.

Analysis of Sec. 7(1)(aa) [Activities or transactions, by AOP/BOI/Club, etc. to its members or constituents
or vice-versa]

1. The Government has included the following clause specifically in the term ‘Supply’ retrospectively
w.e.f. 01.07.2017 through Finance Act, 2021, to remove the prevailing ambiguities in the market:
“activities or transactions, by a person, other than an individual, to its members or constituents or
vice-versa, for cash, deferred payment or other valuable consideration.
Explanation – The person and its members or constituents shall be deemed to be two separate
persons and the supply of activities or transactions inter se shall be deemed to take place from one
such person to another.”
2. Supply of goods or services or both by any person (including Association of Persons or Body of
Individuals), other than an individual, to its members or constituents or vice versa, shall also be
supply and will be chargeable to GST.
Examples:
 Levy OF GST 23

(i) Membership fee or any other consideration paid by members to unincorporated AOP/BOI (e.g.
Friends Club/Club Mahindra/etc.) for availing various services is Supply of Service and will be
chargeable to GST.
(ii) A local club supplies snacks, etc. to its members during its monthly meeting for a nominal
payment is supply of goods and will be chargeable to GST.

Clarification regarding taxable services provided by the members of the Joint Venture (JV) to the JV and vice versa
and inter se between the members of the JV [Circular]

1. Supply of goods or services or both by an unincorporated association or body of persons (AOP/BOI)

to a member thereof for cash, deferred payment or other valuable consideration shall be treated as
supply of goods or services or both, as AOP/BOI are treated as two separate persons. Hence, GST
will be levied on the same. Similarly, GST will be levied on the supply of goods or services or both by
member of an unincorporated joint venture (JV) to the JV or to other members of the JV.
2. Contribution from the members of the Joint venture (JV) is called ‘Cash Calls’.
(a). ‘Cash calls’, sometimes, could be in the nature of advance payments made by members towards
taxable services received from JV, hence, will be taxable under GST.
(b). ‘Cash calls’, sometimes, could be in the nature of Capital Contributions made by members to
raise the funds for JV and would be considered merely ‘a transaction in money’, hence, will not
be taxable under GST, as it is not in the nature of consideration.
Analysis of Sec. 7(1)(b) [Importation of services for consideration whether or not in course or furtherance
of business]
Section 7(1)(b) brings within the ambit of ‘supply’, the importation of services for a consideration
whether or not in the course or furtherance of business. This is the only exception to the condition of
supply being in course or furtherance of business.
Example: Mr. Pankaj, has subscribed online videos (TV Shows, Movies, Webseries etc.) for entertainment
of his family from www.netflix.com [an Online Information and Database access or retrieval (OIDAR)
service supplier from outside India] at an agreed consideration of $ 100. The import of services by Mr.
Pankaj is supply under section 7(1)(b), though it is not in the course or furtherance of business.
Note: Import of goods is governed by Customs Act.
Analysis of Section 7(1)(c) read with schedule I [Supply without consideration - Deemed Supply]
As per Schedule I, in the following cases, supplies made without consideration will be treated as supply
u/s 7 of the CGST Act:

Schedule I
1. Permanent transfer or disposal of business assets where input tax credit has been availed on such
assets.

2. Supply of goods or services or both between related persons or between distinct persons as
specified in section 25, when made in the course or furtherance of business:
However, gifts not exceeding Rs. 50,000 in value in a financial year by an employer to an employee
 24 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

shall not be treated as supply of goods or services or both.

3. Supply of goods –
(a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the
principal (Agent issuing invoice in his own name); or
(b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the
principal (Goods procured on behalf of principal are invoiced in agent’s name).

4. Import of services by a taxable person from a related person or from any of his other
establishments outside India, in the course or furtherance of business [“Taxable person” word
substituted by “person” by CGST (Amendment) Act, 2018, w.e.f. 01.02.2019].

Analytical Discussion Of Para 1 To 4 Of Schedule I

PARA 1 - Permanent Transfer / Disposal of Business Assets : Any kind of disposal or transfer of business
assets made by an entity on permanent basis even though without consideration qualifies as supply, if
Input Tax Credit (ITC) was availed on such assets.

Laptop Purchased

ITC availed ITC not availed

Sold with or without consideration

Sold with consideration Sold without consideration

Supply
Supply No Supply

Example : Guddu Bhaiya & Co. donates old A.C. to Charitable Schools. This will qualify as supply if input
tax credit had been availed by Guddu Bhaiya & Co. on purchase of such A.C.
Example : Transfer of business assets (in respect of which ITC was availed) from holding to subsidiary
company for NIL consideration, will qualify as supply.
Example : A dealer of air-conditioners permanently transfers an air conditioner from his stock in trade,
for personal use at his residence. The transaction will constitute a supply as it is a permanent transfer/
disposal of business assets. The only condition is that input tax credit should have been availed on such
assets.
PARA 2 - Supply between related person or distinct persons when made in the course or furtherance of business:

(a) Supply of goods or services or both by a person to his related persons or distinct persons will be
considered as supply even if made without consideration but it should be made in the course or
furtherance of his business.
(b) Related persons: Person (Includes Legal person) deemed as related person, if:
 Such persons are officers/directors of one another’s business
GST
 Such persons are legally recognised partners
(Related Persons)
 Levy OF GST 25

 Such persons are employer & employee

 A third person controls/own/holds (directly/indirectly) at least 25% voting stock/shares of both
 One of them controls (directly/indirectly) other
 A third person controls (directly/indirectly) both of them
 Such person together control (directly/indirectly) a third person
 Such persons are member of the same family
 One of them is the sole agent/sole distributer/sole concessionaire of the other.
(c) Family means -
(i) the spouse and children of the person, and
(ii) the parents, grandparents, brothers and sisters of the person if they are wholly or mainly
dependent on the said person. [ATTENTION : Dependent ]
(d) Supply of goods or services or both between an employer and employee:
- By virtue of the definition of related person given above, employer and employee are related
persons. However, services provided by an employee to the employer in the course of or in
relation to his employment are not treated as supply of services [Schedule III of CGST Act
(discussed in subsequent paras)].
- But, any of the goods or services supplied by the employer to the employee (in the course or
furtherance of business) will be covered under the scope of the term “supply” although it is
supplied without consideration.
- Gifts by employer to employee : Further, Schedule I provides that gifts upto Rs. 50,000 in value in
a financial year by an employer to an employee shall not be treated as supply of goods or
services or both. However, gifts of value more than Rs. 50,000 made without consideration are
subject to GST, when made in the course or furtherance of business.
(e) Distinct Persons specified u/s 25 : A person who has obtained/is required to obtain more than one
registration, whether in one State/Union territory or more than one State/Union territory shall, in
respect of each such registration, be treated as distinct persons.
Example : Mr. Ram, has a registered head office in Mumbai. He has also obtained registration in the
State of Punjab in respect of his newly opened branch office. Mr. Ram shall be treated as distinct
persons in respect of registrations in Maharashtra and Punjab.

Registered head office Registered branch office

in Maharashtra Distinct persons in Punjab

(f) Stock transfers or branch transfers: In view of the aforesaid discussion, transactions between
different locations (with separate GST registrations) of same legal entity (e.g., stock transfers or
branch transfers) will qualify as ‘supply’ under GST.
 26 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

Whether separate Whether transfer

registrations have between them will
Whether the
been obtained for two be considered as
establishments have
places of business supply under GST?
same PAN?
within same State?

YES NO NO

YES YES YES

Example : Raghubir Fabrics transfers 1000 shirts from his factory located in Lucknow to his retail
showroom in Delhi so that the same can be sold from there. The factory and retail showroom of
Raghubir Fabrics are registered in the States where they are located. Although no consideration is
charged, supply of goods from factory to retail showroom constitutes supply, as factory located in
Lucknow and retail showroom in Delhi are distinct persons.

Circulars regarding transactions between Distinct Persons

1. GST is leviable on inter-state branch transfer of aircraft engines, parts and accessories for use
by their own airlines. Further, Input Tax Credit of GST paid on purchase of aircraft engines,
parts & accessories will be available for discharging GST liability on inter–state supply of such
aircraft engines, parts & accessories by way of inter-state stock transfers between distinct
persons. [Circular]
2. Inter-state movement of various modes of conveyance for transportation of goods or passengers
(Ex. Trucks, Tankers, Buses, Cars, Trailers, Trains, Vessels, Aircrafts, etc.), between distinct
persons, may not be treated as supply [except in cases where such movement is for further
supply of same conveyance] and consequently, IGST will not be payable on such mode of
conveyance.
However, applicable GST shall be leviable on repairs and maintenance done by distinct person for
such conveyance. [Circular]
3. Inter-state movement of rigs, tools and spares, and all goods on wheels [like cranes, etc.],
between distinct persons is not leviable to IGST [except in cases where such movement is for
further supply of these goods]. [Circular]
PARA 3 : Supply of Goods between Principal and Agent:

 Where the Invoice for further supply to the customer is being issued by the agent in his own name,
then, any removal of goods from the principal to the agent would fall within the scope of para 3
above and GST will be levied on removal of goods from the principal to the agent.
However, where the invoice is issued by the agent to the customer in the name of the principal, such
agent shall not fall within the scope of para 3 above and no GST will be levied on removal of goods
from the principal to the agent.
 Levy OF GST 27

 Similarly, where the goods being procured by the agent on behalf of the principal are invoiced in the
name of the agent, then, further removal of the said goods by agent to the principal would be
covered by para 3 above and GST will be levied on removal of goods from the agent to the principal
[Circular].

Where the invoice is issued by

Whether he will be an agent in
the agent to the customer in
terms in para 3 of Sch. I
the name of:

Principal No

Agent Yes

The Above Clarification can be understood with the help of following scenario based examples :

Scenario 1 : Mr. A appoints Mr. B to procure certain goods from the market. Mr. B identifies various
suppliers who can provide the goods as desired by Mr. A, and asks the supplier (Mr. C) to send the goods
and issue the invoice directly to Mr. A. In this scenario, Mr. B is only acting as the procurement agent,
and has in no way involved himself in the supply or receipt of the goods. Hence, in accordance with the
provisions of this Act, Mr. B is not an agent of Mr. A for supply of goods in terms of Schedule I.
Scenario 2 : M/s XYZ, a banking company, appoints Mr. B (auctioneer) to auction certain goods. The
auctioneer arranges for the auction and identifies the potential bidders. The highest bid is accepted and
the goods are sold to the highest bidder by M/s XYZ. The invoice for the supply of the goods is issued
by M/s XYZ to the successful bidder. In this scenario, the auctioneer is merely providing the
auctioneering services with no role played in the supply of the goods. Even in this scenario, Mr. B is not
an agent of M/s XYZ for the supply of goods in terms of Schedule I.
Scenario 3 : Mr. A, an artist, appoints M/s B (auctioneer) to auction his painting. M/s B arranges for the
auction and identifies the potential bidders. The highest bid is accepted and the painting is sold to the
highest bidder. The invoice for the supply of the painting is issued by M/s B on the behalf of Mr. A but
in his own name and the painting is delivered to the successful bidder. In this scenario, M/s B is not
merely providing auctioneering services, but is also supplying the painting on behalf of Mr. A to the
bidder, and has the authority to transfer the title of the painting on behalf of Mr. A. This scenario is
covered under Schedule I.
A similar situation can exist in case of supply of goods as well where the C&F agent or commission agent
takes possession of the goods from the principal and issues the invoice in his own name. In such cases,
the C&F/commission agent is an agent of the principal for the supply of goods in terms of Schedule I.
The disclosure or non-disclosure of the name of the principal is immaterial in such situations.
Scenario 4 : Mr. A sells agricultural produce by utilizing the services of Mr. B who is a commission agent
as per the Agricultural Produce Marketing Committee Act (APMC Act) of the State. Mr. B identifies the
buyers and sells the agricultural produce on behalf of Mr. A for which he charges a commission from Mr.
A. As per the APMC Act, the commission agent is a person who buys or sells the agricultural produce on
behalf of his principal, or facilitates buying and selling of agricultural produce on behalf of his principal
 28 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

and receives, by way of remuneration, a commission or percentage upon the amount involved in such
transaction.
In cases where the invoice is issued by Mr. B to the buyer, then, he is an agent covered under Schedule
I. However, in cases where the invoice is issued directly by Mr. A to the buyer, the commission agent
(Mr. B) doesn't fall under the category of agent covered under Schedule I.

Circular regarding transactions between Principal & Del-Creder Agent [Circular]

In commercial trade parlance, a DCA is a selling agent who is engaged by a principal to assist in supply
of goods or services by contacting potential buyers on behalf of the principal. The factor that
differentiates a DCA from other agents is that the DCA guarantees the payment to the supplier. In such
scenarios where the buyer fails to make payment to the principal by the due date, DCA makes the
payment to the principal on behalf of the buyer (effectively providing an insurance against default by
the buyer), and for this reason the commission paid to the DCA may be relatively higher than that paid
to a normal agent. In order to guarantee timely payment to the supplier, the DCA can resort to various
methods including extending short-term transaction-based loans to the buyer or paying the supplier
himself and recovering the amount from the buyer with some interest at a later date. This loan is to be
repaid by the buyer along with an interest to the DCA at a rate mutually agreed between DCA and
buyer.
Issues have been raised regarding the valuation of supplies from Principal to recipient where the
payment for such supply is being discharged by the recipient through the loan provided by DCA or by
the DCA himself.
So, it is clarified that if the transactions between principal and Del-Creder Agent (DCA) is covered under
Sch. I – Para 3, then, the interest charged by DCA to his customers will form part of value of supply by
DCA to customers & hence, GST will be charged on entire value including interest.
But, if the transaction between Principal & DCA does not fall in Sch. I – Para 3, then, the interest
charged by DCA to customer is merely an interest charged for extending loans or advances to customer
which is exempt from GST. Hence, interest will not be chargeable to GST
Example: Mr. Handsome, del-credere agent (DCA) of Charm Limited, agrees to raise invoices in his own
name and also guarantees for the realization of payments from customers to Charm Limited. In order to
realize the payments from customers on time, he extends short-term transaction-based loans to them
and charges interest for the same.
For the month of March, sale of goods by Mr. Handsome in his DCA capacity is Rs. 2,80,000 and interest
earned from the said customers for short term credit facility provided for timely payment of dues is Rs.
20,000. Further, commission charged from Charm Limited in respect of DCA services provided is Rs.
30,000. The value of supply of goods to customers is Rs. 3,00,000 and value of supply of agency services
to Charm Limited is Rs. 30,000.

PARA 4 : Importation of services :

Import of services by a person from a related person or from his establishments located outside India,
without consideration, in the course or furtherance of business shall be treated as “supply”.
 Levy OF GST 29

Example : Mangal Associates received legal consultancy services from its head office located in USA. The
head office has rendered such services free of cost to its branch office. Since, Mangal Associates and
the branch office are related persons, services received by Mangal Associates will qualify as supply,
even though the head office has not charged anything from it.
Example: Vijay, a proprietor registered in Pune, has sought architect services from his related person
located in US, with respect to his newly constructed house in Pune. Although services have been received
by Vijay without consideration from a related person, yet it will not qualify as supply, since, the same
has not been received in the course or furtherance of business.

IMPORT OF SERVICES

With consideration Without consideration

In course of Not in course Related person / his Other

furtherance of furtherance other establishment cases
of business of business + in course or
furtherance of
business
Not a supply
Supply

Analysis of Section 7(1A) read with schedule II [Activities or Transactions to be treated as supply of goods
or Supply of Services]
Where certain activities or transactions constitute a supply in accordance with the provisions of sub
section (1), they shall be treated either as supply of goods or supply of services as referred to in
Schedule II. [ATTENTION : Schedule II transactions S as per Sec. 7(1)]

Schedule II
Activities or transactions to be treated as supply of Goods or supply of services

Sr. Transaction Type Nature of Supply

No.

1 Transfer (a) Title in goods [Example : Sale of goods] Supply of Goods

(b) Right in goods/undivided share in goods without Supply of Services

transfer of title in goods [Example : Renting of
machinery]

(c) Title in goods under an agreement which stipulates Supply of Goods

that property in goods shall pass at a future date upon
payment of full consideration as agreed. [Example : Hire
Purchase]
30 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

2 Land and (a) Lease, tenancy, easement, licence to occupy land Supply of Services
Building Example : Lease agreement for land

(b) Lease or letting out of the building including a Supply of Services

commercial, industrial or residential complex for
business or commerce, either wholly or partly.
Example : A shop let out in a busy market area

3 Treatment Applied to another person’s goods Supply of Services

or Process Example : “Job Work” performed by a job worker like dyeing
of fabric in various colours.

4 Transfer of (a) Goods forming part of assets of a business are Supply of Goods
Business transferred or disposed off by or under the directions of
Assets the person carrying on the business so as no longer to
form part of those assets.
Example : ABC & Co. donates old A.C. to Charitable
Schools. This will qualify as supply of goods, if input tax
credit had been availed by ABC & Co. on such A.C.

(b) Goods held/used for business are put to private use or Supply of Services
are made available to any person for use, for any
purpose other than a purpose of the business, by/under
the direction of a person carrying on the business.
Example : A director using car provided by the company
for personal travels.

(c) Goods forming part of assets of any business carried on Supply of Goods
by a person who ceases to be a taxable person, shall
be deemed to be supplied by him, in the course or
furtherance of his business, immediately before he
ceases to be a taxable person.
Example : Mr. A, a trader, is winding up his business.
Any goods left in stock shall be deemed to be supplied
by him and GST shall be payable.
Exceptions:
 Business is transferred as a going concern to another
person.
 Business is carried on by a personal representative
who is deemed to be a taxable person.

5 (a) Renting of immovable property Supply of Services

Analysis :
(i) As per this clause, renting of immovable property for any
 Levy OF GST 31

commercial activity, permitting use of immovable property for

placing vending/ dispensing machines, allowing
erection of communication tower on a building
for consideration, renting of land or building for
entertainment or sports and renting of theatres
by owners to film distributors are all chargeable
to GST.
(ii) Halls, rooms, etc. let out by hotels/restaurants for a consideration
for organizing social, official or business functions or letting out of
halls for cultural functions are covered within the scope of renting
of immovable property and would be taxable.

(b) Construction of complex, building, civil structure, etc.: Construction of a Supply of Services
complex, building, civil structure or a part thereof, including a complex
or building intended for sale to a buyer, wholly or partly, except where
the entire consideration has been received after issuance of completion
certificate, where required, by the competent authority or after its
first occupation, whichever is earlier.
The term construction includes additions, alterations, replacements, or
remodelling of any existing civil structure.
The expression competent authority means the Government or any
authority authorised to issue completion certificate under any law for
the time being in force and in case of non-requirement of such
certificate from such authority, from any of the following, namely:
(i) an architect registered with the Council of Architecture
constituted under the Architects Act, 1972; or
(ii) a chartered engineer registered with the Institution of Engineers
(India); or
(iii) a licensed surveyor of the respective local body of the city or town
or village or development or planning authority.
Analysis :
If the builder/developer is constructing flats, offices, etc. in a complex,
and then booking them against advance payment before grant of
completion certificate from competent authority, then, the value of the
flats, offices, etc. (which are booked before grant of completion
certificate) shall be chargeable to GST under the heading of
“construction service”.

Alia Bhatt, Kiara Advani Flat Booking… …

32 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

Value of flat = Rs. 1 Crore

Consideration Received

Before Completion After Completion

Case 1
1 2 3 Taxable value for GST = 1 Crore

Rs. 50 lakhs Rs. 25 lakhs Rs. 25 lakhs

Case 2
1 2 Taxable Value for GST = 1 Crore

Re. 1 Rs. 99,99,999

Case 3
1 Not taxable as per Sch. III
No Consideration Received
Rs. 1 Crore
(c) Temporary transfer or permitting use or enjoyment of any Intellectual Supply of Services
Property Right (IPR)
Example : Temporary transfer of copyright of any book by author.

(d) Development, design, programming, customisation, adaptation, Supply of Services

upgradation, enhancement, implementation of Information Technology
Software.
Example : Supply of customised software to run video classes for
smooth processing, encryption and decryption of videos is a supply of
service.

(e) Agreeing to obligation to refrain from an act, or to tolerate an act or Supply of Services
situation, or to do an act.
Analysis : In non-compete agreement, where one party agrees, for
consideration, not to compete with the other in any specified products,
services, geographical location or in any other manner, such action on
the part of one person is also a supply of service for consideration and
will be covered by this clause.
Example : Cable operator - Sakharam has entered into an agreement
with Cable operator - Aatmaram that Sakharam will not provide cable
connections in the specified areas where Aatmaram is providing the
connections. Non -compete agreements constitute supply of service.

(f) Transfer of right to use any goods for any purpose Supply of Services
Example : Machinery given on finance lease

6 Following composite supplies : Supply of Services

(a) Works contract
 Levy OF GST 33

Works contract means a contract for building, construction, fabrication,

completion, erection, installation, fitting out, improvement, modification,
repair, maintenance, renovation, alteration or commissioning of any
immovable property wherein transfer of property in goods (whether as
goods or in some other form) is involved in the execution of such
contract.
Analysis:
(i) If the construction, repairs, etc. contract is a composite contract
of labour plus material (i.e. material is also supplied by service
provider along with construction, repairs, etc. service), then, it is a
supply of service and GST would be charged on such contract under
the heading of “Works Contract Service”.
(ii) If the construction, repairs, etc. contract is a pure labour contract
(i.e. no materials are supplied by service provider), then, GST would
be charged on such service under the heading of “construction
service” or “repairing, etc. service”.

(b) Restaurant and Outdoor Catering Services - Supply by Supply of Services

way of or as part of any service or in any other manner
whatsoever, of goods, being food or any other article for
human consumption or any drink (other than alcoholic
liquor for human consumption), where such supply or
service is for cash, deferred payment or other valuable
consideration.
Analysis: The activities of supply of food or drinks in a restaurant, etc.
and supply of foods and drinks by an outdoor caterer are covered in this
clause.

Clarification regarding Issue related to taxability of ‘tenancy rights’ under GST [Circular]

Doubts:
(i) Whether transfer of tenancy rights to an incoming tenant, consideration for which is in form of
tenancy premium, shall attract GST when stamp duty and registration charges is levied on the said
premium ?
(ii) Further, in case of transfer of tenancy rights, a part of the consideration for such transfer accrues
to the outgoing tenant, whether such supplies will also attract GST?
Clarification:

1. The transfer of tenancy rights against tenancy premium which is also known as “pagadi system” is
prevalent in some States. In this system the tenant acquires, tenancy rights in the property from
landlord against payment of tenancy premium. Alternatively, Sometimes the landlord pays to tenant
the prevailing tenancy premium to get the property vacated.
2. Any lease/tenancy/easement/license, to occupy land is supply of service (Para-2 Schedule II).
 34 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

3. Transfer of tenancy rights will not be treated as sale of land/building even if stamp duty and
registration charges is levied on the said premium.
4. Hence, the activity of transfer of ‘tenancy rights’ is covered under the scope of supply and is
taxable under GST.
5. Renting of residential dwelling for use as a residence to an unregistered person is Exempt under
GST.
6. Hence, grant of tenancy rights by landlord in a residential dwelling for use as residence to an
unregistered person against tenancy premium or periodic rent or both is also exempt.
7. As regards services provided by outgoing tenant by way of surrendering the tenancy rights against
consideration in the form of a portion of tenancy premium is always liable to GST.
8. Merely because a transaction/supply involves execution of documents (requiring registration and
payment of fees and/or stamp duty), would not preclude them from scope of supply.

Clarification regarding taxability of goods imported under lease [Circular]

Goods like aircrafts, aircraft engines, other aircraft parts, rigs & ancillary items for oil / gas
exploration / production, etc. which are imported into India on temporary basis are the transactions of
“supply of services” which are covered by item 1(b) or 5(f) of Schedule II and are liable to pay IGST.
Further, these are exempted from Customs duty.

Analysis of Section 7(2)

1. Activities/transactions specified under Schedule III of the CGST Act [Section 7(2)(a)] [Negative List under GST]:

Activities specified under schedule III can be termed as “Negative list” under the GST regime. This
schedule specifies transactions / activities which shall be neither treated as supply of goods nor a
supply of Services.

Schedule III
Sl. Activities or transactions which shall be treated neither as a supply of goods nor a supply of services

1. Services by an employee to the employer in the course of or in relation to his employment.

Analysis:

(i) Any amount paid to an independent director of a company for attending board of director’s
meeting, etc., shall be chargeable to GST, because it is not paid in the capacity of an
employee. But, if any amount is paid to whole time director in the capacity of employee, then,
no GST will be charged on the same.
(ii) Further, GST on the services provided by a director (not in the capacity of employee) to the
company or body corporate is chargeable to GST under Reverse Charge Mechanism u/s 9(3) of
the CGST Act, 2017 (i.e. company or body corporate will be liable to pay GST to the
government directly on the amount paid to director).
(iii) Non-compete fees received by an employee from employer is taxable as it is not in the course
 Levy OF GST 35

of or in relation to employment.

2. Services by any Court or Tribunal established under any law for the time being in force.
Explanation : The term “Court” includes District Court, High Court and Supreme Court.

3. (a) Functions performed by the Members of Parliament, Members of State Legislature, Members
of Panchayats, Members of Municipalities and Members of other local authorities; or
(b) Duties performed by any person who holds any post in pursuance of the provisions of the
Constitution in that capacity; or
(c) Duties performed by any person as a Chairperson or a Member or a Director in a body
established by the Central Government or a State Government or local authority and who is
not deemed as an employee before the commencement of this clause.

4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.

GST ...

5. Sale of land and, subject to paragraph 5(b) of Schedule II, sale of building.

Rental, leasing, licensing of land and building Treated as supply of service [GST is
applicable]

Sale of flats, etc. in a building before Treated as supply of service under para 5(b) of
completion certificate or 1st occupancy, Sch. II [GST is applicable]
whichever is earlier

Sale of land and building Not treated as supply as per para 5 of Sch.
III [GST is not applicable]

6. Actionable claims, other than specified actionable claims. GST ...

Note: "Specified actionable claim" means the actionable claim involved in or by way of betting,
casinos, gambling, horse racing, lottery or online money gaming. Further, the applicable rate of
GST on specified actionable claims is 28%.
Illustration: M/s Rohit ASREC Ltd. procured a portfolio of NPAs (of Rs. 50 crores) from Pankaj
Bank Ltd. for a consideration of Rs. 7 crores (under the provisions of SRFAESI Act, 2002).
Whether GST is leviable on Rs. 7 crores ?
Solution: A transaction of procurement of a portfolio of NPAs is a transaction in actionable claim
and is covered under para 6 of Schedule III. Therefore, no GST would be charged on this
transaction.

Clarification in respect of levy of GST on Director’s remuneration [Circular]

1. Leviability of GST on remuneration paid by companies to the independent directors or those directors
who are not the employee of the said company
 36 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

The primary issue to be decided is whether or not a “Director” is an employee of the company. In
respect of independent directors or those directors who are not the employees of the company, the
services provided by them to the Company, in lieu of remuneration as the consideration for the said
services, are clearly outside the scope of Schedule III of the CGST Act and are therefore taxable.
Further, in this case, the recipient of the said services i.e. the Company, is liable to discharge the
applicable GST on it on reverse charge basis.

2. Leviability of GST on remuneration paid by companies to the directors, who are also an employee of the
said company
Once, it has been ascertained whether a director, irrespective of name and designation, is an
employee, it would be pertinent to examine whether all the activities performed by the director are
in the course of employer-employee relation (i.e. a “contract of service”) or is there any element of
“contract for service”.

The part of Director’s remuneration which are declared as “Salaries” in the books of a company and
subjected to TDS u/s 192 of the Income Tax Act, are not taxable being consideration for services by
an employee to the employer in the course of or in relation to his employment in terms of Schedule
III of the CGST Act, 2017.

Further, the part of employee Director’s remuneration which is declared separately other than
“salaries” in the Company’s accounts and subjected to TDS u/s 194J of the Income Tax Act as Fees
for professional or Technical Services shall be treated as consideration for providing services which
are outside the scope of Schedule III of the CGST Act, and is therefore, taxable. Further, in this
case, the recipient of the said services i.e. the Company, is liable to discharge the applicable GST on
it on reverse charge basis.

Clarifications regarding applicability of GST on Perquisites provided by employer to the employees as per
contractual agreement [Circular]

Any perquisites provided by the employer to its employees in terms of contractual agreement entered
into between the employer and the employee are in lieu of the services provided by employee to the
employer in relation to his employment. It follows therefrom that perquisites provided by the employer
to the employee in terms of contractual agreement entered into between the employer and the
employee, will not be subjected to GST when the same are provided in terms of the contract between
the employer and employee. [Examples of perquisites: company car, fuel reimbursement, interest-free
loan, medical facilities, credit cards, rent free accommodation, etc.]

Clarifications regarding applicability of GST on Sale of Land after levelling, laying down of drainage lines,
etc. [Circular]

(i) As per Sl. no. 5 of Schedule III, ‘sale of land’ is neither a supply of goods nor a supply of services,
therefore, sale of land does not attract GST.
 Levy OF GST 37

(ii) Land may be sold either as it is or after some development such as levelling, laying down of drainage
lines, water lines, electricity lines, etc. It is clarified that sale of such developed land is also sale of
land and is covered by Sl. No. 5 of Schedule III and accordingly does not attract GST.
(iii) However, it may be noted that any service provided for development of land, like levelling, laying of
drainage lines (as may be received by developers) shall attract GST at applicable rate for such
services.

Clarification on GST chargeable on the amount payable to Consumer Disputes Redressal Commission office
and its subordinate offices [Circular]

Services by any court or Tribunal established under any law for the time being in force is neither a
supply of goods nor services. Consumer Disputes Redressal Commissions (National/ State/ District) may
not be tribunals literally as they may not have been set up directly under Article 323B of the
Constitution. However, they are clothed with the characteristics of a tribunal having regard to their
functioning.
Having regard to their functioning & characteristics, it is hereby clarified that fee paid by litigants in
the Consumer Disputes Redressal Commissions are not leviable to GST. Any penalty imposed by or amount
paid to these Commissions will also not attract GST.
2. Activities/Transactions notified by the Government [Sec. 7(2)(b)]:

Such activities/transactions undertaken by the central Government, a state government or union

territory or any local authority in which they are engaged as public authorities, as may be notified by
the government on the recommendations of the Council shall be treated neither as supply of goods nor
supply of services.
Using this power, following activities have been notified which shall be treated neither as supply of
goods nor supply of services:
(i) Services provided by Central Government, State Government, Union territory or any local authority
by way of any activity in relation to a function entrusted to a Panchayat under article 243G of the
constitution or to a Municipality under article 243W of the constitution.
(ii) Service provided by State Government by way of grant of alcoholic liquor license, against
consideration in the form of license fee or application fee or by whatever name it is called.
[Circular]: This special dispensation applies only to supply of service by way of grant of liquor
licenses by the State Governments as an agreement between the Centre and States and has no
applicability or precedence value in relation to grant of other licenses and privileges for a fee in
other situations, where GST is payable.
Note: Further, Government has power to grant exemption to any goods or services or both from the
GST leviable u/s 11 of the CGST and u/s 6 of the IGST. And, by using this power, Government has
exempted many goods and services from GST, which will be discussed in later chapters of this book.

Clarification regarding taxability of supply of securities under Securities Lending Scheme, 1997 [Circular]

(i). The activity of lending of securities is not a transaction in securities as it does not involve disposal
of securities.
 38 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

(ii). The lenders earn lending fee for lending their securities to the borrowers. The security lending
mechanism is depicted in the diagram below: -

Securities Approved Securities

Lender Borrower
Intermediary

(iii). The lender temporarily lends the securities held by him to a borrower and charges lending fee for
the same from the borrower. The borrower of securities can further sell or buy these securities
and is required to return the lended securities after stipulated period of time. The lending fee
charged from the borrowers of securities has the character of consideration and this activity is
taxable in GST.
(iv). Apart from above, the activities of the intermediaries facilitating lending and borrowing of
securities for commission or fee are also taxable separately.
(v). Further, the borrower of securities shall be liable to discharge GST [under reverse charge
mechanism (RCM)].
(vi). The nature of GST to be paid shall be IGST under RCM.

Clarification on taxability of shares held in a subsidiary company by the holding company [Circular]

Issue: Whether the activity of holding shares by a holding company of the subsidiary company will be
treated as a supply of service or not and whether the same will attract GST or not.
Clarification: Securities are considered neither goods nor services under GST. Further, purchase or sale of
shares or securities, in itself is neither a supply of goods nor a supply of services. Therefore, the activity
of holding of shares of subsidiary company by the holding company per se cannot be treated as a supply
of services by a holding company to the said subsidiary company and cannot be taxed under GST.

Clarification regarding betting / gambling [Circular]

 GST will be levied on the admission charge or entry fee charged for admission into casino [Supply of
Service].
 GST will be levied on betting / gambling services being provided by
casinos [Supply of Service].
 GST is leviable at 28% on the transaction value of betting/gambling, i.e.
the total bet value. For example, If entire bet value is Rs. 100, GST
leviable will be Rs. 28/-.
 GST will be levied on horse racing [Supply of Service].
 GST is leviable at 28% on the transaction value of betting, i.e. the total bet value i.e. total of face
value of any or all bets paid into the totalisator or placed with licensed book makers, as the case
may be. For example, If entire bet value is Rs. 100, GST leviable will be Rs. 28/-.
 Levy OF GST 39

The Following Diagram summarise the steps to determine whether an activity undertaken is supply or not

Is the activity a supply including supply of No

goods/services such as sale, transfer, barter,
exchange, licence, rental, lease or disposal?

Yes

Is it for No Is it an activity specified No

consideration? under Schedule I?

Yes Yes

Is it in
course or
No
Is it in
Is it furtherance
course or No
import of of business?
furtherance No
service?
of business?
Yes
Yes
Yes

is it an activity specified in No Activity is Activity is

Schedule III or section
Supply NOT Supply
7(2)(b)?

or section (2 Yes
)

Composite And Mixed Supplies [Section 8]

 GST is payable on individual goods or services or both at the notified rates. Some of the supplies are
a combination of goods or combination of services or combination of goods and services both and each
individual component of such supplies may attract a different rate of tax.
 In such a case, the rate of tax to be levied on such supplies may be a challenge. It is for a reason,
that the GST law identifies composite supplies and mixed supplies and provides certainty in respect
of tax treatment under GST for such supplies.
 In order to determine whether the supplies are ‘Composite supplies’ or ‘mixed supplies’, one needs to
determine whether the supplies are naturally bundled or not naturally bundled in ordinary course of
business.
 40 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

Statutory Provisions
Section 8 Tax liability on composite and mixed supplies

Clauses Particulars

The tax liability on a composite or a mixed supply shall be determined in the following
manner, namely :
(a) a composite supply comprising two or more
supplies, one of which is a principal supply,
shall be treated as a supply of such principal
supply; and
(b) a mixed supply comprising of two or more
supplies shall be treated as supply of that
particular supply that attracts highest rate of
tax.

Analysis of Composite Supplies

1. Composite supply means a supply made by a taxable person to a recipient and :

 Comprises two or more taxable supplies of goods or services or both, or any combination thereof,
 Which are naturally bundled and supplied in conjunction with each other, in the ordinary course
of business,
 One of which is a principal supply.
2. This means that in a composite supply, goods or services or both are bundled owing to natural
necessities. The elements in a composite supply are dependent on the ‘principal supply’.
3. Principal Supply means the supply of goods and services which constitutes the predominant element
of a composite supply and to which any other supply forming part of that composite supply is
ancillary.
4. Composite supply shall be treated as a supply of such principal supply for the purpose of taxability.
Example: Suvarna Manufacturers entered into a contract with XYZ Ltd. for supply of readymade
shirts packed in designer boxes at XYZ Ltd.’s outlet. Further, Suvarna Manufacturers would also get
them insured during transit. In this case, supply of goods, packing materials, transport & insurance is
a composite supply wherein supply of goods is principal supply.
Example: When a consumer buys a television set and he also gets warranty and a maintenance
contract with the TV, this supply is a composite supply. In this example, supply of TV is the
principal supply, warranty and maintenance services are ancillary.
Example: A travel ticket from Mumbai to Delhi may include service of food being served on board,
free insurance, and the use of airport lounge. In this case, the transport of passenger, constitutes
the pre-dominant element of the composite supply, and is treated as the principal supply and all
other supplies are ancillary.
 Levy OF GST 41

5. Works contract and restaurant services are classic examples of composite supplies. However, the
GST law identifies both as supply of services and such services are chargeable to specific rate of
tax mentioned against such services (works contract service and restaurant service).
6. How to determine whether the services are bundled in the ordinary course of business?
Whether the services are bundled in the ordinary course of business, would depend upon the normal
or frequent practices followed in the area of business to which services relate. Such normal and
frequent practices adopted in a business can be ascertained from several indicators.
Example: Service of stay in hotel is often combined with a restaurant service. Such service is an
ancillary service to the provision of hotel accommodation and the resultant package would be
treated as services naturally bundled in ordinary course of business.
Analysis of Mixed Supplies

1. Mixed supply means:

 two or more individual supplies of goods or services, or any combination thereof, made in
conjunction with each other by a taxable person;
 for a single price where such supply does not constitute a composite supply.
2. The individual supplies are independent of each other and are not naturally bundled.
3. How to determine if a particular supply is a mixed supply?
 A supply can be a mixed supply only if it is not a composite supply. As a corollary it can be said
that if the transaction consists of supplies not naturally bundled in the ordinary course of
business, then, it would be a mixed supply.

 Once the amenability of the transaction as a composite supply is ruled out, it would be a mixed
supply, if single price is charged by supplier for a bundled supply.

4. A mixed supply shall be treated as supply of that particular supply that attracts highest rate of
tax for the purpose of taxability.
Example: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated
drink and fruit juices when supplied for a single price is a mixed supply. Each of these items can be
supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are
supplied separately.
Example: A shopkeeper selling storage water bottles along with refrigerator. Bottles and the
refrigerator can easily be priced and sold independently and are not naturally bundled. So, such supplies
are mixed supplies.

Clarification regarding Transportation services provided by GTA

The Goods Transport Agency (GTA) provides various intermediary and

ancillary services, such as, loading/unloading, packing/unpacking,
transhipment and temporary warehousing, which are provided in the course
of transport of goods by road. These services are not provided as
independent services but as ancillary to the principal service, namely,
 42 Indirect Taxation - Goods and Services Tax (GST) Authored by CA. Yashvant Mangal

transportation of goods by road. The invoice issued by the GTA for providing the said service includes the
value of intermediary and ancillary services.
In view of this, if any intermediary and ancillary service is provided in relation to transportation of goods
by road, and charges, if any, for such services are included in the invoice issued by the GTA, such service
would form part of the GTA service, being a composite supply, and would not be treated as a separate
supply. However, if such incidental services are provided as separate services and charged separately,
whether in the same invoice or separate invoices, they shall be treated as separate supplies.

Clarification regarding Retreading of Tyres [Circular]

Issue 1 : Whether retreading of tyres is a supply of goods or services?

Clarification : Retreading of tyres is a composite supply, in which the pre-
dominant element is the process of retreading which is a supply of service.
Further, rubber used for retreading is just an ancillary supply. Since, in
retreading of tyres, pre-dominant element is the supply of service of
processing of retreading, therefore, retreading of tyres is a supply of services.
Issue 2 : Whether supply of retreaded tyres is a supply of goods or services?
Clarification : Where owner of the retreaded tyre sells the retreaded tyres, then, it is a supply of goods
(i.e. retreaded tyres).

Clarification regarding activity of bus body building

In the case of bus body building, there is supply of goods as well as services. This is composite supply of
goods and services. The principal supply in this case is “Supply of Service”.

Clarification regarding Taxability of Printing Contracts [Circular]

Issue : Whether supply of books, pamphlets, brochures, envelopes, annual reports,

leaflets, cartons, boxes etc., printed with design, logo, name, address or other
contents supplied by the recipient of such supplies, would constitute supply of goods
or supply of services?
Clarification : In the above context, it is clarified that the above mentioned supplies
are composite supplies.
In the case of printing of books, pamphlets, brochures, annual reports, and the like, where only content
is supplied by the publisher or the person who owns the usage rights to the intangible inputs while the
physical inputs including paper used for printing belong to the printer, supply of printing [of the content
supplied by the recipient of supply] is the principal supply and therefore such supplies would constitute
supply of service.
In case of supply of printed envelopes, letter cards, printed boxes, tissues, napkins, wall paper etc.,
printed with design, logo, etc. supplied by the recipient of goods but made using physical inputs including
paper belonging to the printer, predominant supply is that of goods and the supply of printing of the
content [supplied by the recipient of supply] is ancillary to the principal supply of goods and therefore
such supplies would constitute supply of goods.
 Levy OF GST 43

Clarification regarding servicing of cars involving both supply of goods (spare parts) and services (labour)
[Circular]

The taxability of supply would have to be determined on a case to case basis looking at the facts and
circumstances of each case.
Where a supply involves supply of both goods and services and the value of such
goods and services supplied are shown separately, the goods and services would be
liable to tax at the rates as applicable to such goods and services separately.

Clarification on taxability of shares held in a subsidiary company by the holding company [Circular]

Issue: Whether the activity of holding shares by a holding company of the subsidiary company will be
treated as a supply of service or not and whether the same will attract GST or not.
Clarification: Securities are considered neither goods nor services under GST. Further, purchase or sale of
shares or securities, in itself is neither a supply of goods nor a supply of services. Therefore, the activity
of holding of shares of subsidiary company by the holding company per se cannot be treated as a supply
of services by a holding company to the said subsidiary company and cannot be taxed under GST.

Clarification on food or beverages supplied in a cinema hall [Circular]

Supply of food or beverages in a cinema hall is taxable as ‘restaurant service’ as long as:

a. the food or beverages are supplied by way of or as part of a service, and

b. supplied independent of the cinema exhibition service.
It is further clarified that where the sale of cinema ticket and supply of food and beverages are
clubbed together, and such bundled supply satisfies the test of composite supply, the entire supply will
attract GST at the rate applicable to service of exhibition of cinema, the principal supply.

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