Stage 1:What is GST?

GST is an Indirect Tax which has replaced many Indirect Taxes in India. The Goods and Service Tax Act was passed
in the Parliament on 29th March 2017. The Act came into effect on 1st July 2017; Goods & Services Tax Law in India is
a comprehensive, multi-stage, destination-based taxthat is levied on every value addition.
In simple words, Goods and Service Tax (GST) is an indirect tax levied on the supply of goods and services. This law has
replaced many indirect tax laws that previously existed in India.
GST is one indirect tax for the entire country.

Under the GST regime, the tax is levied at every point of sale. In the case of intra-state sales, Central GST and State GST are
charged. Inter-state sales are chargeable to Integrated GST.
Now let us try to understand the definition of Goods and Service Tax – “GST is a comprehensive, multi-stage, destination-
based tax that is levied on every value addition.”

Multi-stage
There are multiple change-of-hands an item goes through along its supply chain: from manufacture to final sale to the
consumer.
Let us consider the following case:

 Purchase of raw materials

 Production or manufacture
 Warehousing of finished goods
 Sale to wholesaler
 Sale of the product to the retailer
 Sale to the end consumer

Goods and Services Tax is levied on each of these stages which makes it a multi-stage tax.
Value Addition

The manufacturer who makes biscuits buys flour, sugar and other material. The value of the inputs increases when the sugar
and flour are mixed and baked into biscuits.

The manufacturer then sells the biscuits to the warehousing agent who packs large quantities of biscuits and labels it. That is
another addition of value after which the warehouse sells it to the retailer.
The retailer packages the biscuits in smaller quantities and invests in the marketing of the biscuits thus increasing its value.
GST is levied on these value additions i.e. the monetary value added at each stage to achieve the final sale to the end
customer.

Destination-Based
Consider goods manufactured in Maharashtra and are sold to the final consumer in Karnataka. Since Goods & Service Tax is
levied at the point of consumption. So, the entire tax revenue will go to Karnataka and not Maharashtra.

India adopted a dual GST where tax imposed concurrently by the Central and States.
Dual GST model SGST
● State GST = Collected by the State Government CGST
● Central GST =Collected by the Central Government IGST
● Integrated GST = Collected by the Central Government on inter-state supply of Goods and
Services

CONSTITUTION [101ST AMENDMENT] ACT, 2016

Constitution (122nd Amendment) Bill, 2014 received the assent of the President of India on
8th September, 2016 and became Constitution (101st Amendment) Act, 2016, which paved
the way for introduction of GST in India.
Constitution (101st Amendment) Act, 2016 was enacted on 8th September, 2016, with
following significant amendments:
(a) Concurrent powers on Parliament and State Legislatures to make laws governing
goods and services. It means there will be dual control of State and Central authorities
for all assessees.
(b) As per Article 246A, the power to levy GST has been given to the Parliament as well
as to Legislature of every State. a. CGST – enacted by Central Government of India.
b. IGST – enacted by Central Government of India. c. SGST – enacted by respective
State Governments d. UTGST – enacted by Central Government of India
 (c) IGST will be apportioned between Centre and the States in the manner provided by
Parliament by Law as per the recommendation of the GST Council.
(d) GST will be levied on all supply of goods and services except alcoholic liquor for
human consumption.
(e) The explanation to Article 269A of Constitution of India provides that the import of
goods or services will be deemed as supply of goods or services or both in the course
of inter-State trade or commerce. In case of import of goods IGST will be levied
along with the Basic Customs duty. It means IGST is levied in replacement of CVD +
Spl. CVD. In case of import of services only IGST will be levied.
(f) Principles for determining the place of supply and when a supply takes place in the
course of inter-state trade or commerce shall be decided by the Parliament.
(g) The power to levy Central Excise duty on goods manufactured or produced in India is
available in respect of the following products: a. Petroleum crude; b. High speed
diesel; c. Motor spirit (commonly known as petrol); d. Natural gas; e. Aviation turbine
fuel; and f. Tobacco and tobacco products. However, once GST is imposed there will
be no duty on manufacture of these goods.
(h) The power to impose tax on sale of the following products is still provided to the
State Governments: a. Petroleum crude; b. High speed diesel; c. Motor spirit
(commonly known as petrol); d. Natural gas; e. Aviation turbine fuel; and f. Alcoholic
liquor for human consumption. However, once GST Council is recommend the date
from which GST is imposed on these products (except alcoholic liquor for human
consumption), and no sales tax will be imposed on these products. As per definition
given in article 366(12A), GST covers all the goods except alcoholic liquor for human
consumption. It means no GST can be levied on Alcoholic liquor for human
consumption.
(i) Present system of State Excise duty and sales tax on Alcoholic liquor for human
consumption will continue.
(j) As a result, the following bills became an Act on 12th April 2017:
● Central Goods and Services Tax Bill, 2017 ● Integrated Goods and Services Tax
Bill, 2017 ● Union Territory Goods and Services Tax Bill, 2017 ● Goods and
Services Tax (Compensation to States) Bill, 2017
The GST journey began in the year 2000 when a committee was set up to draft law. It took 17 years from then for the Law to
evolve. In 2017 the GST Bill was passed in the Lok Sabha and Rajya Sabha. On 1st July 2017 the GST Law came into force.

ADVANTAGES OF GST

(a) One Nation One Tax.

(b) Removal of bundled indirect taxes such as VAT, CST, Service tax, CAD, SAD, and Excise.

(c) Removal of cascading effect of taxes i.e. removes tax on tax.

(d) Increased ease of doing business;

(e) Lower cost of production, increases demand will lead to increase supply.

Hence, this will ultimately lead to rise in the production of goods. Resultantly boost to make in India
initiative.
(f) It will boost export and manufacturing activity, generate more employment and thus increase
GDP with gainful employment leading to substantive economic growth;

GOODS AND SERVICES TAX NETWORK (GSTN)

Goods and Services Tax Network (GSTN) is a [Section 8 of the Companies Act, 2013, (i.e. not for
profit companies)], non-Government, private limited company. Technology backbone for GST in
India. GST being a destination based tax, the inter- state trade of goods and services (IGST) would
need a robust settlement mechanism amongst the States and the Centre. This is possible only when
there is a strong IT Infrastructure and Service back bone which enables capture, processing and
exchange of information amongst the stakeholders (including tax payers, States and Central
Governments, Accounting Offices, Banks and RBI).

GST COUNCIL

As per Article 279A of the Constitution of India, the President of India is empowered to constitute
Goods and Services Tax Council. The President of India constituted the GST Council on 15th
September, 2016. The GST Council shall consist of Union Finance Minster as a Chairperson, Union
Minister of State in charge of Finance as a member, the State Finance Minister or State Revenue
Minister or any other Minister nominated by each State as a member of the Council. The GST
Council shall select one of them as Vice Chairperson of Council. Guiding principle of the GST
Council: The mechanism of GST Council would ensure harmonization on different aspects of GST
between the Centre and the States as well as among States. It has been provided in the Constitution
(101st Amendment) Act, 2016 that the GST Council, in its discharge of various functions, shall be
guided by the need for a harmonized structure of GST and for the development of a harmonized
national market for goods and services. Functions of the GST Council: GST Council is to make
recommendations to the Central Government and the State Governments on 1. tax rates, 2.
exemptions, 3. threshold limits, 4. dispute resolution, 5. GST legislations including rules and
notifications etc.
 IMPORTANT DEFINITIONS

https://www.avalara.com/in/en/learn/whitepapers/gst-glossary-defining-important-terms.html

( Refer to this link for simplest form of definitions.... GST glossary: Defining important terms)

Stage 2: Supply under GST

Taxable Event: Taxable event under GST law is supply of goods or services or both. It means no
supply no GST. The term, “supply” has been inclusively defined in the Act.

The meaning and scope of supply under GST can be understood in terms of following six parameters,
which can be adopted to characterize a transaction as supply:

1. Supply of goods or services. Supply of anything other than goods or services does not attract GST.
2. Supply should be made for a consideration.

3. Supply should be made in the course or furtherance of business

4. Supply should be made by a taxable person.

5. Supply should be a taxable supply

6. Supply should be made within the taxable territory

Exceptions:

(1)Any transaction involving supply of goods or services without consideration is not a supply,
barring few exceptions, in which a transaction is deemed to be a supply even without consideration.
(2) Further, import of services for a consideration, whether or not in the course or furtherance of
business is treated as supply.
 Scope of Supply

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. Hence, 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 as defined in the Act. Sale of goods or service even
as a vocation is a supply under GST. Therefore, even if a famous politician paints paintings
for charity and sells the paintings even as a one-time occurrence, the sale would constitute
supply.
Section 7(1)(a) of CGST Act, 2017: all forms of supply of goods or services or both
such as (i) sale, (ii) transfer, (iii) barter, (iv) exchange, (v) licence, (vi) rental, (vii) lease or (viii)
disposal made or agreed to be made for a consideration by a person in the course or
furtherance of business;
Section 7(1)(b) of CGST Act, 2017, import of services for a consideration whether or
not in the course or furtherance of business: (a) it is applicable only for services and not for
goods (b) It should be import of service (as referred under Section 2(11) of IGST Act, 2017),
where i. The supplier of service is located outside India; Indirect Taxation 20 The Institute of
Cost Accountants of India ii. The recipient of service is located in India; and iii. The place of
supply of service is in India. (c) Services shall be provided with consideration (d) Services
may be in the course or furtherance of business or not in the course or furtherance of
business.
Section 7(1)(c) of the CGST Act, 2017 the activities specified in Schedule I, made or
agreed to be made without a consideration:
 Section 7(1)(d) the activities to be treated as supply of goods or supply of services as
referred to in Schedule II: Schedule II of the CGST Act, 2017 has certain activities clearly
classified as goods or services under GST to avoid any such confusion. However, the above-
mentioned clause (d) of Section 7(1) has been omitted vide the CGST (Amendment) Act,
2018 along with the insertion of a new clause 7(1A): Section 7(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.

Schedule II of the GST Act has certain activities clearly classified as goods or services under GST to
avoid any such confusion
For example,
Works contract is a composite supply involving both goods (bricks, cement, steel bars and many other items) and services
(labour for construction, architect, engineers etc).
Currently, VAT is payable on the works contract (rate varies from state to state). Service tax is paid @15% on either 40% (on new work) or
70% (on repair, maintenance work)
There’s a works contract for a new construction value of Rs. 50,00,000.

Sale value 50 lakhs

Cost of material 20 lakhs

Cost of labour 10 lakhs

Value of land 5 lakhs

Profit 15lakhs

Under VAT & service tax:

VAT @14.5% (20 2,90,000

lakhs*14.5%)

Service Tax @ 6% (40% of 3,00,000

15%)
(50 lakhs*6%)

Total tax 5,90,000

OR Pay tax under composition 0.6% on Rs. 45 lakhs=

scheme 27,000
(45=50: value of land 5)

Now entire works contract under GST will be treated as supply of services. The value of a supply would typically be the transaction value ie
in this case Rs.50 Lakhs and tax applicable is 18%

Assuming 18% GST

GST 9,00,000

Thus, the innumerable complexities and confusion regarding the works contact tax treatment is simplified under GST.
Activities clearly classified as goods or services under GST will help to remove complexities and reduce legal action.

COMPOSITE AND MIXED SUPPLIES

Composite and Mixed Supplies (Section 8 of CGST Act, 2017): Composite supply is when
two or more goods are sold in a combination, it becomes difficult to identify the rate of tax to
be levied. For such goods or services, CGST Act, 2017 has provided with two terms: (i)
Composite supply and (ii) Mixed supply.
Composite supply is similar to the concept of “bundled service” as under service tax laws in
the existing regime.
Both Composite supply and Mixed supply consist of two or more taxable supplies of goods
or services or both but the main difference between the two is that Composite supply is
naturally bundled i.e., goods or services are usually provided together in normal course of
business and cannot be separated.
Whereas in Mixed supply, the goods or services can be sold separately.
(1) Composite Supply : Composite supply consists of two or more goods/services, which is
naturally supplied with each other in the ordinary course of business and one of them is a
principal supply. The items cannot be supplied separately
Note: Principal supply means the supply of goods or services, which constitute the
predominant element of a composite supply and to which another supply is
ancillary/secondary.

Following two conditions are necessary for composite supply: (a) Supply of two or more
goods or services together, AND (b) It should be a natural bundle and they cannot be
separated.
 Booking of Air Tickets which involves cost of the meal to be provided during
travel will be Composite supply and tax will be calculated on the principle supply
which in this case is transportation of passengers through flight.

(2)Mixed supply : In Mixed supply two or more individual supplies combination of

goods or services with each other for a single price. Each of these items can be supplied
separately and is not dependent on each other. In other words, the combination of goods
or services are not bundled due to natural necessities, and they can be supplied
individually in the ordinary course of business. For tax liability purpose, mixed supply
consisting of two or more supplies shall be treated as a supply of that item which has the
highest tax rate.

 Diwali gift hamper which consist of different Items like sweets, chocolates,
cakes, dry fruits packed in one pack is Mixed supply as these items can be sold
separately and it shall be treated as a supply of that particular item which attracts
the highest rate of tax.