CHAPTER - 2

Salient Features of CGST Act 2017

The features of Central Goods and Services Tax Act, 2017, are as follows:

 to levy tax on all intra-State supplies of goods or services or both

 to broaden the base of the input tax credit by making it available in
respect of taxes paid on supply of goods or services or both used or
intended to be used in the course or furtherance of business;
 to impose obligation on electronic commerce operators to collect tax at
source, at such rate not exceeding one per cent of the value of taxable
supplies(net), out of payments to suppliers supplying goods or services
through their portals;
 to provide for self-assessment of the taxes payable by the registered
person;
 to provide for conduct of audit of registered persons in order to verify
compliance with the provisions of the Act;
 to provide for recovery of arrears of tax using various modes including
detaining and sale of goods, movable and immovable property of
defaulting taxable person;
 to provide for powers of inspection, search, seizure and arrest to the
officers;
 to establish the Goods and Services Tax Appellate Tribunal by the Central
Government for hearing appeals against the orders passed by the
Appellate Authority or the Revisional Authority;
 to make provision for penalties for contravention of the provisions of the
proposed Legislation;
 to provide for an anti-profiteering clause in order to ensure that business
passes on the benefit of reduced tax incidence on goods or services or
both to the consumers; and
 to provide for elaborate transitional provisions for smooth transition of
existing taxpayers to goods and services tax regime.

Terms

Agent - “agent” means a person, including a factor, broker, commission agent,

arhatia, del credere agent, an auctioneer or any other mercantile agent, by
whatever name called, who carries on the business of supply or receipt of goods
or services or both on behalf of another”

Aggregate Turnover:- As per section 2(6) of CGST Act, 2017 ‘aggregate

turnover’ means the aggregate value of all taxable supplies (excluding the value
of inward supplies on which tax is payable by a person on reverse charge basis),
exempt supplies, exports of goods or services or both and inter-State supplies of
persons having the same Permanent Account Number, to be computed on all
India basis but excludes central tax, State tax, Union territory tax, integrated tax
and cess.

Business- Any trade, commerce, manufacture, profession, vocation or any other

similar activity can be called as Business under GST. It can either be a core or an
ancillary activity whether or not involving monetary benefits.

Definition of Goods – Section 2(52) of GST Act

“Goods’’ means every kind of movable property other than money and
securities but includes actionable claims ,growing crops, grass and things
attached to or forming part of the land which are agreed to be severed before
supply or under a contract of supply.Ledgers

e-Ledger is an electronic form of passbook for GST. These e-ledgers are

available to all GST registrants on the GST portal. The e-ledgers contains details
of the following

• Amount of GST deposited in cash to government in electronic cash ledger

• Balance of Input Tax Credit available (ITC) in electronic credit ledger

• Manner of Setoff of GST liability and balance liability (if any) electronic liability
ledger

Electronic Cash Ledger

This is like an e-wallet. Any GST payment made in cash or through a bank
reflects in the Electronic Cash Ledger. After deduction of Input Tax Credit (ITC)
any balance tax liability has to be paid using balance in Electronic Cash Ledger.
For example- Mr. A has a GST on sales of Rs 50,000. He also has an Input Tax
Credit on purchases of Rs 35,000. The balance of his Electronic Cash Ledger is
Nil.

Electronic Credit Ledger

All eligible Input Tax Credit that is claimed by a registered dealer in the GST
returns (GSTR-2 or GSTR-3B) reflects in Electronic Cash Ledger. Credit in
Electronic Cash Ledger can be used only for payment of tax. This means that the
balance of Electronic Credit Ledger cannot be utilised for payment of interest,
penalty or late fees. Interest and Penalty can be paid only through actual cash
payment. Specific order and restrictions for utilizing ITC (IGST, CGST, SGST) for
payment of GST liability

• Credit of IGST can be utilized against all any tax liability in this order – IGST,
CGST or SGST/UTGST.
• Credit of CGST cannot be utilized for payment of SGST. It can be set-off in the
following order – CGST, IGST.

• Credit of SGST/UTGST cannot be utilised for payment of CGST. SGST can be

set-off in the following order – SGST/UTGST, IGST.

Electronic Liability Ledger

This ledger has details of GST liability. The ledger contains the total GST liability
and the manner in which it has been paid – in cash or through credit.

A Casual Taxable Person (CTP) means a person who supplies taxable goods
or services occasionally in a taxable territory where he does not have a fixed
place of business. The person can act as a principal or agent or in any other
capacity supply goods or services for the furtherance of business.

Example: Mr. Ravi having a place of business in Bangalore providing

Management consultancy services in Hyderabad where he has no place of
business. Hence Mr. Ravi has to register as a casual taxable person in Hyderabad
before providing such services

Non-resident taxable person - The Goods and Services Tax Law has defined a
‘non-resident taxable person’ as any person who occasionally undertakes
transactions involving the supply of goods or services, or both, whether as
principal or agent or in any other capacity, but who has no fixed place of
business or residence in India.

In simple words, any and all the businesses which are supplying goods or
services or data retrieval services from databases located outside India will fall
under this definition and will come under the purview of the Goods and Services
Tax law.

Electronic Commerce - means supply of goods or services or, including digital

products over digital or electronic network- Section 2 (44) of the CGST Act, 2017.
“Electronic Commerce Operator” means any person who owns, Operators or
manages digital or electronic facility or platform electronic commerce- Section
2(45) of the CGST Act, 2017.

Types of E-Commerce Models > Business to Business (B to B) – In this model,

both the supplier and recipient are carrying on business / profession.
Consequently, transaction takes place between manufacturers, wholesalers,
retailers etc. Thus the final consumer is not involved in this model.

Business to Consumer (B to C) – In this model, the supplier makes supply of

goods or services directly to the consumer. Example: Flipkart, Amazon etc. >

Consumer to Consumer (C to C) – In this model, Consumers are connected

with each other where one consumer dispose-off their used goods and assets
directly to another interested consumer. Example: OLX, Quikr etc. > Consumer
to Business (C to B) – In this model, the consumer provides a good or some
service to the company.
Compulsory Registration for ECO – As per section 24(x) of the CGST Act
2017, every electronic commerce operator (ECO) who is required to collect tax at
source under section 52 would have to be compulsorily registered under GST.
Every ECO is required to obtain GST registration in each state if it has suppliers
in different states.

However, those electronic commerce operators (ECOs) who are not required to
collect tax at source under section 52 shall not be required to take registration if
their aggregate turnover in a financial year does not exceed the threshold
exemption limit. Compulsory Registration for persons supplying through ECO –
As per section 24(ix) of the CGST Act 2017, persons who supply goods or
services or both, other than supplies specified under section 9(5), through such
electronic commerce operator who is required to collect tax at source under
section 52 are mandatorily required to be registered under GST. However, those
persons can’t take registration under Composition Scheme under section 10.

An Input Service Distributor (ISD) is a taxpayer that receives invoices for

services used by its branches. It distributes the tax paid known as the Input Tax
Credit (ITC), to such branches on a proportional basis by issuing ISD invoices.
The branches can have different GSTINs but must have the same PAN as that of
ISD.

Let’s understand with an example. The head office of M/s ABC Limited is located
in Bangalore having branches in Chennai, Mumbai and Kolkata. The head office
incurred annual software maintenance expense (service received) on behalf of
all its branches and received the invoice for the same. Since the software is used
by all its branches, the input tax credit of entire services cannot be claimed in
Bangalore. The same has to be distributed to all three locations. Here, the head
office at Bangalore is the Input Service Distributor.

Situations where ISD is not applicable

ISD cannot distribute the input tax credit in the following cases:

 Where ITC is paid on inputs and capital goods. For instance, raw materials
and machinery purchased.
 ITC cannot be distributed to outsourced manufacturers or service
providers.

Purpose of registering as ISD

The concept of ISD is a facility made available to business having a large share
of common expenditure and billing or payment is done from a centralized
location. The mechanism is meant to simplify the credit taking process for
entities and the facility will strengthen the seamless flow of credit under GST.

Input tax - Input Credit in GST

Input Credit Mechanism is available to you when you are covered under the GST
Act.

Input Tax Credit means claiming the credit of the GST paid on purchase of Goods
and Services which are used for the furtherance of business. The Mechanism of
Input Tax Credit is the backbone of GST and is one of the most important reasons
for the introduction of GST.

As GST is a single tax levied across India (right from manufacture of goods/
services till it reaches the end customer), the chain does not get broken and
everybody is able to take benefit of the same and there is seamless flow of
credit.

Input Credit Mechanism is available to you when you are covered under the GST
Act. Which means if you are a manufacturer, supplier, agent, e-commerce
operator, aggregator or any of the persons mentioned here, registered under
GST, You are eligible to claim INPUT CREDIT for tax paid by you on your
PURCHASES.

Services

Location of supplier

Under the Goods and Services Tax (‘GST’) Law, the taxpayer is liable to pay tax
at the time and as per the place of supply. The place of supply is the place of
consumption of services.

Provisions regarding ‘Place of supply’ are explained under the IGST Act. ‘Place of
Supply of Goods under GST’ is discussed separately in our article. This article will
focus on the place of supply of services in general.

However, there are specific cases/rules for determining the place of supply for
services rendered directly in relation to immovable property, transportation of
goods, and many more specific services.

Importance of Place of Supply

 Wrong classification of supply between interstate or intra-state and vice-

versa may lead to hardship to the taxpayer as per section 19 of IGST Act
and section 70 of CGST Act
 Where wrong taxes have been paid on the basis of the wrong
classification, a refund will have to be claimed by the taxpayer
 The taxpayer will have to pay the correct tax along with interest for the
delay on the basis of revised/correct classification
 Also, correct determination of place of supply will help us in knowing the
incidence of tax. As if the place of supply is determined as a place outside
India, then tax will not have to be paid on that transaction

“Location of the recipient of services” means, —

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

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

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

(d) In absence of such places, the location of the usual place of residence of the
recipient.

Reverse charge mechanism

Reverse charge is a mechanism where the recipient of the goods or services is

liable to pay Goods and Services Tax (GST) instead of the supplier.

Who should pay GST under the RCM

As per provisions of GST law, the person supplying the goods must mention in
the tax invoice whether tax is payable under the RCM.

The following points should be kept in mind while making GST payments under
RCM:

The recipient of goods or services can avail of the ITC on the tax amount paid
under RCM only if such goods or services are used for business or furtherance of
business.

A composition dealer should pay tax at the normal rates and not the composition
rates while discharging liability under RCM. Also, they are ineligible to claim any
input tax credit of tax paid.

GST compensation cess can apply to the tax payable or paid under the RCM.

SUPPLY
Under GST, Supply is considered a taxable event for charging tax. The liability to
pay tax arises at the ‘time of supply of goods or services’. Thus, determining
whether or not a transaction falls under the meaning of supply, is important to
decide GST’s applicability.

Supply includes sale, transfer, exchange, barter, license, rental, lease and
disposal. If a person undertakes either of these transactions during the course or
furtherance of business for consideration, it will be covered under the meaning of
Supply under GST.

Elements of Supply

Supply has two important elements:

 Supply is done for a consideration

 Supply is done in course of furtherance of business

If the aforementioned elements are not met with, it is not considered as a sale.

Examples:

Mr. A buys a table for Rs.10,000 for his personal use and sells it off after 10
months of use to a dealer. This is not considered as supply under CGST as this is
not done by Mr A for the furtherance of business

Mrs. B provides free coaching to neighbouring students as a hobby. This is not

considered as supply as this act is not performed for a consideration.

composite supply

Composite supply means a supply is comprising two or more goods/services,

which are naturally bundled and supplied in with each other in the ordinary
course of business, one of which is a principal supply. It means that the items are
generally sold as a combination. The items cannot be supplied separately.

A supply of goods and/or services will be treated as composite supply if it fulfills

the following criteria:

 Supply of 2 or more goods or services together; AND

 It is a natural bundle, i.e., goods or services are usually provided together
in the normal course of business.
 They cannot be separated.

mixed supply

 Mixed supply under GST means a combination of two or more goods or

services made together for a single price.
  Each of these items can be supplied separately and is not dependent on
any other.

Under GST, a mixed supply will have the tax rate of the item which has the
highest rate of tax. For example- A Diwali gift box consisting of canned foods,
sweets, chocolates, cakes, dry fruits, aerated drink and fruit juices supplied for a
single price is a mixed supply. All are also sold separately. Since aerated drinks
have the highest GST rate of 28%, aerated drinks will be treated as principal
supply and 28% will apply on the entire gift box.

Differences between mixed and composite supplies

“Non-taxable supply” means a supply of goods or services or both which is not

leviable to tax under CGST Act

Exempted supply means supply of any goods or services or both which attracts
nil rate of tax or which may be wholly exempt from tax under section 11 of CGST
Act or under section 6 of the IGST Act, and includes non-taxable supply.

Zero Rated Supply

GST is not applicable in India for exports. Hence, all export supplies of a taxpayer
registered under GST would be classified as a zero-rated supply. According to
Section 16 of the IGST Act, zero-rated supply means any of the following supplies
of goods or services:

 Export of goods or services or both;

 Supply of goods or services or both to a Special Economic Zone developer
 Supply of goods or services or both to a Special Economic Zone unit.

Meaning of Intra-State and Inter-State Supply under GST

GST as the name suggests Goods and Services Tax is applicable on the
supply of goods or/and services. These supplies can be classified into two
categories

 Inter-State Supplies
 Intra-State Supplies

Meaning of Inter-State Supply

As per GST Act, inter-state supply is when the location of the supplier and the
place of supply are in different states. In simple words, inter-state supply
 means supplying goods or/and services from one state border to another. In
the case of inter-state supplies, the taxpayer is liable to pay Integrated Goods
and Services Tax (IGST) that is collected by the Central Government. Example
of Inter-state supply: supply of raw material from Punjab to Delhi.

Interstate Supply Applicability

Inter-state is applicable on the domestic supply means when the place of

supplier and the place of supply are:

 Two different states;

 Two different regions under one Union Territory; or
 State and a UT
 Inter-state supply includes the goods or/and services imported into
India;
 Inter-state supply also includes the goods or/and service supplied from
or special economic zone (SEZ) or export-oriented unit (EOU);

Meaning of Intra-State Supply

As per GST Act, intra-state supply is when the location of the supplier and the
place of supply is in the same states. In simple words, intra-state supply means
supplying goods or/and services within a state border. In the case of intra-state
supplies, the taxpayer is liable to pay Central Goods and Services Tax (CGST) or
States Goods and Services Tax (SGST). Here CGST is collected by the Central
Government and SGST is collected by the State government. Example of Intra-
state supply: supply of finished from Nehru Place to Lajpat Nagar (within Delhi
border).

 Intra-State Supply Applicability

 Intra-State supply is applicable when the goods or/and services are
supplied with in the same:
 State
 Union Territory

Supplies in territorial waters

Notwithstanding anything contained in this Act,––

  where the location of the supplier is in the territorial waters, the location
of such supplier; or
 where the place of supply is in the territorial waters, the place of supply,
 shall, for the purposes of this Act, be deemed to be in the coastal State or
Union territory where the nearest point of the appropriate baseline is
located

Territorial waters means

Where the place of supply is in the territorial waters, the place of supply, shall,
for the purposes of this Act, be deemed to be in the coastal State or Union
territory where the nearest point of the appropriate baseline is located.

Time, Place and Value of Supply

Time of Supply

Time of supply means the point in time when goods/services are considered
supplied’. When the seller knows the ‘time’, it helps him identify due date for
payment of taxes.

CGST/SGST or IGST must be paid at the time of supply. Goods and services have
a separate basis to identify their time of supply. Let’s understand them in detail.

Time of supply of goods is earliest of:

1. Date of issue of invoice

2. Last date on which invoice should have been issued

3. Date of receipt of advance/ payment*.

For example:Mr. X sold goods to Mr. Y worth Rs 1,00,000. The invoice was issued
on 15th January. The payment was received on 31st January. The goods were
supplied on 20th January.

Place of supply

It is very important to understand the term ‘place of supply’ for determining the
right tax to be charged on the invoice.

Place of Supply of Goods

Usually, in case of goods, the place of supply is where the goods are delivered.

So, the place of supply of goods is the place where the ownership of goods
changes.What if there is no movement of goods. In this case, the place of supply
is the location of goods at the time of delivery to the recipient.

For example: In case of sales in a supermarket, the place of supply is the

supermarket itself.
Place of supply in cases where goods that are assembled and installed will be the
location where the installation is done.

For example, A supplier located in Kolkata supplies machinery to the recipient in

Delhi. The machinery is installed in the factory of the recipient in Kanpur. In this
case, the place of supply of machinery will be Kanpur.

Place of Supply for Services

Generally, the place of supply of services is the location of the service recipient.

In cases where the services are provided to an unregistered dealer and their
location is not available the location of service provider will be the place of
provision of service.

Special provisions have been made to determine the place of supply for the
following services:

 Services related to immovable property

 Restaurant services
 Admission to events
 Transportation of goods and passengers
 Telecom services
 Banking, Financial and Insurance services.

In case of services related to immovable property, the location of the property is

the place of provision of services.

Example 1:

Mr. Anil from Delhi provides interior designing services to Mr. Ajay(Mumbai). The
property is located in Ooty(Tamil Nadu).

In this case, place of supply will be the location of the immovable property i.e.
Ooty, Tamil Nadu.

Value of Supply of Goods or Services

Value of supply means the money that a seller would want to collect the goods
and services supplied.

The amount collected by the seller from the buyer is the value of supply.But
where parties are related and a reasonable value may not be charged, or
transaction may take place as a barter or exchange; the GST law prescribes that
the value on which GST is charged must be its ‘transactional value’. This is the
value at which unrelated parties would transact in the normal course of business.
It makes sure GST is charged and collected properly, even though the full value
may not have been paid.