GST Module 1 Compiled PDF

Intermediate Course
Study Material
(Modules 1 to 2)
PAPER 4
Taxation
Section – B: Indirect Taxes
(Relevant for May, 2019 and
November, 2019 examinations)
MODULE – 1
BOARD OF STUDIES
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
© The Institute of Chartered Accountants of India

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This study material has been prepared by the Faculty of the Board of Studies. The
objective of the study material is to provide teaching material to the students to
enable them to obtain knowledge in the subject. In case students need any
clarifications or have any suggestions for further improvement of the material
contained herein, they may write to the Director of Studies.
All care has been taken to provide interpretations and discussions in a manner
useful for the students. However, the study material has not been specifically
discussed by the Council of the Institute or any of its Committees and the views
expressed herein may not be taken to necessarily represent the views of the
Council or any of its Committees.
Permission of the Institute is essential for reproduction of any portion of this
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Edition : September, 2018
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E-mail : [email protected]
Committee/ : Board of Studies
Department
ISBN No. :
Price (All Modules) : `
Published by : The Publication Department on behalf of The Institute of

Chartered Accountants of India, ICAI Bhawan, Post Box
No. 7100, Indraprastha Marg, New Delhi 110 002, India.
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BEFORE WE BEGIN …
The traditional role of a chartered accountant restricted to accounting and

auditing, has now changed substantially and there has been a marked shift
towards strategic decision making and entrepreneurial roles that add value
beyond traditional financial reporting. The primary factors responsible for the
change are the increasing business complexities on account of plethora of laws,
borderless economies consequent to giant leap in e-commerce, emergence of
new financial instruments, emphasis on corporate social responsibility, significant
developments in information technology, to name a few. These factors
necessitate an increase in the competence level of chartered accountants to take
up the role of not merely an accountant or auditor, but a global solution provider.
Towards this end, the scheme of education and training is being continuously
reviewed so that it is in sync with the requisites of the dynamic global business
environment; the competence requirements are being continuously reviewed to
enable aspiring chartered accountants to acquire the requisite professional
competence to take on new roles.
Skill requirements at Intermediate Level
Under the Revised Scheme of Education and Training, at the Intermediate Level,
you are expected to not only acquire professional knowledge but also the ability
to apply such knowledge in problem solving. The process of learning should also
help you inculcate the requisite professional skills, i.e., the intellectual skills and
communication skills, necessary for achieving the desired level of professional
competence.
Goods and Services Tax: The game changer indirect tax
Taxation is one of the core competence areas of chartered accountants. The
subject of “Taxation” at the Intermediate level is divided into two sections,
namely, Section A : Income-tax law and Section B: Indirect Taxes. Indirect Taxes,
at the Intermediate level, cover goods and services tax (GST), the path breaking
indirect tax introduced in India from July 1, 2017.
With GST, there has been a paradigm shift in the indirect tax landscape of the
country. 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. By subsuming most of the Central
(excise duty, service tax, central sales tax) and State taxes (State-Level VAT) into a

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single tax and by allowing a set-off of prior-stage taxes for the transactions across
the entire value chain, it would mitigate the ill effects of cascading and improve
competitiveness. It follows a multi-stage collection mechanism where tax is
collected at every stage and the credit of tax paid at the previous stage is
available as a set off at the next stage of transaction.
GST, at the Intermediate level, involves understanding and application of the
select provisions of the GST laws. The nitty-gritties of this new tax law coupled
with its inherent dynamism, makes the learning, understanding and application of
the provisions of this law in problem solving very interesting and challenging.
Know your Syllabus – Read the same along with Study Guidelines
The syllabus of Section B: Indirect Taxes covers select provisions of the Central
Goods and Services Tax Act, 2017 and Integrated Goods and Services Act, 2017.
Further, a concept of Study Guidelines has been introduced in the Revised
Scheme of Education and Training in this subject, in line with the international
best practices, to specify topic-wise exclusions from the syllabus. The Study
Guidelines for an examination is issued after the expiry of cut-off date for
amendments relevant for that examination. The Study Guidelines for this subject
are also applicable for the corresponding paper in the Old Course.
For understanding the coverage of syllabus, it is important to read the Study
Material as the content therein has been developed keeping in mind the extent of
coverage of various topics as envisaged in the syllabus. Therefore, the provisions
which do not form part of the syllabus are not discussed or explained in the Study
Material. However, while discussing the relevant applicable provisions, a
reference may have been made to some of these excluded provisions at certain
places either by way of a footnote or otherwise.
Further, the Study Material should also be read along with the Study Guidelines.
It may be noted that the Study Material is issued prior to the issuance of Study
Guidelines. Therefore, the Study Material may have discussion on certain
provisions which, post issuance of Study Material, get excluded from the syllabus
by way of Study Guidelines. Such provisions will, therefore, be not relevant from
the examination point of view.
Know your Study Material
This Study Material on Indirect Taxes is based on the provisions of the Central
Goods and Services Tax Act, 2017 and Integrated Goods and Services Act, 2017 as
amended upto 25.09.2018. The Study Material is therefore, relevant for May 2019
and November 2019 examinations. The amendments made by latest
notifications/circulars are indicated in bold italics in the Study Material.

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Efforts have been made to present the complex law of GST in a lucid manner.
Care has been taken to present the chapters in a logical sequence to facilitate
easy understanding by the students. The Study Material has been divided into
two modules for ease of handling by students. Module 1 covers Chapters 1-5 and
Module 2 covers Chapters 6-10.
The various chapters/units of this subject have been structured uniformly and
comprise of the following components:
Components About the component

of each
Chapter
1. Learning Learning outcomes which you need to demonstrate after

Outcomes learning each topic have been detailed in the first page
of each chapter/unit. Demonstration of these learning
outcomes will help you to achieve the desired level of
technical competence
2. Chapter As the name suggests, the flow chart/table/diagram

Overview given at the beginning of each chapter will give a broad
outline of the contents covered in the chapter
3. Content The GST law has been explained by following a

systematic approach of first extracting the statutory
provisions followed by their analysis. Going through the
statutory provisions will develop a legal aptitude in you
which is a pre-requisite to study any law. The analysis of
the statutory provisions given thereafter will give you an
idea as to how the law is interpreted to arrive at
meaningful conclusions and find answers to problems.
You should read statutory provisions and analysis
conjointly to have a holistic and complete understanding
of the provisions.
The concepts and provisions of GST laws are explained
in student-friendly manner with the aid of
examples/illustrations/ diagrams/flow charts. Diagrams
and flow charts will help you understand and retain the
concept/provision learnt in a better manner. Examples
and illustrations will help you understand the application

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of concepts/provisions. These value additions will, thus,

help you develop conceptual clarity and get a good
grasp of the topic.
4. Let Us A summary of the chapter, in the form of

Recapitulate tables/diagrams/flow charts, is given at the end to help
you revise what you have learnt. It will especially
facilitate quick revision of the chapter the day before the
examination.
5. Test Your This section comprises of variety of questions which will

Knowledge help you to apply what you have learnt in problem
solving, and, thus, sharpen your application skills. In
effect, it will test your understanding of concepts/
provisions as well as your ability to apply the
concepts/provisions learnt in solving problems and
addressing issues. Multiple choice based questions in
this section will test the breadth and depth of your
understanding of the topic.
6. Answers After you work out the problems/questions given under

the section “Test Your Knowledge”, you can verify your
answers with the answers given under this section. This
way you can self-assess your level of understanding of
the provisions or concepts of a chapter.
Students may make note of the following while reading the Study Material:
 For the sake of brevity, the “ Goods and Services Tax”, “Central Goods and
Services Tax”, “State Goods and Services Tax”, “Union Territory Goods and
Services Tax”, “Integrated Goods and Services Tax”, “Central Goods and
Services Act, 2017”, “Integrated Goods and Services Act, 2017” and “Union
Territory Goods and Services Act, 2017”, “Central Goods and Services Tax
Rules, 2017” have been referred to as “GST”, “CGST”, “SGST”, “UTGST”, “IGST”,
“CGST Act”, “IGST Act”, “UTGST Act” and “CGST Rules” respectively in this
Study Material.
 Unless otherwise specified, the section numbers and rules referred to in the
chapters pertain to CGST Act and CGST Rules respectively.
 The illustrations, examples, questions and answers given under ‘Test Your
Knowledge’ are solved/answered on the basis of the position of law as

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existing on 25.09.2018. The reference to years/months subsequent to such

date in the examples, illustrations, questions and answers is only for the
purpose of explaining the concepts and provisions as the position of law may
change subsequently.
Though all efforts have been taken in developing this Study Material, the possibilities
of errors/omissions cannot be ruled out. You may bring such errors/omissions, if
any, to our notice so that the necessary corrective action can be taken.
We hope that the new student-friendly features in the Study Material makes your
learning process more enjoyable, enriches your knowledge and sharpens your
application skills.
Since the entire syllabus of subject of indirect taxes forming part of paper on
Taxation is same for both New and Old Course, this Study Material is also relevant
for IIPCC (Old) Paper 4 Taxation Section B: Indirect Taxes.
Happy Reading and Best Wishes!

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SYLLABUS
PAPER – 4 : TAXATION
(One paper ─ Three hours – 100 Marks)
Objective:
To develop an understanding of the provisions of income-tax law and goods and

services tax law and to acquire the ability to apply such knowledge to make
computations and address application oriented issues.
SECTION A: INCOME TAX LAW (60 MARKS)
Contents:
1. Basic Concepts
(i) Income-tax law: An introduction
(ii) Important definitions in the Income-tax Act, 1961
(iii) Concept of previous year and assessment year
(iv) Basis of Charge and Rates of Tax
2. Residential status and scope of total income
(i) Residential status
(ii) Scope of total income
3. Incomes which do not form part of total income (other than
charitable trusts and institutions, political parties and electoral
trusts)
(i) Incomes not included in total income
(ii) Tax holiday for newly established units in Special Economic Zones
4. Heads of income and the provisions governing computation of
income under different heads
(i) Salaries
(ii) Income from house property

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(iii) Profits and gains of business or profession

(iv) Capital gains
(v) Income from other sources
5. Income of other persons included in assessee's total income
(i) Clubbing of income: An introduction
(ii) Transfer of income without transfer of assets
(iii) Income arising from revocable transfer of assets
(iv) Clubbing of income of income arising to spouse, minor child and
son’s wife in certain cases
(v) Conversion of self-acquired property into property of HUF
6. Aggregation of income; Set-off, or carry forward and set-off of
losses
(i) Aggregation of income
(ii) Concept of set-off and carry forward and set-off of losses
(iii) Provisions governing set-off and carry forward and set-off of losses
under different heads of income
(iv) Order of set-off of losses
7. Deductions from gross total income
(i) General provisions
(ii) Deductions in respect of certain payments
(iii) Specific deductions in respect of certain income
(iv) Deductions in respect of other income
(v) Other deductions
8. Computation of total income and tax liability of individuals
(i) Income to be considered while computing total income of
individuals
(ii) Procedure for computation of total income and tax liability of
individuals

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9. Advance tax, tax deduction at source and introduction to tax

collection at source
(i) Introduction
(ii) Direct Payment
(iii) Provisions concerning deduction of tax at source
(iv) Advance payment of tax
(v) Interest for defaults in payment of advance tax and deferment of
advance tax
(vi) Tax collection at source – Basic concept
(vii) Tax deduction and collection account number
10. Provisions for filing return of income and self-assessment
(i) Return of Income
(ii) Compulsory filing of return of income
(iii) Fee and Interest for default in furnishing return of income
(iv) Return of loss
(v) Provisions relating to belated return, revised return etc.
(vi) Permanent account number
(vii) Persons authorized to verify return of income
(viii) Self-assessment
SECTION B – INDIRECT TAXES (40 MARKS)
Contents:
1. Concept of indirect taxes
(i) Concept and features of indirect taxes
(ii) Principal indirect taxes
2. Goods and Services Tax (GST) Laws
(i) GST Laws: An introduction including Constitutional aspects
(ii) Levy and collection of CGST and IGST

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a) Application of CGST/IGST law

b) Concept of supply including composite and mixed supplies
c) Charge of tax
d) Exemption from tax
e) Composition levy
(iii) Basic concepts of time and value of supply
(iv) Input tax credit
(v) Computation of GST liability
(vi) Registration
(vii) Tax invoice; Credit and Debit Notes; Electronic way bill
(viii) Returns
(ix) Payment of tax including reverse charge
Note – If any new legislation(s) is enacted in place of an existing legislation(s),
the syllabus will accordingly include the corresponding provisions of such new
legislation(s) in place of the existing legislation(s) with effect from the date to be
notified by the Institute. Similarly, if any existing legislation ceases to have effect,
the syllabus will accordingly exclude such legislation with effect from the date to
be notified by the Institute. Students shall not be examined with reference to any
particular State GST Law.
Consequential/corresponding amendments made in the provisions of the Income-
tax law and Goods and Services Tax laws covered in the syllabus of this paper
which arise out of the amendments made in the provisions not covered in the
syllabus will not form part of the syllabus. Further, the specific
inclusions/exclusions in the various topics covered in the syllabus will be effected
every year by way of Study Guidelines. The specific inclusions/exclusions may also
arise due to additions/deletions every year by the annual Finance Act.

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CONTENTS
CHAPTER-1: GST IN INDIA–AN INTRODUCTION

Learning Outcomes .................................................................................................. 1.1
Chapter Overview ..................................................................................................... 1.2
1. Background .............................................................................................................................. 1.2
2. Direct and Indirect Taxes ..................................................................................................... 1.3
3. Features of Indirect Taxes ................................................................................................... 1.5
4. Genesis of GST in India ........................................................................................................ 1.6
5. Concept of GST ....................................................................................................................... 1.7
6. Need for GST in India ........................................................................................................... 1.8
7. Framework of GST as introduced in India................................................................... 1.10
8. Benefit of GST ........................................................................................................................ 1.24
9. Constitutional Provisions................................................................................................... 1.25
10. Test Your Knowledge .......................................................................................................... 1.32
11. Answers/Hints........................................................................................................................ 1.33
CHAPTER-2: SUPPLY UNDER GST
Learning Outcomes ................................................................................... 2.1
Chapter Overview .................................................................................... 2.2
1. Introduction.............................................................................................................................. 2.2
2. Relevant Definitions ............................................................................................................. 2.3
3. Concept of Supply [Section 7 of CGST Act] ................................................................. 2.7
4. Composite and Mixed Supplies [Section 8] ............................................................... 2.38
5. Let Us Recapitulate .............................................................................................................. 2.44
7. Answers/Hints........................................................................................................................ 2.56

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CHAPTER-3: CHARGE OF GST

Learning Outcomes .................................................................................... 3.1
Chapter Overview .................................................................................... 3.2
1. Introduction.............................................................................................................................. 3.2
2. Relevant Definitions ............................................................................................................. 3.3
3. Extent & Commencement of GST Law ......................................................................... 3.7
4. Levy & Collection of CGST & IGST [Section 9 of the
CGST Act & Section 5 of the IGST Act] .......................................................................... 3.9
5. Composition Levy [Section 10 of the CGST Act] ...................................................... 3.23
6. Let Us Recapitulate ............................................................................................................. 3.33
8. Answers/Hints........................................................................................................................ 3.38
CHAPTER-4 EXEMPTIONS FROM GST
Chapter Overview ..................................................................................... 4.1
1. Introduction.............................................................................................................................. 4.2
2. Power of Grant Exemption from Tax [Section 11
of the CGST Act/Section 6 of IGST Act] ......................................................................... 4.2
3. Goods exempt from tax ....................................................................................................... 4.5
4. List of Services exempt from tax ...................................................................................... 4.6
7 Answers/Hints........................................................................................................................ 4.69
CHAPTER-5 TIME AND VALUE OF SUPPLY
Unit-I: Time of Supply
Unit Overview .......................................................................................... 5.2
1. Introduction.............................................................................................................................. 5.2
2. Relevant Definitions .............................................................................................................. 5.3

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3. Time of Supply of Goods [Section 12] ........................................................................... 5.7

4. Time of Supply of Services [Section 13] ...................................................................... 5.21
7. Answers/Hints........................................................................................................................ 5.43
Unit– II: Value of Supply
Learning Outcomes ................................................................................ 5.47
Unit Overview ........................................................................................ 5.47
1. Introduction ................................................................................................................ 5.48
2. Relevant Definitions .................................................................................................. 5.48
3. Value of Supply [Section 15] ................................................................................. 5.53
4. Let Us Recapitulate ................................................................................................... 5.67
5. Test Your Knowledge ................................................................................................ 5.68
6. Answers/Hints ............................................................................................................ 5.70

CHAPTER 1
GST IN INDIA – AN
INTRODUCTION
LEARNING OUTCOMES
After studying this Chapter, you will be able to:
 explain the concept of tax and the objective for its levy
 describe the concept of direct and indirect tax and the
differences between the two types of taxes
 enumerate the basic features of indirect taxes and the
principal indirect taxes in India
 explain the concept of GST and the need for GST in India.
 discuss the framework of GST as introduced in India and
understand the various benefits to be accrued from
implementation of GST.
 explain the constitutional provisions pertaining to levy of
various taxes
 appreciate the need for constitutional amendment paving
way for GST.
 discuss the significant amendments made by Constitution
(101st Amendment) Act, 2016.

1.2 INDIRECT TAXES
CHAPTER OVERVIEW
Direct and Indirect Taxes
Features of indirect taxes
Genesis of GST in india

GST in India
Concept of GST
Need for GST in India
Framework of GST as introduced in India
Benefits of GST
Constitutional provisions
1. BACKGROUND
In any Welfare State, it is the prime responsibility of the Government to fulfill the
increasing developmental needs of the country and its people by way of public
expenditure. India, being a developing economy, has been striving to fulfill the
obligations of a Welfare State with its limited resources; the primary source of
revenue being the levy of taxes. Though the collection of tax is to augment as
much revenue as possible to the Government to provide public services, over the
years it has been used as an instrument of fiscal policy to stimulate economic
growth. Thus, taxes are collected to fulfill the socio-economic objectives of the
Government.
What is a tax? A tax may be defined as a "pecuniary burden laid upon

individuals or property owners to support the Government, a payment exacted by
legislative authority. A tax "is not a voluntary payment or donation, but an
enforced contribution, exacted pursuant to legislative authority".
In simple words, tax is nothing but money that people have to pay to the
Government, which is used to provide public services.

GST IN INDIA – AN INTRODUCTION 1.3
2. DIRECT AND INDIRECT TAXES

Taxes are broadly classified into direct and indirect taxes.
Direct Taxes: A direct tax is a kind of charge, which is imposed directly on the
taxpayer and paid directly to the Government by the persons (juristic or natural)
on whom it is imposed. A direct tax is one that cannot be shifted by the taxpayer
to someone else. A significant direct tax imposed in India is income tax.
Indirect Taxes: If the taxpayer is just a conduit and at every stage the tax-
incidence is passed on till it finally reaches the consumer, who really bears the
brunt of it, such tax is indirect tax. An indirect tax is one that can be shifted by
the taxpayer to someone else.
Its incidence is borne by the consumers who ultimately consume the product or
the service, while the immediate liability to pay the tax may fall upon another
person such as a manufacturer or provider of service or seller of goods.
Also called consumption taxes, they are regressive in nature because they are not
based on the principle of ability to pay. All the consumers, including the
economically challenged bear the brunt of the indirect taxes equally.
Indirect taxes are levied on consumption, expenditure, privilege, or right but not
on income or property. Hitherto, a number of indirect taxes were levied in India,
namely, excise duty, customs duty, service tax, central sales tax (CST), value added
tax (VAT), entry tax, purchase tax, entertainment tax, tax on lottery, betting and
gambling, luxury tax, tax on advertisements, etc.
However, indirect taxation in India has witnessed a paradigm shift on July 01, 2017
with usherance into a unified indirect tax regime wherein a large number of Central
and State indirect taxes have been amalgamated into a single tax – Goods and
Services Tax (GST). The introduction of GST is a very significant step in the field of
indirect tax reforms in India. Customs duty will continue in post-GST regime.
Economists world over agree that direct and indirect taxes are complementary and
therefore, a rational tax structure should incorporate in itself both types of taxes.
At Intermediate level, we will study the concept of Goods and

Services Tax (GST) - concept of supply, charge of GST, exemptions,
basic concepts of time and value of supply, input tax credit,
registration, Tax invoice, credit and debit notes, returns and
payment. Customs law will be discussed at the Final level

1.4 INDIRECT TAXES
TAX
INDIRECT TAX
DIRECT TAX
* The person paying the tax to the
* The person paying the tax to
Government collects the same
the Government directly
from the ultimate consumer.
bears the incidence of
Thus, incidnece of the tax is
the tax.
shifted to the other person.
* Progressive in nature - high
* Regressive in nature - All the
rate of taxes for people
consumers equally bear the
having higher ability to
burden, irrespective of their
pay.
ability to pay.
Burden of tax borne Burden of tax shifted

by the person himself to another person
Direct Tax Indirect Tax
Goods and
Major direct and
indirect taxes
Services Tax
Indirect taxes
Customs Duty
Direct taxes Income tax

3. 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.
(ii) Tax on commodities and services: It is levied on commodities at the time
of manufacture or purchase or sale or import/export thereof. Hence, it is
also known as commodity taxation. It is also levied on provision 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 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: High 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.

1.6 INDIRECT TAXES
4. GENESIS OF GST IN INDIA

It has 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 (2006-2007), 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, 2017, 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 President’s assent on 12th April,
2017, the Bills were enacted. The enactment of the Central Acts was
followed by the enactment of the State GST laws by various State
Legislatures. Telangana, Rajasthan, Chhattisgarh, Punjab, Goa and Bihar
were among the first ones to pass their respective State GST laws.
GST is a path breaking indirect tax reform which will create a common
national market. 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.
Journey continues
5. CONCEPT OF GST
What is GST?
Before we proceed with the finer nuances of Indian GST, let us first understand
the basic concept of GST.

1.8 INDIRECT TAXES
GST is a value added tax levied on manufacture,

sale and consumption of goods and services.
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.
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.
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.
6. NEED FOR GST IN INDIA

Deficiencies in the A cure for ills of existing
has led to GST
existing value added indirect tax regime
taxation
In the earlier indirect tax regime, a manufacturer of excisable goods charged

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
charged 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). Further, in respect of tax on services,
service tax was payable on all ‘services’ other than the Negative list of
services or otherwise exempted.

The earlier indirect tax framework in India suffered from various

shortcomings. Under the earlier indirect tax structure, the various indirect
taxes being levied were not necessarily mutually exclusive.
To illustrate, when the goods were manufactured and sold, both central
excise duty (CENVAT) and State-Level VAT were levied. Though CENVAT
and State-Level VAT were essentially value added taxes, set off of one
against the credit of another was not possible as CENVAT was a central levy
and State-Level VAT was a State levy.
Moreover, CENVAT was applicable only at manufacturing level and not at
distribution levels. The erstwhile sales tax regime in India was a
combination of origin based (Central Sales Tax) and destination based
multipoint system of taxation (State-Level VAT).
Service tax was also a value added tax and credit across the service tax and
the central excise duty was integrated at the central level.
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 remained piecemeal and fragmented on
account of the following reasons:
Non-inclusion of several Cascading of taxes on account of (i) levy of

local levies in State VAT Non-VATable CST and (ii) inclusion of
such as luxury tax, CENVAT in the value for imposing VAT
entertainment tax, etc.
No CENVAT after Non-integration Double taxation of a

manufacturing stage of VAT & service transaction as both goods
tax and services

1.10 INDIRECT TAXES
A comprehensive tax structure covering both

goods and services viz. Goods and Services Tax
(GST) addresses these problems. Simultaneous
introduction of GST at both Centre and State
levels has integrated taxes on goods and services
for the purpose of set-off relief and ensures 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.
In the GST regime, the major indirect taxes have been subsumed in the
ambit of GST. The erstwhile concepts of manufacture or sale of goods or
rendering of services are no longer applicable since the tax is now levied on
“Supply of Goods and/or services”.
7. FRAMEWORK OF GST AS INTRODUCED IN INDIA

I. Dual GST:
India has adopted a Dual GST model in view of the federal structure
of the country. Consequently, Centre and States simultaneously levy
GST on taxable supply of goods or services or both which, takes place
within a State or Union Territory. Thus, tax is imposed concurrently by
the Centre and States, i.e. Centre and States simultaneously tax goods

and services. Now, the Centre also has the power to tax intra-State
sales & States are also empowered to tax services. GST extends to
whole of India including the State of Jammu and Kashmir.
II. CGST/SGST/UTGST/IGST
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 comprises of Central Goods and Services Tax (CGST)
- levied and collected by Central Government, State Goods and
Services Tax (SGST) - levied and 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 are subject
to Integrated Goods and Services Tax (IGST). IGST is
approximately the sum total of CGST and SGST/UTGST and is
levied by Centre on all inter-State supplies.
III. Legislative Framework
There is single legislation – CGST Act,
2017 - for levying CGST. Similarly,

1.12 INDIRECT TAXES
Union Territories without State legislatures [Andaman and

Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli, Daman
and Diu and Chandigarh] are governed by UTGST Act, 2017 for
levying UTGST. States and Union territories with their own
legislatures [Delhi and Puducherry] have their own GST
legislation for levying SGST.
Though there are 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 are
uniform in all the SGST legislations, as far as feasible. This is
necessary to preserve the essence of dual GST.
IV. Classification of goods and services
HSN (Harmonised System of
Nomenclature) code is used
for classifying the goods under
the GST.
A new Scheme of Classification of Services has been devised
wherein the services of various descriptions have been classified
under various sections, headings and groups. Each group
consists of various Service Codes (Tariff). Chapters referred are
the Chapters of the First Schedule to the Customs Tariff Act,
1975.
V. Registration
Every supplier of goods and/ or services is
required to obtain registration in the State/UT
from where he makes the taxable supply if his
aggregate turnover exceeds ` 20 lakh during a FY.
However, the limit of ` 20 lakh will be reduced to ` 10 lakh if the
person is carrying out business in the specified Special Category
States 1 except Jammu and Kashmir.
1
11 Special Category States are specified in Article 279A(4)(g) of the Constitution namely,
States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.

VI. Composition Scheme

In GST regime, tax (i.e. CGST and SGST/UTGST for intra-State
supplies and IGST for inter-State
supplies) is payable by every taxable
person and in this regard provisions have been prescribed in the
law.
However, for providing relief to small businesses making intra-
State supplies, a simpler method of paying taxes and accounting
thereof is also prescribed, known as Composition Levy.
VII. Exemptions
Apart from providing relief to small-scale
business, the law also contains provisions for
granting exemption from payment of tax on
essential goods and/or services.
VIII. Manner of utilization of ITC
Input Tax Credit (ITC) of CGST and
SGST/UTGST is available
throughout the supply chain, but
cross utilization of credit of CGST and SGST/UTGST is not
possible, i.e. CGST credit cannot be utilized for payment of
SGST/UTGST and SGST/UTGST credit cannot be utilized for
payment of CGST.
However, cross utilization is allowed between CGST/SGST/UTGST
and IGST, i.e. credit of IGST can be utilized for the payment of
CGST/SGST/UTGST and vice versa.
IGST CGST SGST or UTGST
IGST SGST or
CGST
UTGST
CGST
SGST or IGST IGST

UTGST

1.14 INDIRECT TAXES
IX. Seamless flow of credit

Since GST is a destination based
consumption tax, revenue of SGST
ordinarily accrues to the consuming
States. The inter-State supplier in the exporting State is 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 is allowed to avail the credit of
IGST paid on inter-State purchase made by him. Thus, unlike the
earlier scenario where the credit chain used to break 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 does not accrue to the exporting
State and the exporting State transfers to the Centre the credit
of SGST/UTGST used in payment of IGST.
The Centre transfers to the importing State the credit of IGST
used in payment of SGST/UTGST. Thus, 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.
X. GST Common Portal
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] has been 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.
Primarily, GSTN provides three front end services to the taxpayers
namely registration, payment and return through GST Common Portal.
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; and running the matching engine for
matching, reversal and reclaim of input tax credit.
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

1.16 INDIRECT TAXES
bill is an electronic document generated on the GST portal evidencing

movement of goods.
XI. GSPs/ASPs
GSTN has selected certain IT, ITeS 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.
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.
XII. 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.

XIII. 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/produ
ction of alcoholic
liquor continues to
be subjected to
State excise duty
and inter-State/intra-State sale of the same is subject to
VAT/CST 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.
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.

1.18 INDIRECT TAXES
Central levies to be subsumed
Central Excise Duty & State surcharges and cesses

Additional Excise in so far as they relate to
Duties supply of goods & services
Service Tax Entertainment Tax (except
Excise Duty under those levied by local
State levies to subsumed

Medicinal & Toilet bodies)
Preparation Act Tax on lottery, betting and
CVD & Special CVD gambling
Central Sales Tax Entry Tax (All Forms) &
Purchase Tax
Central surcharges
and Cesses in so far as VAT/ Sales tax
they relate to supply Luxury Tax
of goods & services
Taxes on advertisements

Intra-State Supply
ILLUSTRATION
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
Amount (in `)
Value charged for supply of goods/ services 10,000
Add: CGST @ 9% 900
Add: SGST @ 9% 900
Total price charged by A from B for local supply of 11,800

goods/ services
The CGST & 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.

1.20 INDIRECT TAXES
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.
Amount
(in `)
Value charged for supply of goods/ services (` 10,000 x 120%) 12,000
Add: CGST @ 9% 1080
Add: SGST @ 9% 1080
Total price charged by B from C for local supply of goods/ 14160

services
Computation of CGST, SGST payable by B to Government
Amount (in `)
CGST payable 1080
Less: Credit of CGST 900
CGST payable to Central Government 180
SGST payable 1080
Less: Credit of SGST 900
SGST payable to State Government 180
Note: Rates of CGST and SGST have been assumed to be 9% each for the sake
of simplicity.

Statement of revenue earned by Central and State Government
Transaction Revenue to Revenue to

Central State
Government Government (`)
(`)
Supply of goods/services by A to B 900 900
Supply of goods/services by B to C 180 180
Total 1080 1080
Inter-State Supply
ILLUSTRATION
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
Amount (in `)
Value charged for supply of goods/services 10,000
Add: CGST @ 9% 900
Add: SGST @ 9% 900
Total price charged by X from A for intra-State supply of 11,800

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

1.22 INDIRECT TAXES
II. Supply of goods/services by A of State 1 to B of State 2 – Value

addition @ 20%
Amount (in
`)
Value charged for supply of goods/services (` 10,000 x 120%) 12,000
Add: IGST @ 18% 2,160
Total price charged by A from B for inter-State supply of 14,160

goods/services
Computation of IGST payable to Government
Amount (in `)
IGST payable 2,160
Less: Credit of CGST 900
Less: Credit of SGST 900
IGST payable to Central Government 360
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 ` 900
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 of 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.
Amount (in `)
Value charged for supply of goods/ services 14,400

(` 12,000 x 120%)

Add: CGST @ 9% 1,296
Add: SGST @ 9% 1,296
Total price charged by B from C for local supply of 16,992

goods/services
Computation of CGST, SGST payable to Government
Amount (in `)
CGST payable 1,296
Less: Credit of IGST 1,296
CGST payable to Central Government Nil
SGST payable 1,296
Less: Credit of IGST (` 2,160 - ` 1,296) 864
SGST payable to State Government 432
Central Government will transfer IGST credit of ` 864 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 for the sake of simplicity.
Statement of revenue earned by Central and State Governments
Transaction Revenue to Revenue to Revenue to

Central Government Government
Government of State 1 of State 2
(`) (`) (`)
Supply of goods/services by X 900 900

to A

1.24 INDIRECT TAXES
Supply of goods/services by A 360

to B
Transfer by State 1 to Centre 900 (900)
Supply of goods/services by B 432

to C
Transfer by Centre to State 2 (864) 864
Total 1,296 Nil 1,296
8. 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. It will lower the
cost of goods and services, give a boost to the
economy and make the products and services
globally competitive.
The significant benefits of GST are discussed
hereunder:
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.
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 would mitigate the
ill effects of cascading, improve competitiveness and improve liquidity of
the businesses.
Elimination of multiple taxes and double taxation: GST has subsumed
majority of existing indirect tax levies both at Central and State level into
one tax i.e., GST which is leviable uniformly on goods and services. This will
make doing business easier and will also tackle the highly disputed issues
relating to double taxation of a transaction as both goods and services.

Boost to ‘Make in India' initiative: GST will give 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.
Buoyancy to the Government Revenue: GST is expected to bring
buoyancy to the Government Revenue by widening the tax base and
improving the taxpayer compliance.
9. CONSTITUTIONAL PROVISIONS
India has a three-tier federal structure, comprising the Union Government, the
State Governments and the Local Government. The power to levy taxes and
duties is distributed among the three tiers of Governments, in accordance with
the provisions of the Indian Constitution.
The Constitution of India is the supreme law of India. It consists of a Preamble,
25 parts containing 448 Articles and 12 Schedules.

1.26 INDIRECT TAXES
25 Parts
(containing
Preamble 448
articles)
12
Schedules
Constitution of India
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.
Thus, a study of the basic provisions of the Constitution is essential for
understanding the genesis of the various taxes being imposed in India. 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 245: Part XI of the Constitution deals with relationship between the
Union and States. The power for enacting the laws is conferred on the
Parliament and on the Legislature of a State by Article 245 of the
Constitution. The said Article provides as under:
Subject to the provisions of this Constitution, Parliament may make

laws for the whole or any part of the territory of India, and the
legislature of a State may make laws for the whole or any part of the
State.

No law made by the Parliament shall be deemed to be invalid on the

ground that it would have extra-territorial operation.
III. 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.
IV. 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 LIST – II LIST – III

CONCURREN
UNION LIST STATE LIST
T LIST
It contains
the matters in It contains the It contains the
respect of matters in matters in
which the respect of respect of
Parliament which the which both
(Central State the Central
Government) Government & State
has the has the Governments
exclusive exclusive right have power
right to make to make laws . to make laws.
laws.
Entries 82 to 91 of List I enumerate the subjects where the Central

Government has power to levy taxes. Entries 45 to 63 of List II enumerate
the subjects where the State Governments have the power to levy taxes.
Parliament has a further power to make any law for any part of India not
comprised in a State even if such matter is included in the State List.
Income tax is levied by virtue of Entry 82 - Taxes on income other than
agricultural income and customs duty vide Entry 83 - Duties of customs
including export duties of the Union List.
Power to levy
Goods and
Services Tax (GST)
has been conferred by Article 246A of the Constitution which was
introduced by the Constitution (101st Amendment) Act, 2016. Before

1.28 INDIRECT TAXES
discussing the significant provisions of the Constitution (101st Amendment)

Act, 2016, let us first understand why there arose a need for such
constitutional amendment.
Need for constitutional amendment

The Constitutional provisions hitherto had delineated separate powers for
the Centre and the States to impose various taxes. Whereas the Centre
levied excise duty on all goods produced or manufactured in India, the
States levied Value Added Tax once the goods entered the stream of trade
upon completion of manufacture.
In the case of inter-State sales, the Centre had the power to levy a tax (the
Central Sales Tax), but the tax was collected and retained entirely by the
States. Services were exclusively taxed by the Centre together with
applicable cesses, if any. Besides, there were State specific levies like entry
tax, Octroi, luxury tax, entertainment tax, lottery and betting tax, local taxes
levied by Panchayats etc.
With respect to goods imported from outside the country into India, Centre
levied basic customs duty and additional duties of customs together with
applicable cesses, if any.
Introduction of the GST required amendment in the Constitution so as to
enable integration of the central excise duty including additional duties of
customs, State VAT and certain State specific taxes and service tax levied by
the Centre into a comprehensive Goods and Services Tax and to empower
both Centre and the States to levy and collect it.
Consequently, Constitution (101st Amendment Act), 2016 (hereinafter
referred to as Constitution Amendment Act) was passed. It has 20 sections.
Newly inserted Article 279A empowering President to constitute GST
Council was notified on 12.09.2016. Remaining provisions were notified
with effect from 16.09.2016.
Significant provisions of Constitution (101st Amendment) Act, 2016

Significant amendments made by Constitution Amendment Act are
discussed below:

V. Article 246A: Power to make laws with respect to Goods and

Services Tax:
Newly inserted Article 246A

(1) Notwithstanding anything contained in Articles 246 and 254,
Parliament, and, subject to clause (2), the Legislature of every State,
have power to make laws with respect to goods and services tax
imposed by the Union or by such State.
(2) Parliament has exclusive power to make laws with respect to
goods and services tax where the supply of goods, or of services,
or both takes place in the course of inter-State trade or commerce.
Explanation.—The provisions of this article, shall, in respect of goods
and services tax referred to in clause (5) of article 279A, take effect from
the date recommended by the Goods and Services Tax Council.
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:
motor
high spirit aviation
petroleum natural
speed ((commonly turbine
crude gas
diesel known as fuel
petrol)
The provisions of Article 246A are notwithstanding anything contained

in Articles 246 and 254. Article 254 deals with the supremacy of the
laws made by Parliament.

1.30 INDIRECT TAXES
VI. 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.
This will give power to Central Government to levy IGST on the import
transactions which were earlier subject to Countervailing duty under
the Customs Tariff Act, 1975.
Where an amount collected as IGST has been used for payment of
SGST or vice versa, such amount shall not form part of the
Consolidated Fund of India. This is to facilitate transfer of funds
between the Centre and the States.
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.
VII. Definitions of ‘Goods and Services Tax’, ‘Services’ and ‘State’
incorporated under Article 366
The terms Goods and Services Tax, services and State have been
defined under respective clauses of Article 366 as follows:
Goods and services tax means any tax

on supply of goods, or services or both
except taxes on the supply of the
alcoholic liquor for human consumption. Consequently, GST can
be levied on supply of all goods and services except alcoholic
liquor for human consumption.
Services means anything other than

goods.

State, with reference to articles 246A, 268,

269, 269A and article 279A, includes a
Union territory with Legislature.
Definition of “goods”: The term goods has already been defined
under clause (12) of Article 366 in an inclusive manner to provide that
“goods includes all materials, commodities, and articles”.
VIII.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 provisions relating to GST Council came into force on 12th
September, 2016. President constituted the GST Council on 15th
September, 2016.
The Union Finance Minister is the
Chairman of this Council and Ministers
in charge of Finance/Taxation or any GST COUNCIL
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.
It shall also recommend the date on which GST be levied on
petroleum crude, high speed diesel, motor spirit, natural gas and
aviation turbine fuel.
Every decision of the GST Council is taken by a majority of not less
than three-fourths of the weighted votes of the members present and
voting. Vote of the Centre has a weightage of one-third of total votes
cast and votes of all the State Governments taken together has a
weightage of two-thirds of the total votes cast, in that meeting.

1.32 INDIRECT TAXES
10. TEST YOUR KNOWLEDGE

1. Which of the following taxes have been subsumed in GST?
(a) Central Sales Tax
(b) Central Excise Duty
(c) VAT
(d) All of the above
2. List-I of the Constitution contains matters in respect of which ____________ has
the exclusive right to make laws.
(a) Central Government
(b) State
(c) Both Centre and State Governments
(d) None of the above
3. GST is levied on supply of all goods and services except:
(a) Alcoholic liquor for human consumption
(b) Tobacco
(c) Health care services
4. On Petroleum Crude, High Speed Diesel, Motor Spirit (commonly known as
Petrol), Natural Gas and Aviation Turbine Fuel:
(a) GST is not levied at all
(b) GST will be levied from a date to be notified on the recommendations of
the GST Council
(c) GST is levied, but exempt
5. The functions of Goods and Services Network (GSTN) include:
(a) facilitating registration
(b) forwarding the returns to Central and State authorities
(c) computation and settlement of IGST

6. Which article of the Constitution outlines the composition and functions of

the GST Council?
(a) 270
(b) 279A
(c) 246A
(d) 269A
7. Differentiate between direct and indirect taxes.
8. Enumerate different types of direct and indirect taxes.
9. Explain the salient features of indirect taxes.
10. Write a short note on various Lists provided under Seventh Schedule to the
Constitution of India.
11. Discuss how GST resolved the double taxation dichotomy under previous
indirect tax laws.
12. Enumerate the deficiencies of the existing indirect taxes which led to the need
for ushering into GST regime.
13. Discuss the dual GST model as introduced in India.
14. List the Central and State levies which have been subsumed in GST in India.
11. ANSWERS/HINTS
1. (d) 2. (a) 3. (a) 4. (b) 5. (d) 6. (b)
7. Refer Para 2.
8. Refer Para 2.
9. Refer Para 3.
10. Refer Para 9.
11. Refer Para 6.
12. Refer Para 6.
13. Refer Para 7.
14. Refer Para 7.

1.1
CHAPTER 2
SUPPLY UNDER GST
LEARNING OUTCOMES
After studying this Chapter, you will be able to –

 analyse the taxable event under GST – Supply – its meaning
and scope.
 compare and appreciate the differences between the
taxable events under earlier indirect taxes regime and the
GST regime.
 identify the transactions that will amount to supply even
without any consideration
 identify the transactions which will be treated as supply of
goods or supply of services.
 pinpoint the transactions which will be neither the supply of
goods nor the supply of services.
 explain the composite and mixed supplies.

2.2 INDIRECT TAXES
CHAPTER OVERVIEW
Supply with consideration in course/ furtherance of business
Import of services with consideration whether or not in course/

furtherance of business
Taxable Event
Supply without consideration

(Supply)
Activities treated as Supply of goods or Supply of services
Activities neither the supply of goods nor the supply of services
Composite and Mixed Supplies
1. INTRODUCTION
A taxable event is any transaction or occurrence
that results in a tax consequence. Before
levying any tax, taxable event needs to be
ascertained. It is the foundation stone of any
taxation system; it determines the point at
which tax would be levied.
Under the earlier indirect tax regime, the
framework of taxable event in various statutes
was prone to catena of interpretations resulting
in litigation since decades. The controversies largely related to issues like
whether a particular process amounted to manufacture or not, whether the sale
was pre-determined sale, whether a particular transaction was a sale of goods or
rendering of services etc.
The GST laws resolve these issues by laying down one
comprehensive taxable event i.e. “Supply” - Supply of goods or
services or both. Various taxable events namely manufacture,
sale, rendering of service, purchase, entry into a territory of State

SUPPLY UNDER GST 2.3
etc. have been done away with in favour of just one event i.e. Supply.
GST Law, by levying tax on the ‘supply’ of goods and/or services, departs from the
historically understood concepts of ‘taxable event’ under the State VAT Laws,
Excise Laws and Service Tax Laws i.e. sale, manufacture and service respectively.
In the GST regime, the entire value of supply of goods and /or services is
taxed in an integrated manner, unlike the earlier indirect taxes, which were
charged independently either on the manufacture or sale of goods, or on the
provisions of services.
2. RELEVANT DEFINITIONS
Goods: means every kind of movable property other than money and
securities but includes actionable claim, 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. [Sec. 2(52) of CGST Act].
Principal: means a person on whose behalf an agent carries on the
business of supply or receipt of goods or services or both [Section 2(88)
of CGST Act].
Competent authority: means such authority as may be notified by the
Government [Section 2(29) of the CGST Act].
Family: means, —
(i) the spouse and children of the person, and
(ii) the parents, grand-parents, brothers and sisters of the person if they
are wholly or mainly dependent on the said person [Section 2(49) of the
CGST Act].
Business: includes –

2.4 INDIRECT TAXES
(a) any trade, commerce, manufacture, profession, vocation, adventure,

wager or any other similar activity, whether or not it is for a pecuniary
benefit;
(b) any activity or transaction in connection with or incidental or ancillary
to (a) above;
(c) any activity or transaction in the nature of (a) above, whether or not
there is volume, frequency, continuity or regularity of such transaction;
(d) supply or acquisition of goods including capital assets and services in

connection with commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a
subscription or any other consideration) of the facilities or benefits to its
members, as the case may be;;
(f) admission, for a consideration, of persons to any premises; and
(g) services supplied by a person as the holder of an office which has

been accepted by him in the course or furtherance of his trade, profession
or vocation;
(h) services provided by a race club by way of totalisator or a licence to
book maker in such club
(i) any activity or transaction undertaken by the Central Government, a
State Government or any local authority in which they are engaged as
public authorities
[Section 2(17) of CGST Act].

Government: means the Central Government [Section 2(53) of the CGST Act].
Local authority: means —
(a) a “Panchayat” as defined in clause (d) of article 243 of the
Constitution.
(b) a “Municipality” as defined in clause (e) of article 243P of the
Constitution.
(c) a Municipal Committee, a Zilla Parishad, a District Board, and any
other authority legally entitled to, or entrusted by the Central
Government or any State Government with the control or

management of a municipal or local fund.

(d) a Cantonment Board as defined in section 3 of the Cantonments
Act, 2006.
(e) a Regional Council or a District Council constituted under the Sixth
Schedule to the Constitution.
(f) a Development Board constituted under article 371J of the
Constitution.
(g) a Regional Council constituted under article 371A of the
Constitution [Section 2(69) of the CGST Act].
Consideration: in relation to the supply of goods or services or both
includes:
any payment made or to be made, whether in money or otherwise,
in respect of, in response to, or for the inducement of, the supply
of goods or services or both, whether by the recipient or by any
other person but shall not include any subsidy given by the Central
Government or a State Government,
the monetary value of any act or forbearance, in respect of, in
response to, or for the inducement of, the supply of goods or
services or both, whether by the recipient or by any other person
but shall not include any subsidy given by the Central Government
or a State Government.
However, a deposit given in respect of the supply of goods or services or
both shall not be considered as payment made for such supply unless
the supplier applies such deposit as consideration for the said supply.
Actionable claim: means a claim to any debt, other than a debt secured
by mortgage of immovable property or by hypothecation or pledge of
movable property, or to any beneficial interest in movable property not in
the possession, either actual or constructive, of the claimant, which the civil
courts recognise as affording grounds for relief, whether such debt or
beneficial interest be existent, accruing, conditional or contingent [Section
2(1) of CGST Act read with section 3 of the Transfer of Property Act, 1882].
Manufacture: means processing of raw material or inputs in any manner
that results in emergence of a new product having a distinct name, character

2.6 INDIRECT TAXES
and use and the term “manufacturer” shall be construed accordingly

Money: means the Indian legal tender or any foreign currency, cheque,
promissory note, bill of exchange, letter of credit, draft, pay order, traveller
cheque, money order, postal or electronic remittance or any other instrument
recognised by the Reserve Bank of India when used as a consideration to settle
an obligation or exchange with Indian legal tender of another denomination
but shall not include any currency that is held for its numismatic value
Taxable supply: means a supply of goods or services or both which is
leviable to tax under this Act [Section 2(108) of CGST Act].
Taxable territory: means the territory to which the provisions of this
Act apply [Section 2(109) of CGST Act].
Services: means anything other than goods, money and securities but
includes activities relating to the use of money or its conversion by cash
or by any other mode, from one form, currency or denomination, to
another form, currency or denomination for which a separate
consideration is charged [Section 2(102) of CGST Act].
Supplier: in relation to any goods or services or both, shall mean the
person supplying the said goods or services or both and shall include an
agent acting as such on behalf of such supplier in relation to the goods
or services or both supplied [Section 2(105) of CGST Act].
Recipient: of supply of goods and/or services means-
(a) where a consideration is payable for the supply of goods or
services or both, the person who is liable to pay that consideration,
(b) where no consideration is payable for the supply of goods, the
person to whom the goods are delivered or made available, or to
whom possession or use of the goods is given or made available,
and
(c) where no consideration is payable for the supply of a service, the
person to whom the service is rendered,
and any reference to a person to whom a supply is made shall be
construed as a reference to the recipient of the supply

and shall include an agent acting as such on behalf of the recipient in

relation to the goods or services or both supplied. [Section 2(93) of
CGST Act]
Person: includes [Section 2(84) of CGST Act]-
An individual A HUF A company
An association of persons
or a body of individuals,
A Limited Liability
A firm whether incorporated or
Partnership
not, in India or outside
India
Any corporation established Any body corporate A co-operative society

by/under any Central, State or
incorporated by or registered under any
Provincial Act or Government
company as defined in section under the laws of a law relating to
2(45) of Companies Act, 2013 country outside India cooperative societies
Society as defined
Central
under the Societies
A local authority Government/State
Government
Registration Act,
1860
Every artificial juridical

Trust person, not falling
above
Our discussion in this Study Material will principally be confined to the provisions of
CGST and IGST laws as the specific State GST laws are outside the scope of syllabus.
3. CONCEPT OF SUPPLY [SECTION 7 OF CGST ACT]

The concept of ‘supply’ is the key stone of the GST architecture. The provisions
relating to meaning and scope of supply are contained in Chapter III of the CGST

2.8 INDIRECT TAXES
Act read with various Schedules given under the said Act. Following sections and
schedules shall be discussed in this chapter to understand the concept of supply:
Section 7 Meaning and scope of supply
Section 8 Taxability of composite and mixed supplies
Schedule I Matters to be treated as supply even if made without

consideration
Schedule II Matters to be treated as supply of goods or as supply of

services
Schedule III Matters or transactions which shall be treated neither as supply

of goods nor as supply of services.
STATUTORY PROVISIONS
Section 7 Meaning and Scope of Supply
Sub Section Clause Particulars
(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
(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
(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) & (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.
Schedule-I Activities to be treated as supply even if made without

consideration
S. No. Particulars
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.
Provided that gifts not exceeding fifty thousand rupees in value in
a financial year by an employer to an employee 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; or

2.10 INDIRECT TAXES
(b) by an agent to his principal where the agent undertakes to

receive such goods on behalf of the principal.
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.
ANALYSIS
The definition of ‘supply’ as contained in section 7 of the CGST Act is an
inclusive definition and does not define the term exhaustively. It defines the
scope of supply in an inclusive manner. Clause (a) of sub-section (1)
illustrates the modes of supply, but the list is not exhaustive. This is
substantiated by the use of words ‘such as’ in the definition.
Provisions of scope of supply under CGST Act have also been made
applicable to IGST Act vide section 20 of the IGST Act.
The meaning and scope of supply taxable under GST can be understood in
terms of following parameters:
1. Supply should be of goods or services. Supply of anything other than
goods or services like money, securities etc. does not attract GST.
Money
Anything 💸💸 Securities
which is
neither
Goods goods nor
Supply
NOT Supply
services
Services
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.
Parameters
of taxable Supply
supply should be
a taxable
supply
by a taxable
person
in the
course or
for
furtherance
consideration
of goods of business
and services
Aforesaid parameters describe the concept of taxable supply. However,

there are a few exceptions to 2nd and 3rd parameters [the requirement of
supply being made for a consideration and in the course or furtherance of
business] in the GST law. Some exceptions have been carved out where a
transaction is deemed to be a supply even without consideration.
Similarly, the condition of supply to be made in the course or furtherance
of business has been relaxed in case of import of services [Import of
services for a consideration, whether or not in the course or furtherance of
business, is treated as supply].
Further, there are also cases where a transaction is kept out of scope of
supply despite the existence of the above parameters, i.e. there is a list
of activities which are treated neither as supply of goods nor as supply of
services. In other words, they are outside the scope of GST.
GST law has classified certain activities/transactions either as supply of
goods or as supply of services. Government is also empowered to notify
transactions that are to be treated as a supply of goods and not as a
supply of services, or as a supply of services and not as a supply of
goods.

2.12 INDIRECT TAXES
In the subsequent paras, the above aspects of supply have been extensively
discussed. The discussion has been broadly categorised into following:
Supply for consideration in course or furtherance of business

[Section 7(1)(a)]
Importation of services for consideration whether or not in
course or furtherance of business
includes [Section 7(1)(b)]
Supply without consideration [Section 7(1)(c)
+ Schedule I]
Supply
Activities to be treated as supply of goods or supply of services

[Section 7(1A) + Schedule II]
excludes Negative list [Section 7(2) + Schedule III]
The definition of supply begins with the term ‘Supply includes’,

thus making it clear that CGST Act intends to give an extensive Section
7(1)(a)
meaning to the term ‘supply’. Supply includes all forms of
supply of goods or services or both. Supply of anything other
than goods or services does not attract GST. The terms goods and services as
defined under the Act have been analysed by way of a diagram on next page.
Anything supplied other than goods and services is outside the scope of
supply.
The first part of section 7 [Clause (a) of sub-section (1)] includes all forms of
supply of goods or services or both such as sale, transfer, barter, exchange,
license, rental, lease or disposal made or agreed to be made for consideration in
the course or furtherance of business.
Supply includes
sale, transfer,
in the course or
barter, exchange,
for consideration furtherance of
licence, rental,
business
lease, disposal
Thus, the forms of supply as contemplated in this first part have two pre-
requisites:

 the supply should be for a consideration; and
 the supply should be in the course or furtherance of business.
Goods Service
s
means means
Every kind of movable Anything other than goods

property
excludes
Money and securities
includes includes
(i) actionable claim** Activities relating to:

(ii) growing crops, grass and (i) Use of money** or
things attached to/forming (ii) Conversion of money by cash/by
part of the land which are any other mode, from one form/
agreed to be severed before currency/ denomination, to
supply or under a contract another, for which a separate
of supply. consideration is charged.
**Please refer the definitions of ‘actionable claims’ and ‘money’ as provided in

heading 2. – Relevant Definitions.

2.14 INDIRECT TAXES
We shall now discuss the various modes of supply as enumerated in section

7(1)(a) in detail:
A. MODES OF SUPPLY
I. Sale and Transfer: Earlier, VAT was levied by the State on the sale of goods
which was defined under most State VAT laws as transfer of property in
goods for consideration. Under the CGST Act, although sale has been
treated as a form of supply leviable to GST, the definition of ‘sale’ has not
been provided.
Further, the term ‘transfer’ which has also been included as a form of supply
is also not defined.
II. Barter and Exchange: While barter may deal with a transaction which only
includes an exchange of goods/services, exchange may cover a situation
where the goods are partly paid for in goods and partly in money. When
there is a barter of goods or services, same activity constitutes supply as
well as consideration.
By making a specific inclusion in the definition of supply, all barters and
exchanges would be leviable to GST.
Example of exchange
When a new car worth ` 5,00,000 is purchased in exchange of an
old car alongwith the monetary consideration of ` 4,00,000 paid
for the said purchase.
Example of barter is as follows:
Doctor provides medical consultancy
Barber cuts doctor’s hair
Doctor Barber
Medical consultancy is a SUPPLY of services by doctor. It is a

consideration for the hair cut by the barber.
III. Licence, Lease, Rental etc.: Licenses, leases and rentals of goods were
earlier treated as services where the goods were transferred without

transfer of right to use (effective possession and control over the goods)
and were treated as sales where the goods were transferred with transfer of
right to use. Under the GST regime, such licenses, leases and rentals of
goods with or without transfer of right to use are covered under the supply
of service because there is no transfer of title in such supplies. Such
transactions are specifically treated as supply of service in Schedule-II of
CGST Act [Schedule-II has been discussed in detail in the subsequent paras].
As discussed earlier, one of the parameters for the supply of goods and/or
services to fall within the ambit of GST is that a supply is made for a
consideration. This parameter has been explicated in the following paras:
B. CONSIDERATION
Consideration does not always mean money. It can be in money or kind. It
covers anything which might be possibly done, given or made in exchange for
something else. Further, a consideration need not always flow from the recipient
of the supply. It can also be made by a third person. The term consideration is
defined under section 2(31) of the CGST Act [Refer heading ‘Relevant Definitions].
The said definition has been depicted in the form of a diagram as follows:
CONSIDERATION
Payment in money Monetary value of any

or otherwise for act or forbearance for
the supply the supply
By recipient or any
Deposit to be other person
considered as
payment
ONLY
Excluding subsidy given
by Central/ State
when the supplier
Governments
applies such deposit
as consideration for
the said supply

2.16 INDIRECT TAXES
Thus, any subsidy given by the Central Government or a State Government is not
considered as consideration. A deposit given in respect of the supply of goods or
services or both shall not be considered as payment made for such supply unless
Art works sent by artists to galleries for exhibition is not a supply
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 [Circular No. 22/22/2017 GST dated 21.12.2017].
Any transaction involving supply of

goods and/or services without
consideration is not a supply unless
it is deemed to be a supply under
law [as deemed in Schedule I of the
CGST Act**].
**Provisions of Schedule I of the CGST Act have been discussed in detail later in this
chapter.
Another parameter for the supply of goods and/or services to fall within the
ambit of GST is that a supply is made in course or furtherance of business. This
parameter has been expounded in the following paras:
C. IN COURSE OR FURTHERANCE OF BUSINESS
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’.

Rishabh buys a car for his personal use and after a year sells it to a car
dealer. Sale of car by Rishabh to car dealer is not a supply under CGST
Act because supply is not made by Rishabh in the course or furtherance
of business.
Radhika sold her old gold bangles and earrings to ‘Bhola Jewellers’. Sale
of old gold jewellery by an individual to a jeweller will not constitute
supply as the same cannot be said to be in the course or furtherance of
business of the individual 1.
Meaning of supply made in the course or furtherance of business: In order to
understand the term ‘in the course or furtherance
of business’, we need to understand the term
‘business’. Business as defined under section
2(17) of the CGST Act, inter alia, includes any
trade, commerce, manufacture, profession, vocation etc.
whether or not undertaken for a monetary benefit.
It also includes any activity or transaction which is incidental or ancillary to the
aforementioned listed activities. In addition, any activity undertaken by the
Central Govt. or a State Govt. or any local authority in which they are engaged as
public authority shall also be construed as business. The definition of business has
been summarised in the diagram below:
Any trade/commerce, manufacture, Any activity incidental/ ancillary to it

profession etc. even if there is no
Any activity of same nature even if no
monetary benefit
volume/continuity
Supply/acquisition of goods
in connection with commencement /
including capital goods &
closure of business
Business includes
services
Provision of facilities by
to its members for consideration
club/association etc.
Admission for consideration to any premises
Services as holder of office accepted in course/ furtherance of trade, profession
Services by race club by way of totalisator or a licence to book maker in such club
Any activity by Government /local authority as
public authorities
1
Clarified by CBIC vide press release dated 13.07.2017

2.18 INDIRECT TAXES
Any activity undertaken in course/ for furtherance of business would constitute a

supply. Since ‘business’ includes vocation, therefore sale of goods or service as a
vocation is also a supply under GST.
Sundaram Acharya, a famous actor, paints some paintings and sells
them. The consideration from such sale is to be donated to a Charitable
Trust – ‘Kind Human’. The sale of paintings by the actor qualifies as
supply even though it is a one-time occurrence.
Services provided by the club/association to its members for consideration is a supply.
A Resident Welfare Association provides the service of depositing the
electricity bills of the residents in lieu of some nominal charges.
Provision of service by a club or association or society to its members is
treated as supply as this is included in the definition of ‘business’.
There is one exception to this

‘course or furtherance of
business’ rule i.e., import of
services for a consideration.
D. SUPPLY BY A TAXABLE PERSON

A supply to attract GST should be made by a taxable person. Hence, a supply
between two non-taxable persons does not constitute taxable supply under GST.
It is important to note that

supply can be made to a
non-taxable person also.
The restriction of being a taxable person is only on the supplier whereas the
recipient can be either taxable or non-taxable. Further, there is no condition that
supply needs to be made to another person, i.e. supplies made to self are also
taxable.

Meaning of taxable person: A “taxable person” is a person who is registered or

liable to be registered under section 22 or section 24 [The said sections and the
concept of taxable person thereto have been discussed in detail in Chapter 7 –
Registration].
Hence, even an unregistered person who is liable to be registered is a taxable
person. Similarly, a person not liable to be registered, but has taken voluntary
registration and got himself registered is also a taxable person.
E. TAXABLE SUPPLY
For a supply to attract GST, the supply must be taxable. Taxable supply has been
broadly defined and means any supply of goods or services or both which, is
leviable to tax under the GST Law [Refer Chapter-3: Charge of GST for detailed
discussion on leviability of GST]. Exemptions may be provided to the specified
goods or services or to a specified category of persons/ entities making supply
[Refer Chapter-4: Exemptions from GST for detailed discussion].
The connotation of ‘supply’ gets expanded significantly

through the second part of section 7 i.e. 7(1)(b) which
brings within the ambit of ‘supply’, the importation of
Section
services for a consideration whether or not in the course 7(1)(b)
or furtherance of business. This is the only exception to
the condition of supply being in course or furtherance of
business.
Ramaiyaa, a proprietor, has received the architect services for his house
from an architect located in New York at an agreed consideration of
$ 5,000. The import of services by Ramaiyaa is supply under section
7(1)(b) though it is not in course or furtherance of business.
This includes all supplies made, even if the same is without

consideration. These are specifically mentioned in Schedule I
appended to the CGST Act. The same has been discussed in Section 7(1)(c)
read with
the subsequent paras: Schedule I
In the past regime, in every tax statute, “consideration” played

2.20 INDIRECT TAXES
the most important role for levying taxes. For instance, if any service was provided
for free to a person, such service was not subject to service tax. However, under
GST, the importance of consideration has been diluted in certain cases – this is an
important departure from the earlier indirect tax regime.
As per Schedule I, in the following four cases, supplies made without
consideration will be treated as supply under section 7 of the CGST Act:
I. Permanent Transfer/Disposal of Business Assets [Para 1. of
Schedule I]: Any kind of disposal or transfer of business assets made by an
entity on permanent basis even though without consideration qualifies as
supply. This clause is wide enough to cover transfer of business assets from
holding to subsidiary company for nil consideration.
However, it is important to note that this provision would apply only if input
tax credit has been availed on such assets.
XYZ & Co. donates old laptops to Charitable Schools when new
laptops are purchased by business will qualify as supply provided
input tax credit has been availed by XYZ & Co. on such laptops.
A cloth retailer gives clothes from his business stock to his friend
free of cost. In this case, transfer of business stock would amount
to ‘supply’ if he had claimed input tax credit on his purchase of the
business asset.
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.
II. Supply between related person or distinct persons [Para 2. of
Schedule I]: Supply of goods or services or both between ‘related persons’
or between ‘distinct persons’ as specified in section 25, will qualify as supply
provided it is made in the course or furtherance of business.
Let us understand the terms ‘related persons’ and ‘distinct persons’.
Related persons: A person who is under influence of another person is called
a related person like members of the same family [See definition of family under

‘Relevant Definitions’] or subsidiaries of a group

company etc. Under GST law various categories of
related persons have been specified. The term
‘related person’ has been defined in explanation to
section 15. The said definition has been depicted
by way of a diagram as follows:
Persons Such persons are
DEEMED AS RELATED IF officers/directors of one
PERSONS another’s business
include
Such persons are legally
recognised partners
Legal Persons
Such persons are employer
& employee
A third person controls/ own/

holds (directly/ indirectly) ≥
25% voting stock/shares of
both of them
One of them controls

(directly/indirectly) the other
A third person controls

(directly/indirectly) both of them
Such persons together

control (directly/indirectly) a
third person
Such persons are members

of the same family
One of them is the sole

agent/sole distributor/sole
concessionaire of the other
(i) Ms. Priya holds 30% shares of ABC Ltd. and 35% shares of
XYZ Ltd. ABC Ltd. and XYZ Ltd. are related.

2.22 INDIRECT TAXES
(ii) Q Ltd. has a deciding role in corporate policy, operations

management and quality control of R Ltd. It can be said that Q Ltd. controls
R Ltd. Thus, Q Ltd. and R Ltd. are related.
Distinct Persons specified under section 25*: Sub-sections (4) and (5) of
section 25 contain the provisions relating to ‘distinct persons’.
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 [Section 25(4) of the CGST Act].
Mohan, a Chartered Accountant, has a registered head office in
Delhi. He has also obtained registration in the State of West
Bengal in respect of his newly opened branch office. Mohan shall
be treated as distinct persons in respect of registrations in West Bengal and
Delhi. Supply between Delhi office and West Bengal office, in course or
furtherance of business even without consideration will qualify as supply.
Further, where a person who has obtained or is required to obtain
registration in a State or Union territory in respect of an establishment, has
an establishment in another State or Union territory, then such
establishments shall be treated as establishments of distinct persons
[Section 25(5) of the CGST Act].
Rishabh Enterprises, a registered supplier, owns an air-
conditioned restaurant in Virar, Maharashtra. It has opened a
liquor shop in Raipur, Uttarakhand for trading of alcoholic liquor
for human consumption. Since supply of alcoholic liquor for human
consumption in Uttarakhand is a non-taxable supply, Rishabh Enterprises is
not required to obtain registration with respect to the same in Uttarakhand.
In this case, air-conditioned restaurant in Maharashtra and liquor shop in
Raipur [though unregistered] shall be treated as establishments of distinct
persons. Supply by Maharashtra office to Uttarakhand office, in course or
furtherance of business even without consideration will qualify as supply.
*Provisions of section 25 stipulate procedure for registration. They have been
discussed in Chapter – 7: Registration.
Stock transfers or branch transfers qualify as supply: In view of the
aforesaid discussion, transactions between different locations (with separate
GST registrations) of same legal entity (eg., stock transfers or branch

transfers) will qualify as ‘supply’ under GST which is in contrast to the earlier
regime.
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.
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)].
Gifts by employer to employee
Further, Proviso to Para 2. of Schedule I provides that gifts not exceeding
` 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 ` 50,000 made without consideration are subject to GST, when
made in the course or furtherance of business.
What
constitutes
a ‘gift’?
The term ‘gift’ has not been defined in the

GST law. In common parlance, gift is made
without consideration, is voluntary in nature
and is made occasionally. It cannot be
demanded as a matter of right by the
employee and the employee cannot move a court of law for obtaining a gift.

2.24 INDIRECT TAXES
As already mentioned that the services by an employee to the employer in

the course of or in relation to his employment is outside the scope of GST
(neither supply of goods or supply of services).
It follows therefrom that payment made 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.
Further, the Input Tax Credit (ITC) Scheme under GST does not allow ITC of
membership of a club, health and fitness centre [Section 17(5)(b)(ii) –
Discussed in detail in Chapter – 6: Input Tax Credit].
It follows, therefore, that if such services are provided free of charge to all
the employees by the employer then the same will not be subjected to GST,
provided appropriate GST was paid when procured by the employer.
The same would hold true for free housing to the employees, when the
same is provided in terms of the contract between the employer and
employee and is part and parcel of the cost-to company (C2C) 2.
III. Principal – Agent [Para 3. of Schedule I]:
Supply of goods by a principal to his agent,
without consideration, where the agent
undertakes to supply such goods on behalf
of the principal is considered as supply.
Similarly, supply of goods by an agent to his
principal, without consideration, where the
agent undertakes to receive such goods on
behalf of the principal is considered as
supply.
Points which merit consideration, in this regard, are as follows:
Only supply of goods and not supply of services is covered here.
Supply of goods between principal and agent without
consideration is also supply.
Thus, the supply of services between the principal and the agent and vice
versa would therefore require “consideration” to be considered as supply
and thus, to be liable to GST.
2
As clarified in a Press Release on 10.07.2017 by Ministry of Finance

In order to determine whether a particular principal-

agent relationship falls within the ambit of the
Para 3. of Schedule I as discussed above or not, the
deciding factor is whether the invoice for the further
supply of goods on behalf of the principal is being
issued by the agent or not? In other words, the
crucial point is whether or not the agent has the authority to pass or
receive the title of the goods on behalf of the principal.
 Where the invoice for further supply is being issued by the agent
in his name then, any provision of goods from the principal to the
agent would fall within the fold of Para 3. above. However, it
may be noted that in cases where the invoice is issued by the
agent to the customer in the name of the principal, such agent
shall not fall within the ambit of Para 3. above.
 Similarly, where the goods being procured by the agent on behalf
of the principal are invoiced in the name of the agent then further
provision of the said goods by the agent to the principal would be
covered by Para 3. above [Circular No. 57/31/2018 GST dated
04.09.2018].
The above clarification can be understood with the help of following
scenario based examples:
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 Para 3. of Schedule I.
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

2.26 INDIRECT TAXES
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 Para 3. of Schedule I.
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 Para 3. of Schedule I.
A 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 Para 3. of Schedule
I. The disclosure or non-disclosure of the name of the principal is immaterial
in such situations.
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 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, the former is an
agent covered under Para 3. of Schedule I 3. However, in cases where the
3
It is important to note that services provided by the commission agent for sale or purchase
of agricultural produce are exempt from GST.

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 Para 3.
IV. Importation of services [Para 4. of Schedule I]: Import of services by a
taxable 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”.
ABC Associates received legal consultancy services from its head
office located in Malaysia. The head office has rendered such
services free of cost to its branch office. Since ABC Associates
and the branch office are related persons, services received by
ABC Associates will qualify as supply even though the head office has not
charged anything from it.
Sumedha, a proprietor registered in Delhi, has sought architect

services from her son located in US, with respect to her newly
constructed house in Delhi. Although services have been
received by Sumedha without consideration from a related
person, yet it will not qualify as supply since the same has not been received
in course or furtherance of business.
Section 7(1A) of the CGST Act stipulates that where

certain activities or transactions, constitute a supply in
Section 7(1A)
accordance with the provisions of section 7(1), they read with
Schedule II
shall be treated either as supply of goods or supply of
services as referred to in Schedule II. Thus, it refers to
Schedule II for determining whether a particular transaction is a supply of goods
or supply of service.
This helps in mitigating the ambiguities which existed in earlier laws.
Under earlier laws, the restaurants used to charge both service tax
and VAT on the value of food served. This so because both sale of
goods and provision of service were involved and therefore taxable
event under both the Statutes i.e. respective VAT law and service tax
law got triggered.

2.28 INDIRECT TAXES
Under GST, the supply by a restaurant is treated as composite supply [concept of

composite supply is discussed in subsequent paras] as food and service is naturally
bundled in ordinary course of business. Further, Entry 6(b) of Schedule II to the
CGST Act specifically provides that such composite supply shall be treated as
supply of service. Hence, the entire value of invoice shall be treated as value of
service and leviable to GST accordingly.
Schedule II appended to the CGST Act enlists the activities/transactions to be
treated as supply of either goods or services. The matters listed out are primarily
those which had been entangled in litigation in the earlier regime owing to their
complex nature and susceptibility to double taxation.
These are as follows :-
S.No. Activity/ Type Nature of

Transaction Supply
1. Transfer Title in goods Supply of

Rohan sells ready-made Goods
garments to its customers.
Right in goods/ undivided share in Supply of

goods without transfer of title in Services
goods
Genius Equipments Ltd.
gives a machinery on rent
to Suhaasi Manufacturers.
Title in goods under an agreement Supply of

which stipulates that property shall Goods
pass at a future date upon payment
of full consideration as agreed.
(i) Dhruva Capital
supplied goods on hire
purchase basis to
customers.
(ii) Optima Manufacturers supplies
toys to retailers on ‘sale or return
basis’.

2. Land and Lease, tenancy, easement, licence to Supply of

Building occupy land. Services
Lease agreement for land.
Lease or letting out of building Supply of

including a commercial, industrial Services
or residential complex for business
or commerce, wholly or partly
A shop let out in a busy
market area.
3. Treatment or Applied to another person’s goods Supply of

Process Damani Dying House dyes Services
the clothes given by
Shubham Textiles Ltd. on
job work basis.
4. Transfer of Goods forming part of business Supply of

Business assets are transferred or disposed Goods
Assets off by/under directions of person
carrying on the business so as no
longer to form part of those assets,
whether or not for consideration.
Goods held/used for business are Supply of

put to private use or are made Services
available to any person for use for
any purpose other than business,
by/ under directions of person
carrying on the business, whether
or not for consideration.
Arunodhya, a sole proprietor,
owns a laptop used for
making office presentations. He
transfers said laptop to his son for
making school projects.

2.30 INDIRECT TAXES
Goods forming part of assets of any Supply of

business carried on by a person Goods
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.
Arun, a trader, is winding
up his business. Any goods
left in stock shall be
deemed to be supplied by him.
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

(i) Renting of a commercial complex.
(ii) Renting of precincts of a religious
place. Supply of
(iii) Renting of property to an educational Services
institution.
(iv) Permitting use of immoveable property for
placing vending/dispensing machines.
(b) Construction of complex, building, civil

structure, etc.
Construction of a 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.
Rathi Builders has constructed
individual residential units for agreed
consideration of ` 1.2 crore per unit. `
90 lakh per unit were received before issuance
of completion certificate by the competent
authority and balance after completion.
The term construction includes additions,

alterations, replacements, or remodeling 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 Supply of
Act, 1972; or Services
(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.
(c) Temporary transfer or permitting use or

enjoyment of any intellectual property right
Temporary transfer of patent.
(d) Development, design, programming,

customisation, adaptation, upgradation,
enhancement, implementation of IT software

2.32 INDIRECT TAXES
ABC Solutions develops an accounting

software for a business.
(e) Agreeing to obligation to refrain from an act,

or to tolerate an act or situation, or to do an
act.
Supply of
Cable operator - A has entered into an
Services
agreement with Cable operator - B
that A will not provide cable
connections in the specified areas where B is
providing the connections. Non-compete
agreements constitute supply of service.
(f) Transfer of right to use any goods for any

purpose
Machinery given on hire.
6. Following composite supplies :- Supply of

Works contract services. Services
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
Supply by 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.
7. Supply of goods by an unincorporated association Supply of

or body of persons to a member thereof for cash, Goods
deferred payment or other valuable consideration.

RWA of Sanskriti Society supplies air-

conditioners to its members at a
concessional price.
CBIC has clarified Taxability of ‘tenancy rights’/pagadi under GST as under:

Pagadi system 4, i.e. transfer of tenancy rights against
tenancy premium, is prevalent in some States. The
activity of transfer of tenancy right against
consideration [i.e. tenancy premium] is squarely
covered under supply of service liable to GST. It is a form of lease or renting
of property and such activity is specifically declared to be a service in Para 2.
of Schedule II as discussed in table above i.e. any lease, tenancy, easement,
licence to occupy land is a supply of services.
Although stamp duty and registration charges have been
levied on such transfer of tenancy rights, it shall be still
subject to GST since merely because a transaction/supply
involves execution of documents which may require
registration and payment of registration fee and stamp
duty, would not preclude them from the ‘scope of supply’ and from payment
of GST.
The transfer of tenancy rights cannot be treated as sale of land/ building in
para 5. of Schedule III. Thus, it is not a negative list activity [this concept is
discussed under next heading] and consequently, a consideration for the said
activity shall attract levy of GST.
To sum up, transfer of tenancy rights to a new tenant against consideration
in the form of tenancy premium is taxable💡💡. Further, services provided by
outgoing tenant by way of surrendering the tenancy rights against
4
In Pagadi system, the tenant acquires tenancy rights in the property against payment of
tenancy premium (pagadi). The landlord may be owner of the property, but the possession
of the same lies with the tenant. The tenant pays periodic rent to the landlord as long as he
occupies the property. The tenant also usually has the option to sell the tenancy right of the
said property and in such a case has to share a percentage of the proceed with owner of
land, as laid down in their tenancy agreement. Alternatively, the landlord pays to tenant the
prevailing tenancy premium to get the property vacated. Such properties in Maharashtra
are governed by Maharashtra Rent Control Act, 1999.

2.34 INDIRECT TAXES
consideration in the form of a portion of tenancy premium is liable to GST

[Circular No.44/18/2018 CGST dated 02.05.2018].
💡💡It is important to note that grant of tenancy rights in a residential dwelling for
use as residence dwelling against tenancy premium or periodic rent or both is
exempt from tax [Entry 12 of Notification No. 12/2017 CT (R) dated 28.06.2017 –
Discussed in Chapter 4 – Exemptions from GST].
I. Activities/transactions specified under Schedule

III in the CGST Act: Activities specified under
Section 7(2)(a)
Schedule III can be termed “Negative list” under the read with
GST regime. This schedule specifies transactions/ Schedule III
activities which shall be neither treated as supply of

goods nor a supply of services.
S.No. 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.
(i) Amounts received by an employee
from the employer on premature
termination of contract of employment are
treatable as amounts paid in relation to services provided by the
employee to the employer in the course of employment.
(ii) Services provided by casual worker to
employer who gives wages on daily basis to the
worker are services provided by the worker in the
course of employment.
(iii) Casual workers are employed by a contractor,
like a building contractor or a security services
agency, who deploys them for execution of a
contract or for provision of security services to a
client, respectively are services in the course of
employment.

Only services that are provided by the employee to the employer

in the course of employment are outside the ambit of supply.
Services provided outside ambit of employment for a
consideration would qualify as supply.
For example, if an employee provides his services on contract
basis to an associate company of the employer, then these are not
services provided in the course of employment and thus, it would
be treated as supply.
Similarly, services provided on contract basis i.e. principal-to-
principal basis are not services provided in the course of
employment.
Any amount paid for not joining a competing business would be
liable to be taxed being paid for providing the service of
forbearance to act 5.
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.
(b) Duties performed by any person who holds any post in
pursuance of the provisions of the Constitution in that
capacity.
Duties performed by President of India, Vice President
of India, Prime Minister of India, Chief Justice of India,
Speaker of the Lok Sabha, Chief Election
Commissioner, Comptroller and Auditor General of India,
Chairman of Union Public Service Commission, Attorney
5
Discussion based on Service Tax Education Guide issued under erstwhile under service tax
law.

2.36 INDIRECT TAXES
General of India, in that capacity.

(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.
5. Sale of land and, subject to paragraph 5(b) of

Schedule II, sale of building.
6. Actionable claims, other than lottery, betting and gambling.

‘Actionable claims’ are specifically included in the definition of
goods under section 2(52) of the CGST Act [Refer the definitions of
‘actionable claims’ and ‘goods’ given under heading ‘Relevant
Definitions].
However, this para of Schedule III specifically excludes actionable
claims, other than lottery, betting and gambling from the ambit of
definition of supply. Co-joint reading of said provisions implies
that only lottery, betting and gambling are treated as supply. All
other actionable claims are outside the ambit of definition of
supply.
Some of the examples of actionable claims are: Lottery,
gambling, betting, right to benefit of a contract, debentures, bills
of exchange, promissory notes, bank guarantee, Fixed Deposit
Receipt, arrears of rent, etc.
II. Activities/transactions notified by the Government: Such activities/

transactions undertaken by the Central
Government, a State
Government or any local
authority in which they Section 7(2)(b)
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.

Notification No. 14/2017 CT (R) dated 28.06.2017/ Notification No.
11/2017 IT (R) dated 28.06.2017 as amended has notified the services 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 for the said purpose.
Further, CBIC has clarified that following activities/transactions are neither
supply of goods nor supply of services.
(i) Inter-State movement of various modes of conveyance
Inter-State movement of various modes of conveyance, between distinct
persons as specified in section 25(4) of the CGST Act, [explained earlier
in this chapter] including-
• Trains,
• Buses,
• Trucks,
• Tankers,
• Trailers,
• Vessels,
• Containers,
• Aircrafts,
(a) carrying goods or passengers or both; or
(b) for repairs and maintenance,
[except in cases where such movement is for further supply of the same
conveyance] was discussed in GST Council’s meeting held on 11th June,
2017 and the Council recommended that such inter-State movement
shall be treated ‘neither as a supply of goods or supply of service’ and
therefore not be leviable to IGST.
Thus, above activity may not be treated as supply and consequently
IGST will not be payable on such supply. However, applicable
CGST/SGST/IGST, as the case may be, shall be leviable on repairs and
maintenance done for such conveyance [Circular No. 1/1/2017 IGST
dated 07.07.2017**].

2.38 INDIRECT TAXES
(ii) Inter-State movement of rigs, tools and spares, and all goods on
wheels [like cranes]
**Above circular shall mutatis mutandis apply to
inter-State movement of rigs, tools and spares, and
all goods on wheels [like cranes], [except in cases
where movement of such goods is for further supply
of the same goods], such inter-State movement shall
be treated ‘neither as a supply of goods or supply of service,’ and
consequently no IGST would be applicable on such movements. In this
context, it is also reiterated that applicable CGST/SGST/IGST, as the
case maybe, is leviable on repairs and maintenance done for such goods
[Circular No. 21/21/2017-GST dated 22.11.2017].
4. COMPOSITE AND MIXED SUPPLIES [SECTION 8]
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
GST is payable on individual goods or services or both at the notified rates. The
application of rates poses no problem if the supply is of individual goods or

individual services, which is clearly identifiable and such goods or services are
subject to a particular rate of tax.
However, in certain cases, supplies are not such simple and clearly identifiable
supplies. 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 this 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.
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.
• are naturally bundled and supplied in conjunction with each other, in the
ordinary course of business
• one of which is a principal supply [Section 2(30) of the CGST Act].
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’.
Principal supply means the supply of goods or services which constitutes the
predominant element of a composite supply and to which any other supply
forming part of that composite supply is ancillary. [Section 2(90) of CGST Act]

2.40 INDIRECT TAXES
How to determine the tax liability on composite supplies?: A composite

supply comprising of two or more supplies, one of which is a principal supply,
shall be treated as a supply of such principal supply.
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.
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.
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.
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 and restaurants).
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 some of which are listed below:
 The perception of the consumer or the service receiver - If large number
of service receivers of such bundle of services reasonably expect such
services to be provided as a package, then such a package could be treated
as naturally bundled in the ordinary course of business.
 Majority of service providers in a particular area of business provide
similar bundle of services.

For example, bundle of catering on board and transport by air is a bundle

offered by a majority of airlines.
 The nature of the various services in a bundle of services will also help in
determining whether the services are bundled in the ordinary course of
business. If the nature of services is such that one of the services is the main
service and the other services combined with such service are in the nature of
incidental or ancillary services which help in better enjoyment of a main service.
For example, service of stay in a hotel is often combined with a service or
laundering of 3-4 items of clothing free of cost per day. Such service is an
ancillary service to the provision of hotel accommodation and the resultant
package would be treated as services naturally bundled in the ordinary
course of business.
 Other illustrative indicators, not determinative but indicative of bundling
of services in the ordinary course of business are:
There is a single price or the customer pays the same amount, no
matter how much package they actually receive or use.
The elements are normally advertised as a package.
The different elements are not available separately.
The different elements are integral to one overall supply. If one or
more is removed, the nature of the supply would be affected.
⏰ No straight jacket formula can be laid down to determine whether a service

is naturally bundled in the ordinary course of business. Each case has to be
individually examined in the backdrop of several factors some of which are
outlined above. The above principles explained in the light of what constitutes a
naturally bundled service can be gainfully adopted to determine whether a
particular supply constitutes a composite supply under GST and if so what
constitutes the principal supply so as to determine the right classification and rate
of tax of such composite supply.
For instance, in case of servicing of cars involving supply of

both goods (spare parts) and services (labour) where the value
of goods and services are shown separately, CBIC has clarified
that the goods and services would be liable to tax at the rates
as applicable to such goods and services separately [Circular No. 47/21/2018
GST dated 08.06.2018].

2.42 INDIRECT TAXES
Further, given below is the illustrative list determining what constitutes the
principal supply in the given composite supplies:
Activity/ Principal supply

transaction
Supply of In the case of printing of books, pamphlets, brochures,

printed books, annual reports, and the like, where only content is
pamphlets, supplied by the publisher or the person who owns the
brochures, usage rights to the intangible inputs while the physical
envelopes, inputs including paper used for printing belong to the
annual printer, supply of printing [of the content supplied by
reports, the recipient of supply] is the principal supply and
leaflets, therefore such supplies would constitute supply of
cartons, boxes service
etc., printed
with design, In case of supply of printed envelopes, letter cards,
logo, name, printed boxes, tissues, napkins, wall paper etc. by the
address or printer using its physical inputs including paper to print
other contents the design, logo etc. supplied by the recipient of goods,
supplied by predominant supply is supply of goods and the supply
the recipient of printing of the content [supplied by the recipient of
of such printed supply] is ancillary to the principal supply of goods and
goods therefore such supplies would constitute supply of
goods. [Circular No. 11/11/2017 GST dated 20.10.2017]
Activity of bus The principal supply may be determined on the basis of

body building facts and circumstances of each case [Circular No.
34/8/2018-GST dated 01.03.2018].
Retreading of Pre-dominant element is process of retreading which is

tyres a supply of service. Rubber used for retreading is an
ancillary supply.
Supply of retreaded tyres, where the old tyres belong to
the supplier of retreaded tyres, is a supply of goods
[Circular No. 34/8/2018-GST dated 01.03.2018].

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
The individual supplies are independent of each other and are not naturally
bundled.
How to determine if a particular supply is a mixed supply?: In order to identify

if the particular supply is a mixed supply, the first requisite is to rule out that the
supply is a composite 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, classified in terms of supply of goods or services
attracting highest rate of tax.
How to determine the tax liability on mixed supplies?: A mixed supply
comprising of two or more supplies shall be treated as supply of that
particular supply that attracts highest rate of tax.
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.
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.

2.44 INDIRECT TAXES
5. LET US RECAPITULATE
The taxable event under GST is supply. The scope of supply under GST
can be understood in terms of following parameters:
Supply should be
Supply should Supply should made in the Supply should Supply should
be of goods or be made for a course or be made by a be a taxable
services consideration furtherance of taxable person supply
business
While these parameters describe the concept of supply, under certain

circumstances, transactions have been deemed as supply even when the
supply is made without consideration or not in the course or furtherance of
business. Activities specified in Schedule I are deemed to be a supply even
without consideration. Further, import of services for a consideration,
whether or not in the course or furtherance of business is treated as supply.
Besides, some specified transactions/ activities are neither treated as supply
of goods nor a supply of services. Furthermore, certain activities have
been categorised as supply of goods or as supply of services.
The discussion with respect to supply is broadly categorised into
following:
Supply for consideration in course or furtherance of

business.
Importation of services for consideration whether

or not in course or furtherance of business.
includes
Supply without consideration
Supply
Activities to be treated as supply of goods or

supply of services
excludes Negative list
Sub-sections of section 7 alongwith related Schedules has been summarised

as follows:

1. Supply for consideration in course or furtherance of business

[Section 7(1)(a)]
Supply includes sale,

transfer, barter, exchange, in the course or
licence, rental, lease, for consideration furtherance of
disposal, etc. business
Consideration
Supply
in course or furtherance of
business
2. Importation of services for consideration whether or not in course

or furtherance of business [Section 7(1)(b)]
Supply should be in course or furtherance of business. The exception to
said rule is import of services is deemed as supply even if the same has
been imported not in course/furtherance of business.
Consideration
Importation of
services
Supply
in course or furtherance of
business

2.46 INDIRECT TAXES
3. Supply without consideration - Deemed Supply [Section 7(1)(c) read

with Schedule I]
This includes all supplies made to a taxable or non-taxable person, even if
the same is without consideration. These are specifically mentioned in
Schedule I appended to the CGST Act.
As per Schedule I, in the following four cases, supplies made without
consideration will be treated as supply under section 7 of the CGST Act:
I. Permanent Transfer/Disposal of Business Assets
Business Input Tax Credit

Assets availed
Deemed Supply
Permanently
transferred/disposed
II. Supply between related persons or distinct persons

Deemed Supply
Related Person 1 Related Person 2
Supply of goods or services
in course or furtherance of business
Employer Employee
Gifts ≤ ` 50,000 in a FY
Not supply

III. Supply between principal and agent
Deemed Supply
supplies goods
Principal Agent
supplies goods on
behalf of principal
Third person
Third Person Agent
Deemed Supply
Agent receives goods
on behalf of principal
supplies goods
to principal
Principal
IV. Importation of services
Related
persons
Deemed Supply
Person out Person in India

of India supplies
services
In course or furtherance of
business

2.48 INDIRECT TAXES
The combined provisions of taxability of import of services [Section 7(1)(b) and

Section 7(1)(c) read with Schedule I] have been depicted in the below mentioned
diagram:
Taxability of import of services
Import of
services
with without
consideration consideration
in course or not in course related person/distinct

futherance of or futherance person + in course or Other cases
business of business futherance of business
Non-taxable
Taxable
4. Activities or transactions to be treated as Supply of goods or Supply

of services [Section 7(1A) read with Schedule II]
S.No. Activity/ Type Supply of

Transaction goods/
services
1. Transfer (i) Title in goods Goods

(ii) Title in goods under an
agreement that property shall pass
at a future date.
Right/undivided share in goods Services

without transfer of title in them

2. Land and Lease, tenancy, easement, licence to Services

Building occupy land
Lease/letting out of building Services

including a commercial/ industrial/
residential complex for business/
commerce, wholly/ partly.
3. Treatment Applied to another person’s goods Services

or Process
4. Transfer of Goods forming part of business Goods

Business assets are transferred/disposed off
Assets by/under directions of person
carrying on business so as no longer
to form part of those assets, whether
or not for consideration
Goods held/used for business are Services

put to private use or are made
available to any person for use for
any purpose other than business,
by/under directions of person
carrying on the business, whether or
not for consideration
Goods forming part of assets of any Goods

business carried on 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.
Exceptions:
Business transferred as a going
concern.

2.50 INDIRECT TAXES
Business carried on by a
personal representative who is
deemed to be a taxable person.
5. Renting of immovable property
Construction of complex, building, civil structure, etc.
Temporary transfer or permitting use or enjoyment

of any intellectual property right Services
Development, design, programming,

customisation, adaptation, upgradation,
enhancement, implementation of IT software
Agreeing to obligation to refrain from an act, or to

tolerate an act or situation, or to do an act.
Transfer of right to use any goods for any purpose
6. Following composite supplies:- Services

Works contract services.
Supply of goods, being food or any other
article for human consumption or any drink.
7. Supply of goods by an unincorporated association Goods

or body of persons to a member thereof for cash,
deferred payment or other valuable consideration.
5. Negative list under GST [Section 7(2)(a) read with Schedule III]
S. No. 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.
2. Services by any court or Tribunal established under any law

for the time being in force.
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;
(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.
5. Sale of land and, subject to paragraph 5(b) of Schedule II,

sale of building.
6. Actionable claims, other than lottery, betting and gambling.
The diagram on the next page summarises the steps to determine

whether an activity undertaken is Supply or not.

2.52 INDIRECT TAXES
No
Is the activity a supply including supply of
goods/services such as sale, transfer, barter,
exchange, licence, rental, lease or disposal?
Yes
No Is it an activity No
Is it for a
consideration? specified under
Schedule I?
Yes Yes
Is it in course No
or furtherance
of business?
Is it
No
Is it in course
or furtherance import of
of business? No service?
Yes
Yes Yes
Is it an activity specified No
in Schedule III or Activity is
Activity is
section 7(2)(b)? Supply NOT
Supply
Yes

6. Composite and mixed supplies
Composite Supply Mixed Supply

•Consist of two or more •Consist of two or more supply
supplies •Not naturally bundled
•Naturally bundled •Though can be supplied
•In conjunction with each independently, still supplied
other together
•One of which is principal •Tax liability shall be the rate
supply applicable to the supply that
•Tax liability shall be rate of attracts highest rate of tax
principal supply •Example: A gift pack comprising
•Example: Charger supplied of choclates, candies, sweets
alongwith mobile phones. and balloons.

1. Which of the following is not a supply as per section 7 of the CGST Act?
(a) Management consultancy services not in course or furtherance of business
(b) Import of service for consideration not in course or furtherance of
business
(c) Both (a) and (b)
2. _____________ specifies the activities to be treated as supply even if made
without consideration.
(a) Schedule I of CGST Act

2.54 INDIRECT TAXES
(b) Schedule II of CGST Act

(c) Schedule III of CGST Act
3. Which of the following activity is outside the scope of supply and not taxable
under GST?
(a) Services by an employee to the employer in the course of or in relation
to his employment
(b) Services of funeral
(c) Actionable claims, other than lottery, betting and gambling.
4. Which of the following supplies are naturally bundled?
(a) Rent deed executed for renting of two different floors of a building-one
for residential and another for commercial purpose to same person
(b) Pack of watch, tie and belt
(c) Package of canned food such as burger, chocolates, sweets, cake etc.
5. A _______________ supply comprising of two or more supplies shall be treated
as the supply of that particular supply that attracts highest rate of tax.
(a) Composite
(b) Mixed
6. Which of the following activities is a supply of services?
(a) Transfer of right in goods/ undivided share in goods without transfer of
title in goods
(b) Transfer of title in goods
(c) Transfer of title in goods under an agreement which stipulates that
property shall pass at a future date.
7. What is the taxable event under GST?
8. What is the tax treatment of composite supply and mixed supply under GST?

9. Supply of all goods and/or services is taxable under GST. Discuss the validity
of the statement.
10. Whether transfer of title and/or possession is necessary for a transaction to
constitute supply of goods?
11. Examine whether the following activities would amount to supply under
section 7 of the CGST Act:
(a) Damodar Charitable Trust, a trust who gets the eye treatment of needy
people done free of cost, donates clothes and toys to children living in
slum area.
(b) Sulekha Manufacturers have a factory in Delhi and a depot in Mumbai.
Both these establishments are registered in respective States. Finished
goods are sent from factory in Delhi to the Mumbai depot without
consideration so that the same can be sold.
(c) Raman is an Electronic Commerce Operator in Chennai. His brother
who is settled in London is a well-known lawyer. Raman has taken
legal advice from him free of cost with regard to his family dispute.
(d) Would your answer be different if in the above case, Raman has taken
advice in respect of his business unit in Chennai?
12. State whether the following supplies would be treated as supply of goods or
supply of services as per Schedule II of the CGST Act:
(a) Renting of immovable property
(b) Goods forming part of business assets are transferred or disposed of
by/under directions of person carrying on the business, whether or not
for consideration.
(c) Transfer of right in goods without transfer of title in goods.
(d) Transfer of title in goods under an agreement which stipulates that
property shall pass at a future date.
13. Determine whether the following supplies amount to composite supplies:
(a) A hotel provides 4 days-3 nights package wherein the facility of
breakfast and dinner is provided alongwith the room accommodation.
(b) A toothpaste company has offered the scheme of free toothbrush
alongwith the toothpaste.

2.56 INDIRECT TAXES
14. Whether goods supplied on hire purchase basis will be treated as supply of
goods or supply of services? Give reason.
7. ANSWERS/HINTS
1. (a) 2. (a) 3. (d) 4. (d) 5. (b) 6. (a)
7. Taxable event under GST is supply of goods or services or both. CGST and
SGST/ UTGST will be levied on intra-State supplies. IGST will be levied on inter-
State supplies.
8. Composite supply shall be treated as supply of the principal supply. Mixed
supply would be treated as supply of that particular goods or services which
attracts the highest rate of tax.
9. The statement is incorrect. Supplies of all goods and services are taxable except
alcoholic liquor for human consumption. Supply of petroleum crude, high speed
diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine
fuel shall be taxable with effect from a future date. This date would be notified
by the Government on the recommendations of the GST Council.
10. Title as well as possession both have to be transferred for a transaction to
be considered as a supply of goods. In case title is not transferred, the
transaction would be treated as supply of service in terms of Schedule
II(1)(b) of the CGST Act. In some cases, possession may be transferred
immediately but title may be transferred at a future date like in case of sale
on approval basis or hire purchase arrangement. Such transactions will also
be termed as supply of goods.
11. (a) Section 7 of the CGST Act, inter alia, provides that supply must be
made for a consideration except the activities specified in Schedule I
and in course or furtherance of business. Since, both these elements
are missing, donation of clothes and toys to children living in slum
area would not amount to supply under section 7 of the CGST Act.
(b) Schedule I of CGST Act, inter alia, stipulates that supply of goods or
services or both between related persons or between distinct persons
as specified in section 25, is supply even without consideration
provided it is made in the course or furtherance of business. Further,
where a person who has obtained or is required to obtain registration
in a State in respect of an establishment, has an establishment in
another State, then such establishments shall be treated as
establishments of distinct persons [Section 25 of the CGST Act]. In

view of the same, factory and depot of Sulekha Manufacturers are

establishments of two distinct persons. Therefore, supply of goods
from Delhi factory of Sulekha Manufacturers to Mumbai Depot
without consideration, but in course/furtherance of business, is supply
under section 7 of the CGST Act.
(c) Schedule I of CGST Act, inter alia, stipulates that import of services by
a taxable person from a related person located outside India, without
consideration is treated as supply if it is provided in the course or
furtherance of business. Explanation to section 15, inter alia, provides
that persons shall be deemed to be “related persons” if they are
members of the same family. Further, as per section 2(49) of the
CGST Act, 2017, family means, —
(i) the spouse and children of the person, and
(ii) the parents, grand-parents, brothers and sisters of the person if
they are wholly or mainly dependent on the said person.
In the given case, Raman has received free of cost legal services from
his brother. However, in view of section 2(49)(ii) above, Raman and
his brother cannot be considered to be related as Raman’s brother is a
well-known lawyer and is not wholly/mainly dependent on Raman.
Further, Raman has taken legal advice from him in personal matter
and not in course or furtherance of business. Consequently, services
provided by Raman’s brother to him would not be treated as supply
under section 7 of the CGST Act read with Schedule I.
(d) In the above case, if Raman has taken advice with regard to his
business unit, services provided by Raman’s brother to him would still
not be treated as supply under section 7 of the CGST Act read with
Schedule I as although the same are provided in course or furtherance
of business, such services have not been received from a related
person.
12. (a) Supply of services
(b) Supply of goods
(c) Supply of services
(d) Supply of goods

2.58 INDIRECT TAXES
13. Under composite supply, two or more taxable supplies of goods or services or
both, or any combination thereof, are naturally bundled and supplied in
conjunction with each other, in the ordinary course of business, one of which is
a principal supply [Section 2(30) of the CGST Act]. In view of the same,
(a) since, supply of breakfast and dinner with the accommodation in the
hotel are naturally bundled, said supplies qualify as ‘composite supply’.
(b) since supply of toothbrush alongwith the toothpaste are not naturally
bundled, said supplies do not qualify as ‘composite supply’.
14. Supply of goods on hire purchase shall be treated as supply of goods as
there is transfer of title, albeit at a future date.

CHAPTER 3
CHARGE OF GST
LEARNING OUTCOMES

 explain the extent and commencement of CGST Act, IGST
Act, SGST Act & UTGST Act.
 describe the provisions pertaining to levy and collection of
CGST & IGST.
 identify and analyse the services on which tax is payable
under reverse charge mechanism.
 understand and analyse the composition levy- eligibility for
the same and conditions to be fulfilled.

3.2 INDIRECT TAXES
CHAPTER OVERVIEW
Extent and commencement of CGST

Act/ UTGST Act/ SGST Act
Levy and collection of CGST

collection of
GST in India
Levy and
Composition levy
Extent and commencement of IGST

Act
Levy and collection of IGST
1. INTRODUCTION
Power to levy tax is drawn from the Constitution of India. Introduction of
GST necessitated the Constitutional amendment to enable integration of the
central excise duty including additional duties of customs, State VAT and
certain State specific taxes and service tax levied by the Centre into a
comprehensive goods and services tax [Discussed in detail in Chapter-1: GST
in India – An Introduction].
The very basis for the charge of tax in any taxing statute is the taxable event
i.e the point on which the levy of tax gets attracted. As discussed earlier,
the taxable event under GST is SUPPLY. CGST and SGST/UTGST are levied
on all intra-State supplies of goods and/or services while IGST is levied on
all inter-State supplies of goods and/ or services.
Where the location of the supplier and the place of supply of goods or
services are in the same State/Union territory, it is treated as intra-State
supply of goods or services respectively.

CHARGE OF GST 3.3
Where the location of the supplier and the place of supply of goods or
services are in (i) two different States or (ii) two different Union Territories or
(iii) a State and a Union territory, it is treated as inter-State supply of
goods or services respectively.
Central tax: means the central goods and services tax levied under section
9 [Section 2(21) of the CGST Act].
Integrated tax: means the integrated goods and services tax levied under
the Integrated Goods and Services Tax Act [Section 2(58) of the CGST Act].
State tax: means the tax levied under any State Goods and Services Tax Act
Goods: means every kind of movable property other than money and
securities but includes actionable claim, 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. [Sec. 2(52) of CGST Act].
Exempt 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, or under section 6 of the Integrated Goods and Services Tax
Act, and includes non-taxable supply [Section 2(47) of CGST Act].
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 be computed on all India basis but excludes central tax, State tax,
Union territory tax, integrated tax and cess [Section 2(6) of CGST Act].

3.4 INDIRECT TAXES
Business: includes –
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or

any other similar activity, whether or not it is for a pecuniary benefit;
(b) any activity or transaction in connection with or incidental or ancillary to (a)

above;
(c) any activity or transaction in the nature of (a) above, whether or not there is
volume, frequency, continuity or regularity of such transaction;
(d) supply or acquisition of goods including capital assets and services in

connection with commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a subscription or any
other consideration) of the facilities or benefits to its members, as the case may be;
(f) admission, for a consideration, of persons to any premises; and
(g) services supplied by a person as the holder of an office which has been accepted
by him in the course or furtherance of his trade, profession or vocation;
(h) services provided by a race club by way of totalisator or a licence to book maker
in such club;
(i) any activity or transaction undertaken by the Central Government, a State

Government or any local authority in which they are engaged as public authorities

Consideration: in relation to the supply of goods or services or both
includes:
any payment made or to be made, whether in money or otherwise,
in respect of, in response to, or for the inducement of, the supply
of goods or services or both, whether by the recipient or by any
other person but shall not include any subsidy given by the Central
Government or a State Government,
the monetary value of any act or forbearance, in respect of, in
response to, or for the inducement of, the supply of goods or
services or both, whether by the recipient or by any other person

CHARGE OF GST 3.5
but shall not include any subsidy given by the Central Government
or a State Government.
However, a deposit given in respect of the supply of goods or services or
both shall not be considered as payment made for such supply unless
Person: includes [Section 2(84) of CGST Act]-
An individual A HUF A company
An association of persons
or a body of individuals,
A Limited Liability
A firm whether incorporated or
Partnership
not, in India or outside
India
Any corporation established Any body corporate A co-operative society

by/under any Central, State or
incorporated by or registered under any
Provincial Act or Government
company as defined in section under the laws of a law relating to
2(45) of Companies Act, 2013 country outside India cooperative societies
Society as defined
Central
under the Societies
A local authority Government/State
Government
Registration Act,
1860
Every artificial juridical

Trust person, not falling
above
Recipient: of supply of goods and/or services means-

(a) where a consideration is payable for the supply of goods or
services or both, the person who is liable to pay that consideration,

3.6 INDIRECT TAXES
(b) where no consideration is payable for the supply of goods, the

person to whom the goods are delivered or made available, or to
whom possession or use of the goods is given or made available,
and
(c) where no consideration is payable for the supply of a service, the
person to whom the service is rendered,
and any reference to a person to whom a supply is made shall be
construed as a reference to the recipient of the supply and shall include
an agent acting as such on behalf of the recipient in relation to the
goods or services or both supplied. [Section 2(93) of CGST Act]
Reverse charge: means the liability to pay tax by the recipient of supply of
goods or services or both instead of the supplier of such goods or services
or both under section 9(3)/9(4), or under section 5(3)/5(4) of the IGST Act
Services: means anything other than goods, money and securities but
includes activities relating to the use of money or its conversion by cash
or by any other mode, from one form, currency or denomination, to
another form, currency or denomination for which a separate
consideration is charged. [Section 2(102) of CGST Act]
Supplier: in relation to any goods or services or both, shall mean the
person supplying the said goods or services or both and shall include an
agent acting as such on behalf of such supplier in relation to the goods
or services or both supplied. [Section 2(105) of CGST Act]
Taxable supply: means a supply of goods and/or services which is
chargeable to tax under CGST Act. [Section 2(108) of CGST Act]
Non-taxable supply: means a supply of goods or services or both which
is not leviable to tax under CGST Act or under IGST Act. [Section 2(78) of
CGST Act]
Taxable person: means a person who is registered or liable to be
registered under section 22 or section 24. [Section 2(107) of CGST Act]
It is important to note that even an unregistered person who is liable to be
registered is a taxable person. Similarly, a person not liable to be registered,
but has taken voluntary registration and got himself registered is also a
taxable person.

CHARGE OF GST 3.7
Section 22 enumerates the persons liable to be registered under CGST Act and section
24 lists the persons liable to be registered compulsorily under the said law. The said
sections and the concept of taxable person thereto has been discussed in detail in
Chapter 7 – Registration.
3. EXTENT & COMMENCEMENT OF GST LAW

(i) Central Goods and Services Tax Act, 2017 extends to the whole of India*
[Section 1 of the CGST Act].
*It is pertinent to note that the CGST Act applies to the State of Jammu
and Kashmir also.
India: “India” means-
territory of India as referred to in article 1 of the Constitution
its territorial waters, seabed 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 other
Maritime Zones Act, 1976
the air space above its territory and territorial waters

3.8 INDIRECT TAXES
12 24 200
NM NM NM
Territorial
Waters
(TWI) Contiguous High Sea
Zone
Exclusive Economic Zone

Baseline
Continental Shelf
(ii) State GST law of the respective State/Union Territory with State Legislature
[Delhi and Puducherry]** extends to whole of that State/Union Territory.
Maharashtra GST Act, 2017 extends to whole of the State of the
Maharashtra.
**State: includes a Union territory with Legislature [Section 2(103) of the
CGST Act].
(iii) Integrated Goods and Services Tax Act, 2017 extends to the whole of
India* [Section 1 of the IGST Act].
*It is pertinent to note that the IGST Act applies to the State of Jammu
and Kashmir also.
(iv) Union Territory Goods and Services Tax Act, 2017 extends to the Union
territories** of the Andaman and Nicobar Islands, Lakshadweep, Dadra and
Nagar Haveli, Daman and Diu, Chandigarh and other territory, i.e. the Union
Territories without State Legislature [Section 1 of the UTGST Act].
**Union territory: means the territory of—
(a) the Andaman and Nicobar Islands;
(b) Lakshadweep;
(c) Dadra and Nagar Haveli;
(d) Daman and Diu;

CHARGE OF GST 3.9
(e) Chandigarh; and

(f) other territory.
Explanation––For the purposes of this Act, each of the territories specified in
sub-clauses (a) to (f) shall be considered to be a separate Union territory
Our discussion in this Study Material will principally be confined to the

provisions of CGST and IGST laws as the specific State GST laws are outside
the scope of syllabus.
4. LEVY & COLLECTION OF CGST & IGST [SECTION 9 OF

THE CGST ACT & SECTION 5 OF THE IGST ACT]
Section 9 Levy and collection
Sub-section Particulars
(1) Subject to the provisions of sub-section (2), there shall be levied a

tax called the central goods and services tax on all intra-State
supplies of goods or services or both, except on the supply of
alcoholic liquor for human consumption, on the value determined
under section 15 and at such rates, not exceeding twenty per
cent., as may be notified by the Government on the
recommendations of the Council and collected in such manner as
may be prescribed and shall be paid by the taxable person.
(2) The central tax on the supply of petroleum crude, high speed
diesel, motor spirit (commonly known as petrol), natural gas and
aviation turbine fuel shall be levied with effect from such date as
may be notified by the Government on the recommendations of
the Council.
(3) The Government may, on the recommendations of the Council,

by notification, specify categories of supply of goods or
services or both, the tax on which shall be paid on reverse

3.10 INDIRECT TAXES
charge basis by the recipient of such goods or services or both

and all the provisions of this Act shall apply to such recipient
as if he is the person liable for paying the tax in relation to the
supply of such goods or services or both.
(4) The central tax in respect of the supply of taxable goods or

services or both by a supplier, who is not registered, to a
registered person shall be paid by such person on reverse
charge basis as the recipient and all the provisions of this Act
shall apply to such recipient as if he is the person liable for
paying the tax in relation to the supply of such goods or
services or both.
(5) The Government may, on the recommendations of the Council,

by notification, specify categories of services the tax on intra-
State supplies of which shall be paid by the electronic
commerce operator if such services are supplied through it,
and all the provisions of this Act shall apply to such electronic
commerce operator as if he is the supplier liable for paying the
tax in relation to the supply of such services.
Provided that where an electronic commerce operator does not
have a physical presence in the taxable territory, any person
representing such electronic commerce operator for any
purpose in the taxable territory shall be liable to pay tax:
Provided further that where an electronic commerce operator
does not have a physical presence in the taxable territory and
also he does not have a representative in the said territory,
such electronic commerce operator shall appoint a person in
the taxable territory for the purpose of paying tax and such
person shall be liable to pay tax.
ANALYSIS
Central Goods and Services Tax (CGST) shall be levied on all intra-State
supplies of goods or services or both.

CHARGE OF GST 3.11
The tax shall be collected in such manner as may be prescribed and shall be
paid by the taxable person. However, intra-State supply of alcoholic liquor
for human consumption is outside the purview of CGST.
Value for levy: Transaction value under section 15 of the CGST Act.
Rates of CGST: Rates for CGST are rates as may be notified by the
Government on the recommendations of the GST Council [Rates notified are
0%, 0.125%, 1.5%, 2.5%, 6%, 9% and 14%]. Maximum rate of CGST will be
20%.
💡💡On inter-State supplies of goods and/or services, Integrated Goods and

Services Tax (IGST) is levied on the transaction value under section 15 of the
CGST Act 1. Since alcoholic liquor for human consumption is outside the
purview of GST law, IGST is also not leviable on the same. IGST is
approximately the sum total of CGST and SGST/UTGST. Maximum rate of
IGST will be 40%.
However, CGST/IGST on supply of the following items has not been levied
immediately. It shall be levied with effect from such date as may be notified
by the Government on the recommendations of the Council:
petroleum crude
high speed diesel
motor spirit (commonly known as petrol)
natural gas and
aviation turbine fuel
Tax payable on supply of goods or services or both under Reverse
charge
CGST/IGST shall be paid by the recipient of goods or services or both,
on reverse charge basis, in the following cases:
 Supply of goods or services or both, notified by the Government
on the recommendations of the GST Council.
1
Goods imported into India: For the goods imported into India, the IGST shall be levied
and collected as per the section 3 of the Custom Tariff Act, 1975 i.e. the additional duty
shall be as per the Custom Tariff Act, 1975 and the value shall also be determined as per
the said Act. This aspect will be discussed in detail at the Final Level.

3.12 INDIRECT TAXES
 Supply of taxable goods or services or both by an unregistered

supplier to a registered person.
All the provisions of the CGST/IGST Act shall apply to the recipient in
the aforesaid cases as if he is the person liable for paying the tax in
relation to the supply of such goods or services or both. Let us first
understand the concept of reverse charge mechanism:
Generally, the supplier of goods or services is liable to pay GST.
However, under the reverse charge mechanism, the liability to pay GST
may be cast on the recipient of the goods or services. Reverse
charge means the liability to pay tax is on the recipient of supply of
goods or services instead of the supplier of such goods or services in
respect of notified categories of supply.
There are two type of reverse charge scenarios ⚿ provided in law.
(i) First is dependent on the nature of supply and/or nature of
supplier. This scenario is covered by section 9(3) of the CGST/
SGST (UTGST) Act [as discussed in preceding paras]. Similar
provisions are contained under the IGST law.
(ii) Second scenario is covered by section 9(4) of the CGST Act
where taxable supplies by any unregistered person to a
registered person are covered. Similar provisions are
contained under the IGST law. Said provisions are deferred
till 30.09.2019.
⚿ Corresponding provisions are included under the charging section
5 of the IGST Act.
It is important to note that GST being an indirect tax, burden of the
tax has to be ultimately passed on to the recipient. Under reverse
charge also, the burden to pay GST is on the recipient, but the
compliance requirements, i.e. to obtain registration under GST,
deposit tax, filing returns with the Government, etc. has been shifted
from supplier to recipient.
Goods and services notified under reverse charge mechanism are as follows:
A. Supplies of goods taxable under reverse charge, i.e. the
goods where tax is payable by the recipient: Goods like
cashewnuts [not shelled/peeled], bidi wrapper leaves, tobacco

CHARGE OF GST 3.13
leaves, supply of lottery, silk yarn, used vehicles, seized and

confiscated goods, old and used goods, waste and scrap, raw
cotton, etc. are taxable under reverse charge, i.e. recipient is
liable to pay tax.
B. Supply of services taxable under reverse charge, i.e. the
services where tax is payable by the recipient: Notification
No. 13/2017 CT (R) dated 28.06.2017 as amended has notified
the following categories of supply of services wherein whole
of the CGST shall be paid on reverse charge basis by the
recipient of services:
S. Category of supply Supplier of Recipient of

No. of service service Service
1. Supply of services by Goods Transport (a) Any factory

a Goods Transport Agency (GTA) registered under
Agency (GTA) in who has not or governed by
respect of paid CGST @ 6% the Factories Act,
transportation of [Please refer the 1948; or
goods by road to- analysis given (b) any society
(a) any factory subsequently.] registered under
registered under or the Societies
governed by the Registration Act,
Factories Act, 1948; 1860 or under
or any other law for
(b) any society the time being in
registered under the force in any part
Societies Registration of India; or
Act, 1860 or under (c) any co-
any other law for the operative society
time being in force in established by or
any part of India; or under any law; or
(c) any co- (d) any person
operative society registered under
established by or the CGST Act or
under any law; or the IGST Act or

3.14 INDIRECT TAXES
(d) any person the SGST Act or

registered under the the UTGST Act;
CGST Act or the IGST or
Act or the SGST Act (e) any body
or the UTGST Act; or corporate
(e) any body established, by or
corporate under any law; or
established, by or (f) any
under any law; or partnership firm
(f) any whether
partnership firm registered or not
whether registered under any law
or not under any law including
including association association of
of persons; or persons; or
(g) any casual (g) any casual
taxable person. taxable person;
located in the
taxable territory.
[Hereinafter referred
as Specified
recipients]
2. Services supplied by An individual Any business

an individual advocate entity located in
advocate including including a the taxable
a senior advocate or senior advocate territory.
firm of advocates or firm of
by way of legal advocates.
services, directly or
indirectly.
“Legal service”
means
any service provided
in relation to advice,
consultancy or

CHARGE OF GST 3.15
assistance in any
branch of law, in any
manner and includes
representational
services before any
court, tribunal or
authority.
3. Services supplied by An arbitral Any business

an arbitral tribunal tribunal. entity located in
to a business entity. taxable territory.
4. Services provided by Any person Any body

way of sponsorship corporate or
to any body partnership firm
corporate or located in the
partnership firm. taxable territory.
5. Services supplied by Central Any business

the Central Government, entity located in
Government, State State the taxable
Government, Union Government, territory.
territory or local Union territory or
authority to a local authority
business entity
excluding, -
(1) renting of
immovable
property, and
(2) services
specified below-
(i) services by
the Department
of Posts by way
of speed post,
express parcel
post, life

3.16 INDIRECT TAXES
insurance, and
agency services
provided to a
person other
than Central
Government,
State
Government or
Union territory
or local
authority;
(ii) services in
relation to an
aircraft or a
vessel, inside or
outside the
precincts of a
port or an
airport;
(iii) transport of
goods or
passengers.
5A Services supplied by Central Any person

Central Government, registered under
Government, State State the CGST Act,
Government, Union Government, 2017
territory or local Union territory
authority by way of or local
renting of authority
immovable property
to a person
registered under
CGST Act, 2017
6. Services supplied by A director of a The company or

a director of a company or a a body corporate

CHARGE OF GST 3.17
company/ body body corporate located in the

corporate taxable territory.
to the said company/
body corporate.
7. Services supplied by An insurance Any person

an insurance agent agent carrying on
to any person insurance
carrying on insurance business, located
business. in the taxable
territory.
8. Services supplied by A recovery agent A banking

a recovery agent company or a
to a banking financial
company or a institution or a
financial institution non-banking
or a non- banking financial
financial company. company,
located in the
taxable territory.
9. Supply of services Author or music Publisher, music

by an author, music composer, company,
composer, photographer, producer or the
photographer, artist, or the like like, located in
artist or the like the taxable
by way of transfer or territory.
permitting the use or
enjoyment of a
copyright covered
under section
13(1)(a) of the
Copyright Act, 1957
relating to original
literary, dramatic,
musical or artistic

3.18 INDIRECT TAXES
works
to a publisher,
music company,
producer or the like.
10. Supply of services Members of RBI

by the members of Overseeing
Overseeing Committee
Committee to constituted by
Reserve Bank of the RBI
India (RBI)
11. Services supplied by Individual A banking

individual Direct Direct Selling company or a
Selling Agents Agents (DSAs) NBFC, located in
(DSAs) other than a other than a the taxable
body corporate, body corporate, territory
partnership or partnership or
limited liability LLP firm
partnership (LLP)
firm to bank or
non-banking
financial company
(NBFCs).
🔔🔔 All the above services have also been notified for reverse charge under
IGST Act. In addition to them, two additional services are also included for
IGST purposes relating to which will be dealt at the Final level.
For purpose of this notification,-
(a) The person who pays or is liable to pay freight for the
transportation of goods by road in goods carriage, located in
the taxable territory shall be treated as the person who
receives the service for the purpose of this notification.
(b) Body Corporate: has the same meaning as assigned to it in clause
(11) of section 2 of the Companies Act, 2013.

CHARGE OF GST 3.19
As per section 2(11) of the Companies Act, 2013, body corporate or

corporation includes a company incorporated outside India, but
does not include—
(i) a co-operative society registered under any law relating to
co-operative societies; and
(ii) any other body corporate (not being a company as defined in
this Act), which the Central Government may, by notification,
specify in this behalf.
(c) the business entity located in the taxable territory who is litigant,
applicant or petitioner, as the case may be, shall be treated as the
person who receives the legal services for the purpose of this
notification.
(d) the words and expressions used and not defined in this notification
but defined in the Central Goods and Services Tax Act, the
Integrated Goods and Services Tax Act, and the Union Territory
Goods and Services Tax Act shall have the same meanings as
assigned to them in those Acts.
(e) Limited Liability Partnership formed and registered under the
provisions of the Limited Liability Partnership Act, 2008 shall
also be considered as a partnership firm or a firm.
(f) Insurance agent means an insurance agent licensed under
section 42 of the Insurance Act, 1938 who receives agrees to
receive payment by way of commission or other remuneration
in consideration of his soliciting or procuring insurance
business including business relating to the continuance,
renewal or revival of policies of insurance [Section 2(10) of the
Insurance Act, 1938].
(g) Renting of immovable property means allowing, permitting or
granting access, entry, occupation, use or any such facility,
wholly or partly, in an immovable property, with or without
the transfer of possession or control of the said immovable
property and includes letting, leasing, licensing or other
similar arrangements in respect of immovable property.

3.20 INDIRECT TAXES
Person liable to pay tax on GTA service

Under GTA service, the person who pays or is liable to pay freight for the
transportation of goods by road in goods carriage, located in the taxable
territory shall be treated as the person who receives the service for the
purpose of this notification.
GTA services are taxable:
(i) @ 5% (2.5% CGST+2.5% SGST/UTGST) provided GTA has not taken the Input
Tax Credit (ITC) on goods and services used in supplying GTA service or
(ii) @ 12% (6% CGST+6% SGST/UTGST) provided GTA pays GST under forward
charge. There is no restriction on availing ITC on goods and
services used in supplying GTA service by GTA.
•Person who pays or is liable to pay

Recipient of GTA service
freight
Person liable to pay
tax under GTA service
GST is payable @ 5% GST is payable @

12%
Recipient is one of the Recipient is other than

Specified Recipients Specified Recipients
(Unregistered Individual end consumer)
Reverse charge Forward

charge
Exempt from GST
Person liable to pay GST is [vide Notification No.
such recipient 12/2017 CT (R) dated Person liable to
28.06.2017 – Refer pay GST is GTA
Chapter 4 – Exemptions
from GST - for details]

CHARGE OF GST 3.21
Tax payable by the electronic commerce operator on notified services

Electronic Commerce Operators (ECO) 2 display products as well as
services which are actually supplied by some other person to the consumer,
on their electronic portal. The consumers buy such goods/ services through
these portals. On placing the order for a particular product/ service, the
actual supplier supplies the selected product/ service to the consumer. The
price/ consideration for the product/ service is collected by the ECO from
the consumer and passed on to the actual supplier after the deduction of
commission by the ECO.
The Government may, on the recommendations of the GST
Council, notify specific categories of services the tax
[CGST/SGST/IGST] on intra-State supplies of which shall be
paid by the electronic commerce operator (ECO) if such
services are supplied through it. Few services have been
so notified. For instance, service by way of transportation of passengers by a
radio-taxi, motorcab, maxicab and motor cycle.
GST Rates prescribed for various goods: Broadly, six rates of CGST have
been notified for goods, viz., 0.125%, 1.5%, 2.5%, 6%, 9% and 14%. Some
items have been kept at Nil rate 3. SGST/ UTGST at the equivalent rate is
also leviable. With regard to IGST, broadly six rates have been notified for
goods, viz., 0.25%, 3%, 5%, 12%, 18% and 28% 4
GST Rates prescribed for various services: Broadly, four rates of CGST
have been notified for services, viz., 2.5%, 6%, 9% and 14%. Equivalent rate
of SGST/ UTGST will also be levied. For IGST, four rates have been notified
for services, viz., 5%, 12%, 18% and 28%. For certain specified goods and
services, nil rate of tax has been notified.
2
Detailed provisions relating to Electronic Commerce Operator shall be discussed at Final
level.
3
Students may refer the CBIC website for the complete Schedule of CGST Rates for goods,
for knowledge purposes.
4
Students may refer the CBIC website for the complete Schedule of IGST Rates for goods for
knowledge purposes.

3.22 INDIRECT TAXES
A new Scheme of Classification of Services 5 has been devised wherein the

services of various descriptions have been classified under various sections,
headings and groups.
Each group consists of various Service Codes (Tariff). Chapters referred are
the Chapters of the First Schedule to the Customs Tariff Act, 1975 6.
Notification No. 11/2017 CT (R) dated 28.06.2017 has notified the
different rates of the CGST to be levied on the intra-State supplies of
services subject to the condition(s) specified therein, if any. Specific rates
have been prescribed for various services.
For instance, as already discussed, tax rate prescribed for GTA service is 5%
(CGST @ 2.5% and SGST @ 2.5%) subject to the condition that credit of
input tax charged on goods or services used in supplying the service has
not been taken. Similarly, tax rate for restaurant service is 5% without any
input tax credit 7. Services not covered under any specific heading are
taxed at the rate of 18% (CGST @ 9% and SGST @9%).
Classification of cut pieces of fabrics under GST (Unstitched Salwar Suits)
It has been represented that before becoming readymade articles or an
apparel, the fabric is cut from bundles or thans and sold in that
unstitched state. The consumers buy these sets or pieces and get it
stitched to their shape and size. Fabrics are classifiable under chapters
50 to 55 of the First Schedule to the Customs Tariff Act, 1975 on the basis
of their constituent materials.
Mere cutting and packing of fabrics into pieces of different lengths from
bundles or thans, will not change the nature of these goods and such
pieces of fabrics would continue to be classifiable under the respective
heading as the fabric [Circular No. 13/13/2017 GST dated 27.10.2017].
5
Students may refer the Scheme of Classification of Services from CBIC website for
knowledge purposes.
6
The provisions relating to Customs Act and Customs Tariff Act will be discussed at Final
Level.
7
GST rate on supply of food and/or drinks by the Indian Railways or IRCTC (Indian Railways
Catering and Tourism Corporation Ltd.) or their licensees, whether in trains or at platforms
(static units), will be 5% without ITC.

CHARGE OF GST 3.23
5. COMPOSITION LEVY [SECTION 10 OF THE CGST ACT]
Section 10 Composition levy
(1) Notwithstanding anything to the contrary contained in this Act but

subject to the provisions of sub-sections (3) and (4) of section 9, a
registered person, whose aggregate turnover in the preceding
financial year did not exceed fifty lakh rupees, may opt to pay, in
lieu of the tax payable by him, an amount calculated at such rate
as may be prescribed, but not exceeding,––
a one per cent. of the turnover in State or turnover in Union

territory in case of a manufacturer
b two and a half per cent. of the turnover in State or turnover

in Union territory in case of persons engaged in making
supplies referred to in clause (b) of paragraph 6 of
Schedule II, and
c half per cent. of the turnover in State or turnover in Union

territory in case of other suppliers
subject to such conditions and restrictions as may be prescribed.
Provided that the Government may, by notification, increase the

said limit of fifty lakh rupees to such higher amount, not exceeding
one crore rupees, as may be recommended by the Council.
(2) The registered person shall be eligible to opt under sub-section

(1), if––
(a) he is not engaged in the supply of services other than

supplies referred to in clause (b) of paragraph 6 of
Schedule II
(b) he is not engaged in making any supply of goods which are

3.24 INDIRECT TAXES
not leviable to tax under this Act
(c) he is not engaged in making any inter-State outward supplies

of goods
(d) he is not engaged in making any supply of goods through an

electronic commerce operator who is required to collect tax at
source under section 52; and
(e) he is not a manufacturer of such goods as may be notified by the

Government on the recommendations of the Council
Provided that where more than one registered persons are having
the same Permanent Account Number (issued under the Income-
tax Act, 1961), the registered person shall not be eligible to opt for
the scheme under sub-section (1) unless all such registered persons
opt to pay tax under that sub-section.
(3) The option availed of by a registered person under sub-section (1)

shall lapse with effect from the day on which his aggregate turnover
during a financial year exceeds the limit specified under sub-section
(1).
(4) A taxable person to whom the provisions of sub-section (1) apply

shall not collect any tax from the recipient on supplies made by
him nor shall he be entitled to any credit of input tax.
(5) If the proper officer has reasons to believe that a taxable person
has paid tax under sub-section (1) despite not being eligible, such
person shall, in addition to any tax that may be payable by him
under any other provisions of this Act, be liable to a penalty and
the provisions of section 73 or section 74 shall, mutatis mutandis,
apply for determination of tax and penalty.
ANALYSIS
Overview of the Scheme
The objective of composition scheme is to bring simplicity and to reduce
the compliance cost for the small taxpayers. Small taxpayers with an

CHARGE OF GST 3.25
aggregate turnover in a preceding financial year up to ` 1 crore shall be

eligible for composition levy.
Suppliers opting for composition levy need not worry about the
classification of their goods or services or both, the rate of GST applicable
on the same, etc. They are not required to raise any tax invoice, but simply
need to issue a Bill of Supply [Discussed in detail in Chapter-8: Tax Invoice,
Credit and Debit Notes] wherein no tax will be charged from the recipient.
At the end of a quarter, the registered
person opting for composition levy would
pay a certain specified percentage of his
turnover of the quarter as tax, without
availing the benefit of input tax credit.
Persons making inter-State supplies of goods/making supplies of goods
through e-commerce operators who are required to collect tax at source
shall not be eligible for composition scheme. The provisions relating to
composition levy are contained in section 10 of CGST Act, 2017 and
Chapter-II [Composition Rules] of Central Goods and Services Tax (CGST)
Rules, 2017. The said rules have been incorporated at the relevant places.
Turnover limit for Composition Levy [Section 10(1)]
Section 10 of the CGST Act provides the
turnover limit of ` 50 lakh for composition
levy. However, proviso to section 10(1)
empowers the Government to increase the
said limit of ` 50 lakh upto ` 1 crore, on the
recommendation of the Council.
In view of said power of the Government to
increase the turnover limit for Composition
Levy as granted by proviso to section 10(1), the turnover limit for
Composition Levy for CGST and SGST purposes for all eligible registered
persons has been increased from ` 50 lakh to ` 1 crore vide
Notification No. 8/2017 CT dated 27.06.2017 as amended.
However, the said notification further stipulates that the turnover limit
for composition levy shall be ` 75 lakh in respect of 9 of the Special
Category States namely:

3.26 INDIRECT TAXES
Special Category States

Arunachal Pradesh Mizoram
Assam Nagaland
Manipur Sikkim
Meghalaya Tripura
Himachal Pradesh
*In case of Uttarakhand and Jammu and Kashmir, the turnover limit
will be ` 1 crore.
In other words, if the aggregate turnover of a supplier in a State/UT

other than Special Category States (except Uttarakhand and Jammu and
Kashmir) is upto ` 1 crore in the preceding financial year, said supplier is
eligible for composition scheme.
While computing the threshold limit of ` 1 crore, inclusions in

and exclusions from ‘aggregate turnover’ are as follows
Excludes
Includes --CGST
Value of all outward --SGST
supplies
--UTGST
--Taxable supplies
--Exempt supplies --IGST
--Exports --Cess
--Inter-State supplies --Value of inward supplies
of persons having the
on which tax is payable
same PAN be computed
on all India basis. under reverse charge.
A dealer ‘X’ has two offices in Delhi. In order to determine

whether ‘X’ is eligible to avail benefit of the composition
scheme, turnover of both the offices would be taken into
account and if the same does not exceed ` 1 crore, X can opt to

CHARGE OF GST 3.27
avail the composition levy scheme (subject to fulfilment of other prescribed

conditions).
Who can opt for the composition levy scheme? [Section 10(1) read
with rule 7]
A registered person, whose aggregate turnover in the preceding FY does
not exceed ` 1 crore, may opt to pay an amount calculated at the
prescribed rates [mentioned in table below] during the current FY, in lieu
of the tax payable by him.
S Category of registered persons Rate of tax*

No.
1 Manufacturers, other than manufacturers of ½ % 8 of the turnover

such goods as may be notified by the in the State/Union
Government, i.e. ice cream, pan masala and territory**
tobacco.
2 Suppliers making supplies referred to in 2½ % 9 of the

clause (b) of paragraph 6 of Schedule II turnover in the
[Restaurant service] State/Union
territory**
3 Any other supplier eligible for composition ½ % 10 of the

levy under section 10 of CGST Act and turnover of taxable
Chapter-II [Composition Rules] of Central supplies of goods in
Goods and Services Tax (CGST) Rules, 2017 the State or Union
territory**
Turnover in State/ turnover in Union territory 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) and exempt
supplies made within a State or Union territory by a taxable person, exports
of goods or services or both and inter-State supplies of goods or services or
both made from the State or Union territory by the said taxable person but
8
Effective rate 1% (CGST+ SGST/UTGST)
9
10

3.28 INDIRECT TAXES
excludes central tax, State tax, Union territory tax, integrated tax and cess
[Section 2(112) of the CGST Act, 2017].
Intimation of opting for composition levy [Rules 3 & 4]
(i) Intimation by person applying for registration:
Any person who is not registered and applies for
registration may give an option to pay tax under
composition levy in Part B of the registration form, viz., FORM
GST REG-01. The same shall be considered as an intimation to
pay tax under Composition Levy. Such intimation shall be
considered only after the grant of registration to the applicant and
his option to pay tax under composition levy shall be effective
from the date from which registration is effective.
(ii) Intimation by a registered person: A registered person who opts to
pay tax under composition levy scheme shall electronically file an
intimation in prescribed form on the Common Portal
[www.gst.gov.in], prior to the commencement of the FY for which
said option is exercised.
He shall also furnish the statement in prescribed form in
accordance with the provisions of rule 44(4) of CGST Rules, 2017
[Discussed in detail in Chapter 6 – Input Tax Credit] within 60 days
from the commencement of the relevant FY. Any intimation in
respect of any place of business in a State/UT shall be deemed to be
an intimation in respect of all other places of business registered on
the same PAN.
Details of stock to be furnished: Any person who files such
intimation shall furnish the details of:
 stock, including the inward supply of goods received from
unregistered persons,
 held by him on the day preceding the date from which he opts
for composition levy,
 electronically, in prescribed form, on the common portal,
 within a period of 90 days

CHARGE OF GST 3.29
 from the date on which the option for composition levy is

exercised or within such further period as may be extended by
the Commissioner in this behalf.
The option to pay tax under composition levy shall be effective from
the beginning of the FY.
Conditions and restrictions for composition levy [Rule 5]
Person opting for composition levy has to comply with the following
conditions:
 he is neither a casual taxable person nor a non-resident taxable
person [Concept of casual taxable person and non-resident taxable
person has been discussed in detail in Chapter 7: Registration].
 the goods held in stock by him have not been purchased from an
unregistered supplier and where purchased, he pays the tax under
reverse charge under section 9(4).
 he shall pay tax under section 9(3)/9(4) (reverse charge) on inward
supply of goods or services or both.
 he was not engaged in the manufacture of goods as notified under
section 10(2)(e), during the preceding FY. The following goods have
been hereby notified vide Notification No. 8/2017 CT dated
27.06.2017:
Tariff item, subheading,

heading or Chapter*
Description
2105 00 00 Ice cream and other edible ice, whether

or not containing cocoa
2106 90 20 Pan masala
24 All goods, i.e. Tobacco and manufactured

tobacco substitutes
* as specified in the First Schedule to the Customs Tariff Act, 1975

 he shall mention the words “composition taxable person, not eligible to
collect tax on supplies” at the top of the bill of supply issued by him; and

3.30 INDIRECT TAXES
 he shall mention the words “composition taxable person” on every notice

or signboard displayed at a prominent place at his principal place of
business and at every additional place or places of business.
Who are not eligible to opt for composition scheme? [Section 10(2)]
Supplier of Supplier of goods which Supplier of inter-

services other are not taxable under the State outward
than supplier of CGST Act/SGST Act/ UTGST supplies of goods
food articles. Act 🌠🌠
Person supplying
Manufacturer of
goods through an
icecream, panmasala
electronic commerce
and tobacco
operator
🌠🌠
There is no restriction on
Composition Supplier to
procure goods from
suppliers located in other
States.
Person providing exempted service is eligible for composition scheme

(i) A person supplies goods and/or services referred to in clause (b) of
paragraph 6 of Schedule II of the said Act (restaurant service) and
also supplies any exempt services including services by way of
extending deposits, loans or advances in so far as the consideration
is represented by way of interest or discount, the said person shall
not be ineligible for the composition scheme subject to the fulfilment
of all other conditions specified therein.
(ii) Further, while computing aggregate turnover of such person in order
to determine his eligibility for composition scheme, value of supply of
any exempt services including services by way of extending deposits,
loans or advances in so far as the consideration is represented by way

CHARGE OF GST 3.31
of interest or discount, shall not be taken into account [Order No.

01/2017 CT dated 13.10.2017].
Validity of composition levy [Section 10(3) read with rule 6]
The option exercised by a registered person to pay amount under
composition levy shall remain valid so long as he satisfies all the
conditions mentioned in the said section and these rules.
The option to pay tax under composition scheme lapses from the day
on which his aggregate turnover during the FY exceeds the specified
limit (` 1 crore/ ` 75 lakh).
Such person is required to pay normal tax under section 9(1) from the
day he ceases to satisfy any of the conditions prescribed for
composition levy. He shall issue tax invoice for every taxable supply
made thereafter.
Further, he is required to file an intimation for withdrawal from the
scheme in prescribed form within 7 days of the occurrence of such event.
However, such person shall be allowed to avail the input tax credit in
respect of the stock of inputs and inputs contained in semi-finished or
finished goods held in stock by him and on capital goods held by him
on the date of withdrawal and furnish a statement, within 30 days of
withdrawal of the option, containing the details of such stock held in
prescribed form on the common portal.
A person availing composition scheme during a financial year
crosses the turnover of ` 1 crore on 9th of December. The option
availed shall lapse from the day on which his aggregate turnover
during the financial year exceeds ` 1 crore, i.e. on 9th December in this case.
Composition scheme to be adopted uniformly by all the registered
persons having the same PAN [Proviso to section 10(2)]
All registered persons having the same Permanent Account Number (PAN)
have to opt for composition scheme. If one such registered person opts for
normal scheme, others become ineligible for composition scheme.
A dealer ‘X’ has two offices in Delhi and is eligible for composition
levy. If ‘X’ opts for the composition scheme, both the offices
would pay taxes under composition scheme and abide by all the
conditions as may be prescribed for the composition scheme.

3.32 INDIRECT TAXES
Composition scheme supplier cannot collect tax [Section 10(4)]

Taxable person opting for the composition scheme shall not collect tax from
the recipient on supplies made by him. It implies that a composition scheme
supplier cannot issue a tax invoice.
Composition scheme supplier cannot enter into credit chain [Section
10(4)]
Taxable person opting for the composition scheme is not entitled to any
credit of input tax.
Imposition of penalty in case of irregular availment of the
composition scheme [Section 10(5) read with rule 6(4) and 6(5)]
If a taxable person has paid tax under the composition scheme though
he was not eligible for the scheme, the person would be liable to
penalty and the provisions of section 73 or 74 of the CGST Act shall be
applicable for determination of tax and penalty.
Further, where the proper officer has reasons to believe that the
registered person was not eligible to pay tax under composition levy
or has contravened the provisions of the Act/provisions of this
Chapter, he may issue a show cause notice to such person in
prescribed form.
Upon receipt of the reply to such show cause notice from the
registered person in prescribed form, the proper officer shall issue an
order in prescribed form within 30 days of the receipt of such reply,
either accepting the reply, or denying the option to pay tax under
composition levy from the date of the option or from the date of the
event concerning such contravention, as the case may be.
ILLUSTRATION
Taxpayer ‘A’ is a manufacturer having one unit – A1 in UP and another unit – A2 in MP.
Total turnover of two units in last FY was ` 85 lakh (` 55 lakh + ` 30 lakh). Turnover of
Unit A1 and A2 in the second quarter of this financial year was ` 5 lakh and ` 10 lakh
respectively. Compute the amount payable under composition levy by Taxpayer ‘A’.
ANSWER
Unit Location Turnover in Turnover in 2nd Total tax

previous FY quarter of this FY (@1%)

CHARGE OF GST 3.33
A1 U.P. ` 55 lakh ` 5 lakh ` 5,000

A2 M.P. ` 30 lakh ` 10 lakh ` 10,000
Aggregate turnover ` 85 lakh ` 15 lakh
1. Extent & Commencement of CGST Act/ SGST Act/ UTGST Act/ IGST Act
Applicability CGST SGST UTGST IGST

Intra-State supply Inter-State
supply
States of India
Union Territories with
State Legislature
Union Territories
without State
Legislature
2. Levy and collection of CGST/IGST
Particulars CGST IGST
Levied on Intra-State supplies of Inter-State supplies of

goods/services/both goods/services/both
Collected and paid by Taxable person
Supply outside Alcoholic liquor for human consumption

purview of tax
Value for levy Transaction value under section 15 of the CGST Act
Rates Rates as notified by IGST rate= CGST rate +

Government. SGST rate (more or less)
Maximum rate of Maximum rate of IGST
CGST will be 20%. will be 40%.

3.34 INDIRECT TAXES
Supplies on which tax petroleum crude

to be levied w.e.f. a high speed diesel
notified date motor spirit (commonly known as petrol)
natural gas and
aviation turbine fuel
Tax payable under Supply of goods or services or both, notified

reverse charge by the Government on the recommendations
of the GST Council.
Supply of taxable goods or services or both
by an unregistered supplier to a registered
person
Tax payable by the The Government may notify specific categories of

electronic commerce services the tax on supplies of which shall be paid
operator by electronic commerce operator (ECO) as if such
services are supplied through it.
3. Composition levy [Section 10]
Composition levy Advantages

•An option for specified •Low rate of tax
categories of small •Hassel free simple procedures for such taxpayers
taxpayers to pay GST at a
•Simple calculation of tax based on turnover
very low rate on the
basis of turnover. •A very simple quarterly return
Composition Scheme - Procedure
Category of persons How to exercise Effective date of

option composition levy
New registration under Intimation in the From the effective
GST registration form date of registration
Registered person opting Intimation in Beginning of the

for composition levy prescribed form financial year

CHARGE OF GST 3.35
Composition levy
Conditions Non-eligible Conditions and

supplies restrictions
Aggregate Turnover
(AT) ≤ ` 1 crore during
Supplier of services other He is neither a casual
the FY. In Special than supplier of food taxable person nor a non-
Category States, AT articles. resident taxable person.
≤ ` 75 lakh except
Uttarakhand & J&K Supplier of goods which
(≤ ` 1 crore). Stock has not been purchased
are not taxable under the
from an unregistered supplier,
CGST Act/SGST
where purchased tax paid
Act/UTGST Act.
under reverse charge.
Tax is not collected
from recipient of
Supplier of inter-State
supply
outward supplies of goods He shall pay tax under
section 9(3)/9(4) (reverse
charge) on inward supplies
Input tax credit is
not availed Person supplying goods through
an electronic commerce He is not engaged in
operator manufacturer of notified
goods
Composition Scheme if
Manufacturer of certain
availed shall include all Words “Composition
goods as may be notified taxable person, not
registered persons
by the Government eligible to collect tax on
having same PAN
supplies” is mentioned at
the top of the bill of supply
Words “composition
taxable person” displayed
at prominent places

3.36 INDIRECT TAXES
Composition Rates
Category of registered persons Rate
Manufacturer 1 % (½% CGST +½%

SGST/UTGST)
Supplier of food 5%
Traders 1%

1. What is the maximum rate of CGST prescribed under CGST Act?
(a) 20%
(b) 28%
(c) 24%
(d) 40%
2. Which of the following taxes levied on intra-State supply?
(a) CGST
(b) SGST/UTGST
(d) IGST
3. What is the threshold limit of turnover in the preceding financial year to be
eligible for composition levy in Delhi?
(a) ` 50 lakh
(b) ` 75 lakh
(c) ` 80 lakh
(d) ` 1 crore
4. Which of the following is not included in aggregate turnover?
(a) Exempt supplies of goods or services or both
(b) Export of goods or services or both
(c) Inter-State supply of goods or services or both

CHARGE OF GST 3.37
(d) Value of inward supplies on which tax is paid under reverse charge
5. IGST is levied on:
(a) Inter-State supplies
(b) Intra-State Supplies
6. _________________ is levied on the import of goods and/or services.
(a) IGST
(b) CGST and SGST
(c) CGST and UTGST
7. The maximum rate of IGST can be:
(a) 20%
(b) 30%
(c) 40%
8. On supply of which of the following items, GST shall be levied with effect from
such date as may be notified by the Government on the recommendations of
the Council:
(a) Petroleum crude
(b) Alcoholic liquor for human consumption
9. GST is payable by the recipient under reverse charge on:
(a) Sponsorship services
(b) Transport of goods by rail
(c) Transport of passengers by air
10. State person liable to pay GST in the following independent cases provided
recipient is located in the taxable territory:

3.38 INDIRECT TAXES
(a) Services provided by an arbitral tribunal to any business entity.

(b) Sponsorship services provided by a company to an individual.
(c) Renting of immovable property service provided by the Central
Government to a registered business entity.
11. A person availing composition scheme in Haryana during a financial year
crosses the turnover of ` 1 crore during the course of the year i.e. he crosses
the turnover of ` 1 crore in December? Will he be allowed to pay tax under
composition scheme for the remainder of the year, i.e. till 31st March?
12. Determine whether the supplier in the following cases are eligible for
composition levy provided their turnover in preceding year does not exceed `
1 crore:
(i) Mohan is engaged in providing only legal services in Rajasthan and
is registered in the same State.
(ii) Sugam Manufacturers has registered offices in Punjab and Haryana
and supplies goods in neighbouring States.
13. Mohan Enterprises has two registered business verticals in Delhi. Its
aggregate turnover for the preceding year for both the business verticals was
` 90 lakh. It wishes to pay tax under composition levy for one of the vertical
in the current year while under normal levy for other vertical. You are
required to advice Mohan Enterpises whether he can do so?
10. ANSWERS/HINTS
1. (a) 2. (c) 3. (d) 4. (d) 5. (a) 6. (a) 7. (c)
8. (a) 9. (a)
10. (a) Since GST on services provided or agreed to be provided by an
arbitral tribunal to any business entity located in the taxable territory
is payable under reverse charge, in the given case, GST is payable by
the recipient - business entity.
(b) GST on sponsorship services provided by any person to any body
corporate or partnership firm located in the taxable territory is
payable under reverse charge. Since in the given case, services
have been provided to an individual, reverse charge provisions will
not be attracted. GST is payable under forward charge by the
supplier – company.

CHARGE OF GST 3.39
(c) GST on services supplied by Central Government, State

Government, Union territory/ local authority by way of renting of
immovable property to a person registered under CGST Act, 2017
is payable under reverse charge. Therefore, in the given case, GST
is payable under reverse charge by the recipient – registered
business entity.
11. No. The option to pay tax under composition scheme lapses from the day
on which the aggregate turnover of the person availing composition
scheme during the financial year exceeds the specified limit (` 1 crore). He is
required to file an intimation for withdrawal from the scheme in prescribed
form within 7 days from the day on which the threshold limit has been
crossed.
12. (i) A supplier of services engaged in the supplies other than the
supplies referred to in clause (b) of paragraph 6 of Schedule II of
CGST Act i.e. supply by 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, is not eligible for composition levy.
Since Mohan provides legal services, he is not eligible for composition
scheme.
(ii) Since supplier of inter-State outward supplies of goods is not
eligible for composition levy, Sugam Manufacturers is not eligible
for composition levy.
13. A registered person with an aggregate turnover in a preceding financial year
up to ` 1 crore is eligible for composition levy in Delhi. Since the aggregate
turnover of Mohan Enterprises does not exceed ` 1 crore, it is eligible for
composition levy in the current year. However, all registered persons
having the same Permanent Account Number (PAN) have to opt for
composition scheme. If one such registered person opts for normal scheme,
others become ineligible for composition scheme. Thus, Mohan Enterprises
either have to opt for composition levy for both the verticals or under
normal levy for both the verticals.

CHAPTER 4
EXEMPTIONS FROM GST

LEARNING OUTCOMES
 describe the power of the Government to grant exemption
from CGST/IGST.
 provide an overview of the goods exempt from GST.
 identify and analyse various services exempt from GST.
CHAPTER OVERVIEW
Power of the Government to grant exemption from tax

from GST in
Exemption
India
Goods exempt from tax
Services exempt from tax

4.2 INDIRECT TAXES
1. INTRODUCTION
When a supply of goods and/or services falls within the purview of charging
section, such supply is chargeable to GST. However, for determining the
liability to pay the tax, one needs to further check whether such supply of
goods and/or services are exempt from tax.
Exempt supply has been defined as supply of any
goods or services or both which attracts nil rate of
tax or which may be wholly exempt from tax and
includes non-taxable supply [Section 2(47) of the
CGST Act, 2017]. Non-taxable supply means a
supply of goods or services or both which is not leviable to tax under CGST
Act or under the IGST Act [Section 2(78) of the CGST Act, 2017].
Power to grant exemption from GST has been granted vide section 11 of the
CGST Act and vide section 6 of the IGST Act. State GST laws also contain
identical provisions granting power to exempt SGST. Under GST, essential
goods/services, i.e. public consumption products/services, have been
exempted. Items such as unbranded atta/maida/besan, unpacked food grains,
milk, eggs, curd, lassi and fresh vegetables are among the items exempted
from GST. Further, essential services like health care services, education
services, etc. have also been exempted.
In this chapter, we shall discuss the power to grant exemption from tax under
CGST Act/IGST Act, list of services exempt from GST in detail and an overview
of the goods exempt from tax.
2. POWER TO GRANT EXEMPTION FROM TAX [SECTION 11

OF THE CGST ACT/SECTION 6 OF IGST ACT]
Section 11 Power to grant exemption from tax
(1) Where the Government is satisfied that it is necessary in the

public interest so to do, it may, on the recommendations of the

EXEMPTIONS FROM GST 4.3
Council, by notification, exempt generally, either absolutely

or subject to such conditions as may be specified therein,
goods or services or both of any specified description from the
whole or any part of the tax leviable thereon with effect from
such date as may be specified in such notification
(2) Where the Government is satisfied that it is necessary in the

public interest so to do, it may, on the recommendations of
the Council, by special order in each case, under
circumstances of an exceptional nature to be stated in such
order, exempt from payment of tax any goods or services or
both on which tax is leviable.
(3) The Government may, if it considers necessary or expedient so

to do for the purpose of clarifying the scope or applicability of
any notification issued under sub-section (1) or order issued
under sub-section (2), insert an explanation in such
notification or order, as the case may be, by notification at any
time within one year of issue of the notification under sub-
section (1) or order under sub-section (2), and every such
explanation shall have effect as if it had always been the part
of the first such notification or order, as the case may be.
Explanation––For the purposes of this section, where an exemption in respect

of any goods or services or both from the whole or part of the tax leviable
thereon has been granted absolutely, the registered person supplying such
goods or services or both shall not collect the tax, in excess of the effective
rate, on such supply of goods or services or both.
ANALYSIS
(i) Exemption from payment of tax: The Government is empowered to grant
exemption from tax, if it is necessary in public interest so to do, on
recommendation of the GST council, by way of issuance of-

4.4 INDIRECT TAXES
I. Notification
The Government
may generally
exempt supply of on
BY
goods and/or recommendation
NOTIFICATION
services of any of the GST council
specified
description
with effect from

either absolutely or
such date as
subject to such
may be
wholly/partly conditions as may
specified in
be specified in the
such
notification
notification.
II. Special order

The Government
may exempt any on
goods and/or BY SPECIAL recommendati
services on which ORDER on of the GST
tax is leviable from Council
payment of tax
under
circumstances of an
in the public
exceptional nature
interest.
to be stated in such
order
(ii) No need to pay tax on goods and/or services on which absolute

exemption granted: Where an exemption in respect of goods and/or
services has been granted absolutely, the registered person supplying such
goods and/or services shall not collect tax on such goods and/or services, in
excess of the effective rate.

(iii) Explanation inserted within 1 year to have retrospective effect: The

Government can issue an explanation within 1 year of issue of notification/
order of exemption (from payment of tax) or notification of exemption and
such explanation shall have effect as if it was there when first such
notification or order was issued, i.e. explanation so inserted would have
retrospective effect.
Similar provisions granting power to exempt IGST have been

provided under section 6 of the IGST Act.
3. GOODS EXEMPT FROM TAX

A list of items have been notified under section
11(1) of the CGST Act, 2017/ section 6(1) of the
IGST Act, 2017. These items have been exempted
from whole of the tax.
Since GST is a tax for common man, everyday
items used by the common man have been
included in the list of exempted items.
Items such as unbranded atta/maida/besan, unpacked food grains, milk, eggs,
curd, lassi and fresh vegetables are among the items exempted from GST.
Some of the examples of the goods exempted from tax have been provided
herein1:
Live fish (0301) Fresh Milk (0401) Potatoes (0701)
1
Students may go through the complete list of goods exempt from GST on CBIC website –
www.cbic.gov.in, for knowledge purposes.

4.6 INDIRECT TAXES
Grapes (0806) Indian National Plastic Bangles (3926)

Flag (63)
4. LIST OF SERVICES EXEMPT FROM TAX
I. SPECIFIC SERVICES EXEMPT FROM CGST/IGST
Notification No. 12/2017 CT (R) dated 28.06.20172 (hereafter referred to as

“the Notification”) unless otherwise specified, has exempted the various
services wholly from CGST/IGST respectively. Each of the entries of the
exemption notification have been discussed below:
1. Charitable and religious activity related services
Entry Description of services

No.3
1 Services by an entity registered under section 12AA of the Income-tax

Act, 1961 by way of charitable activities.
13 Services by a person by way of-

(a) conduct of any religious ceremony;
(b) renting of precincts of a religious place meant for general public,
owned or managed by an entity registered as a charitable or
religious trust under section 12AA of the Income-tax Act, 1961 or a
trust or an institution registered under section 10(23C)(v) of the
Income-tax Act or a body or an authority covered under section
2
Exemption from IGST has been granted to various services vide Notification No. 9/2017 IT (R)
dated 28.06.2017. All the services exempted from CGST have also been exempted from
IGST. Apart from these, there are few additional services which have been exempted only
under IGST law. Such services will be discussed at the Final Level.
3
Entry Nos. mentioned herein correspond to entries in Notification No. 12/2017 CT (R)
dated 28.06.2017. However, these entry no.s have been given only for reference purposes
and are not relevant for examination purpose.

10(23BBA) of the said Income-tax Act.

However, nothing contained in entry (b) of this exemption shall apply
to-
(i) renting of rooms where charges are ` 1,000 or more per day;
(ii) renting of premises, community halls, kalyanmandapam or open
area, and the like where charges are ` 10,000 or more per day;
(iii) renting of shops or other spaces for business or commerce where
charges are ` 10,000 or more per month.
60 Services by a specified organisation in respect of a religious

pilgrimage facilitated by the Government of India, under bilateral
arrangement.
80 Services by way of training or coaching in recreational activities

relating to-
(a) arts or culture, or
(b) sports by charitable entities registered under section 12AA of the
Income-tax Act.
ANALYSIS
A. SERVICES PROVIDED BY CHARITABLE/RELIGIOUS TRUST
Entry 1 of the Notification exempts services provided by an entity registered
under section 12AA of the Income-tax Act, 1961 by way of charitable activities.
Thus, in order to claim exemption under Entry 1 of the Notification, following two
conditions must be satisfied:-
(i) The entity is registered under section 12AA of the Income tax Act, 1961, and
(ii) The entity carries out one or more of the specified charitable activities.
There could be many services provided by charitable and religious trusts -
registered under section 12AA of the Income-tax Act, 1961 - which are not
covered by the definition of charitable activities and hence, such services would
attract GST. For instance, grant of advertising rights to a person on the premises
of the charitable/religious trust or on publications of the trust, or granting
admission to events, functions, celebrations, shows against admission tickets or
fee etc. would attract GST.

4.8 INDIRECT TAXES
Let us understand the meaning of term ‘charitable activities’. The term

‘charitable activities’ mean activities relating to-
(i) PUBLIC HEALTH by way of-
(A) care or counseling of
(I) terminally ill persons or persons with severe physical or mental
disability;
(II) persons afflicted with HIV or AIDS;
(III) persons addicted to a dependence-forming substance such as
narcotics drugs or alcohol; or
(B) public awareness of preventive health, family planning or prevention of
HIV infection;
(ii) ADVANCEMENT OF RELIGION, spirituality or yoga;
(iii) ADVANCEMENT OF EDUCATIONAL PROGRAMMES/SKILL DEVELOPMENT
relating to,-
(A) abandoned, orphaned or homeless children;
(B) physically or mentally abused and traumatized persons;
(C) prisoners; or
(D) persons over the age of 65 years residing in a rural area;
(iv) PRESERVATION OF ENVIRONMENT including watershed, forests & wildlife.
Management of educational institutions by charitable trusts
 Activities of schools, colleges or any other educational institutions run by
charitable trusts by way of education or skill development of abandoned,
orphans, homeless children, physically or mentally abused persons,
prisoners or persons over age of 65 years or above residing in a rural area,
will be considered as charitable activities and income from such supplies will
be wholly exempt from GST.
 The term rural area means the area comprised in a village as defined in land
revenue records, excluding the area under any municipal committee,
municipal corporation, town area committee, cantonment board or notified
area committee; or any area that may be notified as an urban area by the
Central Government or a State Government.

 Activities of a school, college or an institution run by a trust which do not

come within the ambit of charitable activities will not be exempt under
Entry 1 of the Notification. However, such activities may be exempt under
Entry 66 of the Notification [discussed later in this chapter] provided the
school, college or institution qualifies as an 'educational institution'.
Hostel accommodation provided by trusts
 Hostel accommodation services provided by trusts to students do not fall
within the ambit of charitable activities as defined above.
 However, accommodation service in hostels including such services
provided by trusts having declared tariff4 below ` 1,000 per day is
exempt under Entry 14 of the Notification [discussed later in this
chapter] [Circular No. 32/06/2018-GST dated 12.02.2018].
Religious yatras or pilgrimage
 Religious Yatras/pilgrimage organised by any charitable or religious trust are
not exempt. Further, services of transportation of passengers for a
pilgrimage by the charitable trust are not exempt from GST.
 Only such services of religious pilgrimage as are provided by specified
organization in respect of a religious pilgrimage facilitated by the
Government of India (GoI), under bilateral arrangement, are exempt from
GST. [See Entry 60 in above table]. The term specified organization as
referred herein means-
 Kumaon Mandal Vikas Nigam Limited (KMVN), a Government of
Uttarakhand Undertaking; or
 ‘Haj Committee of India’ or ‘State Haj Committee including Joint State
Committee’.
 Hence, as per Entry 60, the services provided by the Haj Committee and
KMVN in relation to a religious pilgrimage facilitated by GoI are not liable
to GST.
Arranging yoga and meditation camp by charitable trusts
 As discussed above, services provided by entity registered under section
12AA of the Income-tax Act, 1961 by way of advancement of religion,
4
The words “declared tariff” have been substituted with words “value of supply” in said entry.

4.10 INDIRECT TAXES
spirituality or yoga are exempt as such activities are covered in definition of

charitable activities.
 Fee or consideration charged in any other form from the
participants for participating in a religious, yoga or
meditation programme or camp meant for advancement of
religion, spirituality or yoga shall be exempt.
 Residential programmes or camps where the fee charged
includes cost of lodging and boarding shall also be exempt as long as the
primary and predominant activity, objective and purpose of such residential
programmes or camps is advancement of religion, spirituality or yoga.
 However, if charitable or religious trusts merely or primarily provide
accommodation or serve food and drinks against consideration in any form
including donation, such activities will be taxable. Similarly, activities such as
holding of fitness camps or classes such as those in aerobics, dance, music
etc. will be taxable.
Bhavyajyoti Foundation, a charitable trust registered under section
12AA of the Income-tax Act, 1962, has organized a ‘Meditation Camp’
for the old age people. GST is exempt on the same as services
provided by entity registered under section 12AA of the Income-tax Act, 1961 by
way of advancement of religion, spirituality or yoga are exempt.
Hospitals managed by charitable trusts
Exemption available to health care services under Entry 74 of the Notification
[discussed later in this chapter] is also applicable to the services provided by a
clinical establishment, an authorised medical practitioner or paramedics of a
religious or charitable trust also.
Training or coaching in recreational activities
Besides charitable activities, services provided by way of training or coaching in
recreational activities relating to arts or culture or sports, by a charitable entity
registered under section 12AA of Income-tax Act are also exempt under Entry 80.
The term ‘recreational activities’ is very wide. However, under this entry, the
scope of training or coaching in recreational activities is restricted to the area of:-
(i) arts
(ii) culture

(iii) sports
Hence, GST is payable on the training or coaching in recreational activities in
the areas other than arts, culture or sports.
Further, training or coaching relating to all forms of arts, culture or sports is
covered under this entry. In other words, the said exemption is available to
coaching or training relating to all forms of dance, music, painting, sculpture
making, literary activities, theatre, sports etc. of any school, tradition or language
or any of the sports.
GST on services provided TO charitable trusts
Services provided to charitable or religious trusts are not outside the ambit of
GST. Unless specifically exempted, all goods and services supplied to charitable or
religious trusts are leviable to GST.
B. CONDUCT OF ANY RELIGIOUS CEREMONY
Going through Entry 13(a) of the Notification, it can be
inferred that the amount charged, by whatever name called,
for the conduct of any religious ceremony is exempt from GST.
The exemption is applicable to conduct of religious
ceremonies of all religions.
C. RENTING OF PRECINCTS OF RELIGIOUS PLACE MEANT FOR GENERAL
PUBLIC
 Entry 13(a) of the Notification exempts renting of precincts of a religious
place meant for general public owned by an entity registered under specified
sections of the Income Tax Act subject to the consideration charged for such
renting not exceeding the prescribed ceilings as given in said entry. Let us
understand the meaning of the terms ‘religious place’ and ‘general public’
referred herein.
 Religious place means a place which is primarily meant for conduct
of prayers or worship pertaining to a religion, meditation, or
spirituality.
 General public means the body of people at large sufficiently defined by
some common quality of public or impersonal nature.
 The word 'precincts' is not to be interpreted in a restricted manner and all
immovable property of the religious place located within the outer
boundary walls of the complex (of buildings and facilities) in which the

4.12 INDIRECT TAXES
religious place is located, is to be considered as being located in the

precincts of the religious place. The immovable property located in the
immediate vicinity and surrounding of the religious place and owned by the
religious place or under the same management as the religious place, may be
considered as being located in the precincts of the religious place and
extended the benefit of above exemption.
 The exemption is applicable to renting of precincts of religious places of
all religions.
Activities other than conduct of religious ceremony and renting of precincts of
religious place will be taxable irrespective of the manner or the name in which the
consideration is received. For example, if donation is received with specific
instructions/mutual understanding between the donor and the receiver that
religious place will host an advertisement promoting business of the donor, such
donation will be subject to GST. However, if donation is received without such
instructions or without a quid pro quo in the form of supply of any goods or
services by the receiver to the donor, it shall not be subject to GST5.
2. Agriculture related services

No.
24 Services by way of loading, unloading, packing, storage or

warehousing of rice.
24A Services by way of warehousing of minor forest produce.
53A Services by way of fumigation in a warehouse of

agricultural produce.
54 Services relating to cultivation of plants and rearing

of all life forms of animals, except the rearing of
horses, for food, fibre, fuel, raw material or other
similar products or agricultural produce by way of—
5
Discussion is primarily based on CBIC GST Flyer – Chapter 39 - GST on Charitable and
Religious Trusts and other clarifications

(a) agricultural operations directly related to production of any

agricultural produce including cultivation, harvesting, threshing,
plant protection or testing;
(b) supply of farm labour;
(c) processes carried out at an agricultural farm including tending,
pruning, cutting, harvesting, drying, cleaning, trimming, sun
drying, fumigating, curing, sorting, grading, cooling or bulk
packaging and such like operations which do not alter the
essential characteristics of agricultural produce but make it only
marketable for the primary market;
(d) renting or leasing of agro machinery or vacant land with or
without a structure incidental to its use;
(e) loading, unloading, packing, storage or warehousing of
agricultural produce;
(f) agricultural extension services;
(g) services by any Agricultural Produce Marketing Committee or
Board or services provided by a commission agent for sale or
purchase of agricultural produce.
(h) services by way of fumigation in a warehouse of agricultural
produce.
55 Carrying out an intermediate production process as job work in

relation to cultivation of plants and rearing of all life forms of animals,
except the rearing of horses, for food, fibre, fuel, raw material or other
similar products or agricultural produce.
55A Services by way of artificial insemination of livestock (other than

horses).
ANALYSIS
ENTRY 54
 ‘Services relating to cultivation of plants and rearing of all life forms of

animals, except the rearing of horses, for food, fibre, fuel, raw material
or other similar products’ under Entry 54 include activities like breeding of

4.14 INDIRECT TAXES
fish (pisciculture), rearing of silk worms (sericulture), cultivation of ornamental

flowers (floriculture) and horticulture, forestry, etc.
 Further, the term ‘agricultural produce’ means any produce
out of cultivation of plants and rearing of all life forms of
animals, except the rearing of horses, for food, fibre, fuel, raw
material or other similar products, on which either no
further processing is done or such processing is done as is
usually done by a cultivator or producer which does not
alter its essential characteristics, but makes it marketable
for primary market.
 Thus, in terms of the definition of agricultural produce,
only such processing is covered as is usually done by
cultivator producers which does not alter its essential
characteristics but makes it marketable for primary market.
Consequently, following processes are liable to GST:-
(a) Process which alters the essential characteristics of the agricultural
produce: For instance, potato chips or tomato ketchup are manufactured
through processes which alter the essential characteristic of farm
produce (potatoes and tomatoes in this case).
(b) Process which makes agricultural produce marketable in the retail
market: The processes of grinding, sterilizing, extraction packaging in
retail packs of agricultural products, which make the agricultural
products marketable in retail market, would NOT be covered in this entry.
Only such processes are covered in this entry which makes agricultural
produce marketable in the primary market.
Renting or leasing of agro machinery or vacant land
 Item (d) of the entry exempts renting or leasing of agro
machinery or vacant land with or without a structure
incidental to its use. Consequently, leasing of vacant land
with a green house or a storage shed which is incidental to its use for
agriculture is covered in this entry and thus, is not liable to GST.
Agricultural extension services
 Item (f) of the entry exempts Agricultural extension services which mean
application of scientific research and knowledge to agricultural practices
through farmer education or training.

Agricultural Produce Marketing Committee services

 Services by any Agricultural Produce Marketing Committee or Board or
services provided by a commission agent for sale or purchase of agricultural
produce are not liable to GST. Agricultural Produce Marketing Committee or
Board means any committee or board set up under a State Law for the time
being in force for purpose of regulating the marketing of agricultural
produce.
 Such marketing committees or boards have been set
up in most of the States and provide a variety of
support services for facilitating the marketing of
agricultural produce by provision of facilities and
amenities like, sheds, water, light, electricity, grading
facilities etc. They also take measures for prevention
of sale or purchase of agricultural produce below the minimum support price.
APMCs collect market fees, license fees, rents etc.
 Services provided by such Agricultural Produce Marketing Committee or
Board are covered in item (g) of entry 54. However, any service provided by
such bodies which is not directly related to cultivation of plants and rearing
of all life forms of animals, except the rearing of horses, for food, fibre, fuel,
raw material or other similar products or agricultural produce, will be liable to
tax e.g. renting of shops or other property.
Warehousing of agriculture produce
 Item (e) of the entry exempts loading, unloading, packing, storage or
warehousing of agricultural produce. In this regard, following may be noted:
 Processed Tea and coffee
Tea used for making the beverage, such as
black tea, green tea, white tea is a processed
product made in tea factories after carrying out
several processes, such as drying, rolling,
shaping, refining, oxidation, packing etc. on green leaf and is
the processed output of the same. Thus, green tea leaves and not tea is the
“agricultural produce” eligible for exemption available for loading,
unloading, packing, storage or warehousing of agricultural produce. Same is
the case with coffee obtained after processing of coffee beans.

4.16 INDIRECT TAXES
 Jaggery
Similarly, processing of sugarcane into jaggery
changes its essential characteristics. Thus,
jaggery is also not an agricultural produce.
 Pulses
Pulses commonly known as dal are obtained after
dehusking or splitting or both. The process of dehusking
or splitting is usually not carried out by farmers or at
farm level but by the pulse millers. Therefore pulses
(dehusked or split) are also not agricultural produce. However, whole pulse
grains such as whole gram, rajma etc. are covered in the definition of
In view of the above, it is inferred that processed products such as tea (i.e. black
tea, white tea etc.), processed coffee beans or powder, pulses (dehusked or split),
jaggery, processed spices, processed dry fruits, processed cashew nuts etc. fall
outside the definition of agricultural produce and therefore the exemption from
GST is not available to their loading, packing, warehousing etc. [Circular No.
16/16/2017 GST dated 15.11.2017].
ENTRY 55
Custom milling of paddy into rice

Milling of paddy is not an intermediate production process in
relation to cultivation of plants. It is a process carried out after
the process of cultivation is over and paddy has been harvested. Further,
processing of paddy into rice is not usually carried out by cultivators, but by rice
millers. Milling of paddy into rice also changes its essential characteristics.
Therefore, milling of paddy into rice cannot be considered as
an intermediate production process in relation to cultivation
of plants for food, fibre or other similar products or
In view of the above, it is clarified that milling of paddy into rice is not eligible
for exemption under Entry 55 [Circular No. 19/19/2017 GST dated 20.11.2017].

3. Education services

No.
66 Services provided -
(a) by an educational institution to its students, faculty and staff;
(aa)by an educational institution by way of conduct of entrance
examination against consideration in the form of entrance fee;
(b) to an educational institution, by way of,-
(i) transportation of students, faculty and staff;
(ii) catering, including any mid-day meals scheme sponsored by
the Central Government, State Government or Union territory;
(iii) security or cleaning or house-keeping services performed in
such educational institution;
(iv) services relating to admission to, or conduct of examination by,
such institution;
(v) supply of online educational journals or periodicals.
However, nothing contained in sub-items (i), (ii) and (iii) of item (b)
shall apply to an educational institution other than an institution
providing services by way of pre-school education and education up to
higher secondary school or equivalent.
Further, nothing contained in sub-item (v) of item (b) shall apply to
an institution providing services by way of,-
(i) pre-school education and education up to higher secondary
school or equivalent; or
(ii) education as a part of an approved vocational education course.
67 Services provided by the Indian Institutes of

Management, as per the guidelines of the
Central Government, to their students, by
way of the following educational
programmes, except Executive
Development Programme: -

4.18 INDIRECT TAXES
(a) 2 year full time PGPM (Post Graduate Programmes in

Management) for the Post Graduate Diploma in Management, to
which admissions are made on the basis of Common Admission Test
(CAT) conducted by the Indian Institute of Management;
(b) fellow programme in Management;
(c) 5 year integrated programme in Management.
ANALYSIS
“Education” is not defined in the CGST Act, 2017, but as
per Apex Court decision in “Loka Shikshana Trust v. CIT”,
education is process of training and developing
knowledge, skill and character of students by normal
schooling.
Taxing the Education Sector has always been a sensitive issue, as education is
seen more as a social activity than a business one. The Government has a
constitutional obligation to provide free and compulsory elementary education to
every child. Thus, to promote education, it would be beneficial if educational
services are exempted from tax.
However, commercialization of education is also a reality.
The distinction between core and ancillary education is
blurring and education is now an organised industry with
huge revenues. The GST law tries to maintain a fine
balance whereby core educational services provided and received by educational
institutions are exempt and other services are sought to be taxed.
Exemption from GST granted vide Entry 66 and entry 67 stated above can be
discussed under two broad categories – education related output services and
education related input services. The discussion in succeeding paras
fundamentally revolves around these two areas:
 Services provided by an educational institution to its

students, faculty and staff and by way of conduct of
entrance examination against consideration in the form
of entrance fee are exempt from GST. Since exemption is

with respect to these services provided BY ‘educational institution’, it is

important to analyse the term EDUCATIONAL INSTITUTION:
Educational institution means an institution providing services by way of,-
(i) pre-school education and education up to higher secondary school or
equivalent;
(ii) education as a part of a curriculum for obtaining a qualification
recognised by any law for the time being in force;
(iii) education as a part of an approved vocational education course.
 Sub-clause (ii) : The term ‘education as a part of curriculum for
obtaining a qualification recognised by any law for the
time being in force’ means the education delivered as ‘a
part’ of the curriculum that has been prescribed for
obtaining a qualification prescribed by law. Thus, in order to
be covered under Entry 66, the education service should be
delivered as part of curriculum. In view of same, it can be
inferred that:
Education services provided Covered in Reasons

sub-clause (ii)
Conduct of degree courses

by colleges, universities or  These courses lead to
grant of qualifications
institutions recognized by law
Training given by
coaching institutes
private
 Such training does not
lead to grant of a
recognized qualification.
Education as a part of a
prescribed curriculum for  Only a course recognized
by an Indian law are
obtaining a qualification covered herein.
recognized by a law of a
foreign country
 Sub-clause (iii) covers institutions providing services by way of education as

a part of approved vocational course. An approved vocational education

4.20 INDIRECT TAXES
course means, -
a course run by an ITI/ ITC** affiliated to the National
Council for Vocational Training (NCVT) or State Council for
Vocational Training (SCVT) offering courses in designated
trades notified under the Apprentices Act, 1961 or
a Modular Employable Skill Course, approved by the
NCVT, run by a person registered with the Directorate
General of Training, Ministry of Skill Development and
Entrepreneurship.
**Industrial Training Institute/ Industrial Training Centre
 It is to be noted that only those institutions whose operations conform to the

specifics given in the definition of the term “educational institution”, would
be treated as one entitled to avail exemptions provided by the law.
 This would mean that private coaching centres or other unrecognized
institutions, though self-styled as educational institutions, would not be
treated as educational institutions under GST and thus cannot avail
exemptions available to an educational institution.
 Private ITls qualify as an educational institution if
the education provided by these ITls is approved as
vocational educational course as defined above.
It implies that services provided by a private ITI
only in respect of designated trades notified under
Apprenticeship Act, 1961 are exempt** from GST under Entry
66.
**Services in other than designated trades are liable to GST
In case of designated trades, services provided by a private ITI
by way of conduct of entrance examination against
consideration in the form of entrance fee is exempt from GST
under Entry 66(aa).
Further, in respect of such designated trades, services
provided to an educational institution, by way of, services
relating to admission to or conduct of examination by a
private ITI will also be exempt under Entry 66(b)(iv). However,
in case of other than designated trades in private ITls, GST

shall be payable on provision of said services.

As far as Government ITls are concerned, services provided by a
Government ITI to individual trainees/students, is exempt under Entry 6
as these are in the nature of services provided by the Central or State
Government to individuals [Entry 6 is discussed in detail subsequently].
Such exemption in relation to services provided by Government ITI would
cover both - vocational training and examinations conducted by these
Government ITls [Circular No. 55/29/2018 GST dated 09.08.2018].
It is important to note that the Central and State Educational Boards shall
be treated as ‘Educational Institution’ for the limited purpose of providing
services by way of conduct of examination to the students.
 By virtue of Entry 66, educational institutions up to Higher Secondary School
level do not suffer GST on output services and also on most of the important
input services. However, some of the input services like canteen, repairs and
maintenance etc. provided by private players to educational institutions are
subject to GST.
 Similarly, output services related to the specified courses provided by IIM’s
would be exempt. Executive Development Programs run by the IIM’s are
specifically excluded, hence such courses would be subject to GST.
Composite and mixed supply in so far as education is concerned
 Boarding schools provide service of education coupled
with other services like providing dwelling units for
residence and food. This may be a case of composite
supply if the charges for education and lodging and
boarding are inseparable. Their taxability will be
determined in terms of the principles laid down in section 2(30) read with
section 8 of the CGST Act, 2017.
Such services in the case of boarding schools are naturally bundled and
supplied in the ordinary course of business. Therefore, the bundle of services
will be treated as consisting entirely of the principal supply, which means the
service which forms the predominant element of such a bundle.
In this case since the predominant nature is determined by the service of
education, the other service of providing residential dwelling will not be
considered for the purpose of determining the tax liability and in this case
the entire consideration for the supply will be exempt.

4.22 INDIRECT TAXES
 Let’s take another example where a course in a college leads to dual

qualification only one of which is recognized by law. Would service
provided by the college by way of such education be covered by the
exemption notification? Provision of dual qualifications is in the nature of two
separate services as the curriculum and fees for each of such qualifications
are prescribed separately. Service in respect of each qualification would,
therefore, be assessed separately.
If an artificial bundle of service is created by clubbing two courses together,
only one of which leads to a qualification recognized by law, then by
application of the rule of determination of taxability of a supply which is not
bundled in the ordinary course of business, it shall be treated as a mixed
supply as per provisions contained in section 2(74) read with section 8 of the
CGST Act, 2017. The taxability will be determined by the supply which attracts
highest rate of GST.
 However, incidental auxiliary courses provided by way of hobby classes
or extra-curricular activities in furtherance of overall well-being will be
an example of naturally bundled course, and therefore treated as composite
supply. One relevant consideration in such cases will be the amount of extra
billing being done for the unrecognized component viz-a-viz the recognized
course. If extra billing is being done, it may be a case of artificial bundling of
two different supplies, not supplied together in the ordinary course of
business, and therefore will be treated as a mixed supply, attracting the rate
of the higher taxed component for the entire consideration.
College Hostel Mess services
 Educational institutions generally have mess facility for
providing food to their students and staff. Such facility is
(i) either run by the institution/ students themselves or (ii)
is outsourced to a third person.
 If the catering services is one of the services provided by an educational
institution to its students, faculty and staff and the said educational
institution is covered by the definition of ‘educational institution’ as given
above, then the same is exempt. [covered under item (a) of entry 66 of the
Notification].
 If the catering services, i.e., supply of food or drink in a mess or canteen, is
provided by anyone other than the educational institution, i.e. the
institution outsources the activity to an outside contractor, then it is a

supply of service to the concerned educational institution and attracts GST

**[Circular No. 28/02/2018 GST dated 08.01.2018].
**Note: It may be noted that said services when provided to an educational
institution providing pre-school education or education up to higher
secondary school or equivalent are exempt from tax.
 Regarding, input services, it may be noted that where output services are
exempted, the educational institutions may not be able to
avail credit of tax paid on the input side. The categories of
services known as auxiliary education services, which
educational institutions ordinarily carry out themselves but
may obtain as outsourced services from any other person,
have been exempted [Sub-items (i) to (v) of item (b) of
Entry 66].
 Auxiliary education services other than specified in item (b)
would not be entitled to any exemption. The exemption
also comes with a rider. Auxiliary services of (i) transportation of students,
faculty, and staff, (ii) catering including any mid-day meals scheme sponsored
by Government and (iii) security or cleaning or housekeeping services are
exempt only if such auxiliary education services are provided to educational
institutions providing services by way of education up to higher secondary or
equivalent, (from pre-school to HSC). Thus, if such auxiliary education
services are provided to educational institutions providing degree or higher
education, the same would not be exempt.
 Similarly, services of supply of online educational journals/periodicals are
exempt only if they are provided to an institution providing services by way
of education as a part of a curriculum for obtaining a qualification recognised
by any law for the time being in force.
 Educational institutes such as IITs, IIMs charge a fee from prospective
employers like corporate houses/MNCs, who come to the institutes for
recruiting candidates through campus interviews in relation to campus
recruitments. Such services shall also be liable to tax6.
6
The discussion in the foregoing paras is primarily based on CBIC Flyer - Chapter 40 – ‘GST on
Education Services’ unless otherwise specified.

4.24 INDIRECT TAXES
4. Health care services

No.
46 Services by a veterinary clinic in relation to health care of animals or

birds.
74 Services by way of-

(a) health care services by a clinical
establishment, an authorised medical
practitioner or para-medics;
(b) services provided by way of transportation
of a patient in an ambulance, other than
those specified in (a) above.
73 Services provided by the cord blood banks by way of preservation of

stem cells or any other service in relation to such preservation.
ANALYSIS
Entry 74 - Health care services by a clinical establishment, an
authorised medical practitioner or para-medics are exempt
from GST [Entry 74(a) of the Notification]. The term ‘health
care services’ is defined as follows:
Health care services
 means any service by way of diagnosis or treatment or care for illness, injury,
deformity, abnormality or pregnancy in any recognised system of
medicines in India and
 includes services by way of transportation of
the patient to and from a clinical
establishment, but
 does not include hair transplant or cosmetic or plastic surgery, except when
undertaken to restore or to reconstruct anatomy or functions of body affected
due to congenital defects, developmental abnormalities, injury or trauma.

As it is apparent from the definition of health care services, only services in

recognized systems of medicines in India are exempt under this entry.
Following systems of medicines are the recognized systems of medicines in
India7:-
 Allopathy
 Yoga
 Naturopathy
 Ayurveda
 Homeopathy
 Siddha
 Unani
 Any other system of medicine that may be recognized by Central Government
Let us now understand the meaning of terms - ‘clinical establishment’, ‘authorised
medical practitioner’ and ‘paramedics’.
Clinical establishment: means a hospital, nursing home, clinic,
sanatorium or any other institution by, whatever name called,
that offers services or facilities requiring diagnosis or
treatment or care for illness, injury, deformity, abnormality or
pregnancy in any recognised system of medicines in India, or a
place established as an independent entity or a part of an establishment to
carry out diagnostic or investigative services of diseases. Thus, diagnostic or
investigative services of diseases provided by pathological labs are not liable
to GST.
Authorised medical practitioner: means a medical practitioner
registered with any of the councils of recognised system of
medicines established/recognised by law in India & includes a
medical professional having requisite qualification to practice in
any recognised system of medicines in India as per any law for
the time being in force.
Further, Paramedics are trained health care professionals, for
example, nursing staff, physiotherapists, technicians, lab assistants
etc. Services by them in a clinical establishment would be in the
capacity of employee and not provided in independent capacity
7
Section 2(h) of the Clinical Establishments Act, 2010

4.26 INDIRECT TAXES
and will thus be considered as services by such clinical establishment. Similar

services in independent capacity are also exempted.
Rent of rooms provided to in-patients
 Rent of rooms provided to in-patients in hospitals is exempt [Circular No.
27/01/2018 GST dated 04.01.2018].
Services provided by senior doctors/ consultants/ technicians
 Hospitals hire senior doctors/ consultants/ technicians independently. Such
persons do not have any contract with the patient. Hospitals pay them
consultancy charges and there is no employer-employee relationship
between them.
 It is clarified by CBIC that services provided by such senior doctors/
consultants/ technicians, whether employees or not, are healthcare services
which are exempt from GST [Circular No. 32/06/2018 GST dated
12.02.2018].
Amount charged by hospitals from the patients
 Hospitals charge the patients, say, ` 10,000/- and pay
to the consultants/technicians only ` 7,500/- and keep
the balance for providing ancillary services which
include nursing care, infrastructure facilities,
paramedic care, emergency services, checking of
temperature, weight, blood pressure, etc. Going through the definition of
health care services [given above], it can be inferred that hospitals also
provide healthcare services.
 The entire amount charged by them from the patients including the
retention money and the fee/payments made to the doctors etc., is towards
the healthcare services provided by the hospitals to the patients and is
exempt [Circular No. 32/06/2018 GST dated 12.02.2018].
Food supplied to the patients
 Health care services provided by the clinical
establishments will include food supplied to the patients;
but such food may be prepared by the canteens run by the
hospitals or may be outsourced by the hospitals from
outdoor caterers.
 When outsourced, there is no ambiguity that the suppliers shall charge tax

as applicable and hospital will get no ITC.

 If hospitals have their own canteens and prepare their own food; then no
ITC will be available on inputs including capital goods and in turn if they
supply food to the doctors and their staff; such supplies, even when not
charged, may be subjected to GST.
 Food supplied to the in-patients as advised by the doctor/nutritionists is a
part of composite supply of healthcare and not separately taxable.
 Other supplies of food by a hospital to patients (not admitted) or their
attendants or visitors are taxable [Circular No. 32/06/2018 GST dated
12.02.2018].
Services other than health care services in clinical establishment’s premises
 Supply of services other than healthcare services such as renting of shops,
auditoriums in the premises of the clinical establishment, display of
advertisements etc. will be subject to GST8.
5. Services provided by Government

No.
4 Services by governmental authority by way of any activity in relation

to any function entrusted to a municipality under article 243 W of
the Constitution are exempt.
5 Services by a governmental authority by way of any activity in

relation to any function entrusted to a Panchayat under article 243G
of the Constitution.
6 Services by the Central Government, State Government, Union territory

or local authority excluding the following services—
(a) services by the Department of Posts by way of speed post,
express parcel post, life insurance, and agency services provided
to a person other than the Central Government, State
Government, Union territory;
8
As clarified by the CBIC GST Flyer – Chapter 39 - GST on Charitable and Religious Trusts

4.28 INDIRECT TAXES
(b) services in relation to an aircraft or a vessel, inside or outside the

precincts of a port or an airport;
(c) transport of goods or passengers; or
(d) any service, other than services covered under entries (a) to (c)
above, provided to business entities.
7 Services provided by the Central Government, State Government,

Union territory or local authority to a business entity with an
aggregate turnover of up to ` 20 lakh (` 10 lakh in case of a Special
Category States) in the preceding FY.
Explanation - For the purposes of this entry, it is hereby clarified that
the provisions of this entry shall not be applicable to following
services:-
(i) item (a), (b) and (c) of Entry 6 above.
(ii) services by way of renting of immovable property.

Union territory or local authority to another Central Government,
State Government, Union territory or local authority.
However, nothing contained in this entry shall apply to services referred
in item (a), (b) and (c) of Entry 6 above.
9 Services provided by Central Government, State Government, Union

territory or a local authority where the consideration for such
services does not exceed ` 5,000.
However, nothing contained in this entry shall apply to services referred
in item (a), (b) and (c) of Entry 6 above
Further, in case where continuous supply of service* is provided by
the Central Government, State Government, Union territory or a local
authority, the exemption shall apply only where the consideration
charged for such service does not exceed ` 5,000 in a FY.
*as defined in section 2(33) of the CGST Act, 2017
9C Supply of service by a Government Entity to Central Government,

State Government, Union territory, local authority or any person

specified by Central Government, State Government, Union

territory or local authority against consideration received from
Central Government, State Government, Union territory or local
authority, in the form of grants.
9D Services by:
an old age home
run by:
 Central Government, State Government or
 an entity registered under section 12AA of the Income-tax Act,
1961
to its residents (aged 60 years or more)
against consideration upto ` 25,000 per month per member,
provided that the consideration charged is inclusive of charges for
boarding, lodging and maintenance.
34A Services supplied by Central Government, State Government, Union

territory to their undertakings or Public Sector Undertakings(PSUs)
by way of guaranteeing the loans taken by such undertakings or
PSUs from the financial institutions.

Union territory or local authority by way of-
(a) registration required under any law for the time being in force;
(b) testing, calibration, safety check or certification relating to protection
or safety of workers, consumers or public at large, including fire
license, required under any law for the time being in force.

Union territory or local authority by way of issuance of passport,
visa, driving license, birth certificate or death certificate.

Union territory or local authority by way of tolerating non-
performance of a contract for which consideration in the form of
fines or liquidated damages is payable to the Central Government,

4.30 INDIRECT TAXES
State Government, Union territory or local authority under such

contract.

Union territory or local authority by way of assignment of right to
use natural resources to an individual farmer for cultivation of
plants and rearing of all life forms of animals, except the rearing of
horses, for food, fibre, fuel, raw material or other similar products.

Union territory by way of deputing officers after office hours or on
holidays for inspection or container stuffing or such other duties in
relation to import export cargo on payment of Merchant Overtime
charges.
65B Services supplied by a State Government to Excess Royalty

Collection Contractor (ERCC) by way of assigning the right to
collect royalty on behalf of the State Government on the mineral
dispatched by the mining lease holders.
However, at the end of the contract period, ERCC shall submit an
account to the State Government and certify that the amount of
GST deposited by mining lease holders on royalty is more than the
GST exempted on the service provided by State Government to the
ERCC of assignment of right to collect royalty and where such
amount of GST paid by mining lease holders is less than the
amount of GST exempted, the exemption shall be restricted to such
amount as is equal to the amount of GST paid by the mining lease
holders and the ERCC shall pay the difference between GST
exempted on the service provided by State Government to the ERCC
of assignment of right to collect royalty and GST paid by the
mining lease holders on royalty.
Explanation- Mining lease holder means a person who has been
granted mining lease, quarry lease or license or other mineral
concession under the Mines and Minerals (Development and
Regulation) Act, 1957, the rules made thereunder or the rules
made by a State Government under section 15(1) of the Act.

ANALYSIS
Relevant definitions are as under:

Business entity: means any person
carrying out business.
Governmental authority: means
an authority or a board or any other
body,
(i) set up by an Act of Parliament or
a State Legislature; or
(ii) established by any Government,
with 90%, or more participation by way of equity or control, to carry out any
function entrusted to a Municipality under article 243W of the Constitution or
to a Panchayat under article 243G of the Constitution.
Government Entity: means an authority or a board or any other body
including a society, trust, corporation,
(i) set up by an Act of Parliament or State Legislature; or
(ii) established by any Government,
with 90%, or more participation by way of equity or control, to carry out a
function entrusted by the Central Government, State Government, Union
Territory or a local authority.
Aircraft: means any machine which can derive support in the atmosphere
from reactions of the air, other than reactions of the air against the earth's
surface and includes balloons, whether fixed or free, airships, kites, gliders
and flying machines [Section 2(1) of the Aircraft Act, 1934].
Airport: means a landing and taking off area for aircrafts, usually with
runways and aircraft maintenance and passenger facilities and includes
aerodrome as defined in section 2(2) of the Aircraft Act, 1934 [Section 2(b) of the
Airports Authority of India Act, 1994].

4.32 INDIRECT TAXES
Exemption to services provided by Government

 Not all services provided by the Government or a local authority are not
exempt from tax. As for instance, services namely:
(a) services by the Department of Posts by way of speed post,
express parcel post, life insurance, and agency services provided
to a person other than Government;
(b) services in relation to an aircraft or a vessel, inside or outside the
precincts of an airport or a port;
(c) transport of goods or passengers; or
(d) any service, other than services covered under (a) to (c) above,
provided to business entities [with aggregate turnover exceeding `20
lakh [`10 lakh in case of Special Category States] in the preceding FY].
 However, most of the services provided by the Central Government, State
Government, Union Territory or local authority are exempt from tax.
Services provided by governmental
authority by way of any activity in relation
to any function entrusted to a municipality
under Article 243W of the Constitution
and services by a governmental authority
by way of any activity in relation to any function entrusted to a Panchayat
under article 243G of the Constitution.
Meaning of Government
 As per section 2(53) of the CGST Act, 2017,
‘Government’ means the Central Government.
 Various State/ Union Territories (with State
Legislatures) GST Acts define ‘Government’ as
Government of respective State Government/ Union
Territory. For Union Territories (without State Legislatures), ‘Government’
means the Administrator or any Authority or officer authorized to act as
Administrator by the Central Government.
Meaning of local authority
 Local authority is defined in section 2(69) of the CGST Act, 2017 and means
the following:
 a “Panchayat” as defined in clause (d) of article 243 of the Constitution;

 a “Municipality” as defined in clause (e) of article 243P of the

Constitution;
 a Municipal Committee, a Zilla Parishad, a District Board, and any
other authority legally entitled to, or entrusted by the Central
Government or any State Government with the control or management
of a municipal or local fund;
 a Cantonment Board as defined in section 3 of the Cantonments Act,
2006;
 a Regional Council or a District Council constituted under the Sixth
Schedule to the Constitution;
 a Development Board constituted under article 371 of the Constitution;
or
 a Regional Council constituted under article 371A of the Constitution.
Services provided by Police/security agencies of Government to
PSUs/corporate entities/sports events held by private entities
 Services provided by Police or security agencies of Government
to PSU/private business entities are not exempt from GST.
 Such services are taxable supplies and the recipients are
required to pay the tax under reverse charge mechanism on the
amount of consideration paid to Government for such supply of services [See
the reverse charge provisions as discussed in Chapter – 3: Charge of GST].
The Karnataka Cricket Association, Bangalore requests the
Commissioner of Police, Bangalore to provide security in and
around the Cricket Stadium for the purpose of conducting the
cricket match. The Commissioner of Police arranges the required security for
an agreed consideration. In this case, services of providing security by the
police personnel are not exempt. As the services are provided by
Government, Karnataka Cricket Association is liable to pay the tax on the
consideration paid, under reverse charge mechanism.
Services provided by the Department of Posts
 The services by way of speed post, express parcel post, and life
insurance, provided to a person other than the Government or
Union territory are not exempt. The Department of Posts also
provides services like distribution of mutual funds, bonds,

4.34 INDIRECT TAXES
passport applications, collection of telephone and electricity bills on

commission basis. These services are in the nature of intermediary and
generally called agency services.
 In these services, the Department of Posts is liable to pay tax without
application of reverse charge.
 However, the following services provided by the Department of Posts are
not liable to tax:
(a) Basic mail services known as postal services such as
post card, inland letter, book post, registered post
provided exclusively by the Department of Posts to
meet the universal postal obligations.
(b) Transfer of money through money orders, operation of savings accounts,
issue of postal orders, pension payments and other such services.
Services provided by way of tolerating non-performance of a contract
 Non-performance of a contract or breach of contract is one of the conditions
normally stipulated in the Government contracts for supply of goods or
services. The agreement entered into between the parties stipulates that both
the service provider and service recipient abide by the terms and conditions
of the contract.
 In case any of the parties breach the contract for any reason including non-
performance of the contract, then such person is liable to pay damages in the
form of fines or penalty to the other party. Tolerating non-performance of
a contract is an activity or transaction which is treated as a supply of
service [as per Schedule II of CGST Act – as explained in Chapter 2 – Supply
under GST] and the person is deemed to have received the consideration
in the form of fines or penalty and is, accordingly, required to pay tax on
such amount.
 However, in case of supplies to Government, services by way of tolerating
the non-performance of contract by the supplier of service is covered
under the exemption under Entry 62 of the Notification. Thus, any
consideration received by the Government from any person or supplier for
non-performance of contract is exempted from tax.

Public Works Department of Karnataka entered into an agreement

with M/s. ABC, a construction company, for construction of its
office complex for an agreed consideration. In the agreement
dated 10.07.20XX, it was agreed by both the parties that M/s. ABC shall
complete the construction work and handover the project on or before
31.12.20XX.
It was further agreed that any breach of the terms of contract by either party
would give right to the other party to claim for damages or penalty. M/s.
ABC did not complete the construction and did not handover the project by
the specified date i.e., on or before 31.12.20XX. As per the contract, the
Department asked for damages/penalty from M/s. ABC and threatened to go
to the court if not paid. Resultantly, M/s. ABC paid an amount of `
10,00,000/- to the Department for non-performance of contract. Amount
paid by M/s. ABC to Department is exempt from payment of tax.
Services provided to a business entity located in a Special Category State
 Entry 7 of the Notification provides for exemption from payment of tax in

respect of services provided to a business entity located in a Special Category
State with a turnover up to ` 10 lakh.
 However, this exemption is not applicable to (i) services referred in item (a),
(b) and (c) of Entry 6 and (ii) services by way of renting of immovable
property. Renting in relation to immovable property means allowing,
permitting or granting access, entry, occupation, use or any such facility,
wholly or partly, in an immovable property, with or without the transfer of
possession or control of the said immovable property and includes letting,
leasing, licensing or other similar arrangements in respect of immovable
property.
A small business entity is carrying on a business relating to
consulting engineer services in Delhi. The aggregate turnover of
the entity in the preceding financial year does not exceed the limit
of ` 20 lakh in a financial year. Thus, no tax is payable on the services
received by it from Government or a local authority.

4.36 INDIRECT TAXES
6. Construction services

No.
10 Services provided by way of pure labour contracts

of construction, erection, commissioning,
installation, completion, fitting out, repair,
maintenance, renovation, or alteration of a civil
structure or any other original works pertaining to the beneficiary-led
individual house construction or enhancement under the Housing for
All (Urban) Mission or Pradhan Mantri Awas Yojana.
10A Services supplied by Electricity Distribution Utilities by way of

construction, erection, commissioning, or installation of
infrastructure for extending electricity distribution network upto
the tube well of the farmer or agriculturalist for agricultural use.
11 Services by way of pure labour contracts of construction, erection,

commissioning, or installation of original works pertaining to a single
residential unit otherwise than as a part of a residential complex.
ANALYSIS
Housing for All (Urban) Mission or Pradhan Mantri Awas Yojana (hereinafter
referred to as PMAY) is a programme launched by the Ministry of Housing and
Urban Poverty Alleviation (MoHUPA) which envisions provision of Housing for All
by 2022 when the nation completes 75 years of its independence.
The mission seeks to address the housing requirement of urban poor including
slum dwellers through following, inter alia, programme verticals:
 Slum rehabilitation of Slum Dwellers with participation of private developers
using land as a resource.
 Promotion of Affordable Housing for weaker section through credit linked
subsidy.
 Affordable Housing in Partnership with Public & Private sectors.

 Subsidy for beneficiary-led individual house construction/enhancement.

Last component of the mission is assistance to individual eligible families
belonging to Economically Weaker Section (EWS) categories to either construct
new houses or enhance existing houses on their own to cover the beneficiaries
who are not able to take advantage of other components of the mission. Such
families may avail specified amount of central assistance for construction of new
houses or for enhancement of existing users under the mission.
Entry 10 of the Notification exempts the services provided by way of pure
labour contracts of construction, erection, commissioning, installation,
completion, fitting out, repair, maintenance, renovation, or alteration of a civil
structure or any other original works pertaining to the beneficiary-led individual
house construction or enhancement under the PMAY from GST.
The term ‘original works’ means- all new constructions;
 all types of additions and alterations to abandoned or
damaged structures on land that are required to make
them workable;
 erection, commissioning or installation of plant,
machinery or equipment or structures, whether pre-fabricated or otherwise.
Entry 11 of the Notification exempts the services by way of pure labour
contracts of construction, erection, commissioning, or installation of original
works pertaining to a single residential unit otherwise than as a part of a
residential complex from GST.
The term ‘residential complex’ means any complex comprising of a building or
buildings, having more than one single residential unit. Further, ‘single
residential unit’ means a self-contained residential unit which is designed for
use, wholly or principally, for residential purposes for one family.
7. Passenger transportation services

No.
15 Transport of passengers, with or without accompanied belongings,

by –
(a) air, embarking from or terminating in an airport located in the State
of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram,

4.38 INDIRECT TAXES
Nagaland, Sikkim, or Tripura or at Bagdogra located in West

Bengal;
(b) non-air conditioned contract carriage other than radio taxi, for
transportation of passengers, excluding tourism, conducted tour,
charter or hire; or
(c) stage carriage other than air- conditioned stage carriage.
16 Services provided to the Central Government,

by way of transport of passengers with or without accompanied
belongings, by air,
embarking from or terminating at a RCS (Regional Connectivity
Scheme) airport, against consideration in the form of viability gap
funding.
However, nothing contained in this entry shall apply on or after the expiry
of a period of 3 years from the date of commencement of operations of
the RCS airport as notified by the Ministry of Civil Aviation.
17 Service of transportation of passengers, with or without accompanied

belongings, by—
(a) railways in a class other than—
(i) first class; or
(ii) an air-conditioned coach;
(b) metro, monorail or tramway;
(c) inland waterways;
(d) public transport, other than predominantly for tourism purpose, in a
vessel between places located in India; and
(e) metered cabs or auto rickshaws (including e-rickshaws).
ANALYSIS
Services of transportation of passengers are chargeable to GST. Entry 6 [Services
provided by Government - discussed earlier] specifically excludes the transport of
passengers’ services provided by the Government or local authority from its
purview, i.e. said services are liable to GST.

However, services of transportation of passengers specified in Entries 15, 16 and

17 mentioned above are exempt from GST (whether provided by Government or
otherwise) with or without accompanied belongings.
In item (d) of Entry 17 [See the table given above], the words ‘other than
predominantly for tourism purpose’ qualify the preceding words “public
transport”. This implies that the public transport by a vessel should not be
predominantly for tourism purposes.
Normal public ships or other vessels that sail between places located in India
would be covered in this entry even if some of the passengers on board are using
the service for tourism because predominantly, such service is not for tourism
purpose. However, services provided by leisure/charter vessels/a cruise ship,
predominant purpose of which is tourism, would not be covered in here even if
some of the passengers in such vessels are not tourists.
Services by way of transportation of passengers [not predominantly
for tourism purpose] on a vessel, from Kolkata to Port Blair (mainland
to island) or Port Blair to Rose Island (inter island) is covered in item
(d) of Entry 17 since such transportation is between two places located in India.
Relevant definitions of these entries are as follows:
Contract carriage: means a motor vehicle which carries a passenger or
passenger or passengers for hire or reward and is engaged under a contract,
whether expressed or implied, for the use of such vehicle as a whole for the
carriage of passengers mentioned therein and entered into by a person with
a holder of a permit in relation to such vehicle or any person authorised by
him in this behalf on a fixed or an agreed rate or sum-
(a) on a time basis, whether or not with reference to any route or distance; or
(b) from one point to another, and in either case, without stopping to pick
up or set down passengers not included in the contract anywhere during
the journey, and includes--
(i) a maxicab; and
(ii) a motor cab notwithstanding that separate fares are charged for its
passengers [Section 2(7) of Motor Vehicles Act, 1988].
Metered cab: means any contract carriage on which an automatic device, of
the type and make approved under the relevant rules by the State Transport
Authority, is fitted which indicates reading of the fare chargeable at any

4.40 INDIRECT TAXES
moment and that is charged accordingly under the conditions of its permit
issued under the Motor Vehicles Act, 1988 and the rules made thereunder
(but does not include radio taxi).
Radio taxi: means a taxi including a radio cab, by whatever name called, which
is in two-way radio communication with a central control office and is enabled
for tracking using the Global Positioning System or General Packet Radio Service;
Stage carriage: means a motor vehicle constructed or adapted to carry more
than 6 passengers excluding the driver for hire or reward at separate fares
paid by or for individual passengers, either for the whole journey or for
stages of the journey [Section 2(40) of the Motor Vehicles Act, 1988].
State Transport Undertaking: means any undertaking providing road
transport service, where such undertaking is carried on by-
i. the Central Government or a State Government;
ii. any Road Transport Corporation established under section 3 of the Road
Transport Corporations Act, 1950.
iii. any municipality or any corporation or company owned or controlled by
the Central Government or one or more State Governments, or by the
Central Government and one or more State Governments.
Explanation-For the purposes of this clause, road transport service means a
service of motor vehicles carrying passengers or goods or both by road for
hire or reward [Section 2(42) of the Motor Vehicles Act, 1988].
E-rickshaw: means a special purpose battery powered
vehicle of power not exceeding 4000 watts, having
three wheels for carrying goods or passengers, as the
case may be, for hire or reward, manufactured,
constructed or adapted, equipped and maintained in
accordance with such specifications, as may be prescribed in this behalf.
8. Goods transportation services

No.
18 Services by way of transportation of goods-

(a) by road except the services of—

(i) a goods transportation agency;
(ii) a courier agency;
(b) by inland waterways.
20 Services by way of transportation by rail or a vessel from one place

in India to another of the following goods –
(a) relief materials meant for victims of natural
or man-made disasters, calamities, accidents
or mishap;
(b) defence or military equipments;
(c) newspaper or magazines registered with the
Registrar of Newspapers;
(d) railway equipments or materials;
(e) agricultural produce;
(f) milk, salt and food grain including flours, pulses and rice; and
(g) organic manure.
Goods Transport Agency (GTA) Service
21 Services provided by a goods transport agency, by

way of transport in a goods carriage of –
(a) agricultural produce;
(b) goods, where consideration charged for the
transportation of goods on a consignment
transported in a single carriage does not exceed `1,500;
(c) goods, where consideration charged for transportation of all such
goods for a single consignee does not exceed ` 750;
(d) milk, salt and food grain including flour, pulses and rice;
(e) organic manure;
(f) newspaper or magazines registered with the Registrar of
Newspapers;
(g) relief materials meant for victims of natural or man-made
disasters, calamities, accidents or mishap; or
(h) defence or military equipments.

4.42 INDIRECT TAXES
21A Services provided by a GTA to an unregistered person, including an

unregistered casual taxable person, other than the following
recipients, namely: -
(a) any factory registered under/governed by the Factories Act, 1948; or
(b) any Society registered under the Societies Registration Act, 1860
or under any other law for the time being in force in any part of
India; or
(c) any Co-operative Society established by or under any law for the
time being in force; or
(d) any body corporate established, by or under any law for the time
being in force; or
(e) any partnership firm whether registered or not under any law
including association of persons;
(f) any casual taxable person registered under the Central Goods
and Services Tax Act or the Integrated Goods and Services Tax
Act or the State Goods and Services Tax Act or the Union
Territory Goods and Services Tax Act.
ANALYSIS
 The services of transportation of goods by road are exempt from GST under
Entry 18. Services of GTA and courier services are an exception to this
exemption. However, GTA services provided to an unregistered person
[including unregistered casual taxable person9] are exempt from GST by
virtue of Entry 21A.
 Further, GTA services provided to registered casual taxable person and
following persons, even if unregistered under GST law, are liable to tax:
(i) a factory registered under Factories Act,
(ii) society registered under Societies Act,
(iii) Co-operative society,
9
The concept of ‘casual taxable person’ has been discussed in detail in Chapter 7 - Registration

(iv) body corporate and

(v) partnership firm including AOP.
 In other words, the GTA services provided to only an unregistered individual
end consumer are exempt from GST.
 Thus, GTA services provided to:
 person registered under GST law & registered casual taxable person, and
 a factory registered under Factories Act, society registered under
Societies Act, Co-operative society, body corporate and partnership firm
including AOP – whether or not registered under GST law,
are liable to tax. Further, it is important to note that in such cases, if GTA
opts to pay tax @ 5%, the tax liability falls on said recipients under the
reverse charge mechanism. Before proceeding further, we shall now
understand the meaning of GTA:
Who is a
GTA?
Who is a GTA – Goods Transport Agency?

Let us understand the meaning of Goods Transport agency (GTA). Goods
transport agency has been defined in the Notification to mean any person who:
 provides service in relation to transport of goods by road and
 issues consignment note, by whatever name called.
 Thus, it can be seen that issuance of a consignment note is the sine-qua-
non for a supplier of service to be considered as a GTA. If such a
consignment note is not issued by the transporter, the service provider will
not come within the ambit of GTA.
 If a consignment note is issued, it indicates that the lien on the goods
has been transferred (to the transporter) and the transporter becomes
responsible for the goods till its safe delivery to the consignee. It is only the
services of such GTA, who assumes agency functions, that is being brought
into the GST net.

4.44 INDIRECT TAXES
 Individual truck/tempo operators who do not issue any consignment

note are not covered within the meaning of the term GTA. As a result, the
services provided by such individual transporters who do not issue a
consignment note will be covered by the entry at Entry 18 of Notification,
which is exempt from GST.
Hari Prasad owns a truck and operates it himself. He carries the
goods booked for his truck without issuance of consignment note.
Services provided by Hari Prasad by way of transportation of goods
by road are exempt under Entry 18 of the Notification.
Nishant owns a truck which he has rented to Sindhu and Bansal

Transport Agency - a GTA. Services by way of giving on hire a
means of transportation [truck in the given case] of goods to a GTA
[Sindhu and Bansal Transport Agency], are exempt from tax vide
Entry 22 of the Notification and not vide Entry 18.
 Consignment note means a document, issued by a
GTA against the receipt of goods for the purpose of
transport of goods by road in a goods carriage, which
Consignment
is serially numbered, and contains:
Note
 the name of the consignor and consignee,
 registration number of the goods carriage in which
the goods are transported,
 details of the goods transported,
 details of the place of origin and destination,
 person liable for paying tax whether consignor, consignee or GTA10.
Significance of the term ‘in relation to’ in the definition of GTA
The use of the phrase ‘in relation to’ has extended
the scope of the definition of GTA. It includes not
only the actual transportation of goods, but also
various intermediary and ancillary services, such as,
loading/ unloading, packing/ unpacking, transhipment
and temporary warehousing, which are provided in the
10
Meaning of GTA and consignment note elaborated in foregoing paras is primarily based on
CBIC GST flyer - Chapter 38 – Goods Transport Agency in GST.

course of transport of goods by road. These services are not provided as

independent services but as ancillary to the principal service, namely,
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 supplies11.
What is courier agency?
Courier agency has been defined in the Notification to mean any person
engaged in the door-to-door transportation of time-sensitive documents,
goods or articles utilising the services of a person, either directly or indirectly,
to carry or accompany such documents, goods or articles.
Express cargo service: Some transporters undertake door-to-
door transportation of goods or articles and they have made
special arrangements for speedy transportation and timely
delivery of such goods or articles.
Such services are known as ‘Express Cargo Service’ with
assurance of timely delivery. The nature of service provided by
‘Express Cargo Service’ falls within the scope and definition of the courier
agency. Hence, the said service relating to transportation of goods by road is
NOT exempt.
Exemptions granted to transport of specified goods through rail or a

vessel or a by GTA in goods carriage** are presented in the following table:
Transportation of the Transportation of the following goods

following goods by rail / by a GTA in a goods carriage is exempt
vessel is exempt
11
As clarified in answer to question no. 6 of CBIC FAQs on Transport & Logistics

4.46 INDIRECT TAXES
Railway equipments or (i) goods, where consideration charged for

materials the transportation of goods on a
consignment transported in a single
carriage does not exceed `1,500;
(ii) goods, where consideration charged for

transportation of all such goods for a
single consignee does not exceed ` 750.
Transportation of the following goods by rail / vessel / GTA in goods

carriage is exempt
(a) agricultural produce

(b) milk, salt and food grain including flours, pulses and rice
(c) organic manure
(d) newspaper or magazines registered with the Registrar of Newspapers
(e) relief materials meant for victims of natural or man-made disasters,
calamities, accidents or mishap
(f) defence or military equipments
**Goods carriage means any motor vehicle constructed or adapted for use
solely for the carriage of goods, or any motor vehicle not so constructed or
adapted when used for the carriage of goods.
9. Banking and financial services

No.
26 Services by the Reserve Bank of India.
27 Services by way of—

(a) extending deposits, loans or advances in so far as the
consideration is represented by way of interest or discount (other
than interest involved in credit card services);
(b) inter se sale or purchase of foreign currency amongst banks or
authorised dealers of foreign exchange or amongst banks and
such dealers.

34 Services by an acquiring bank, to any person in relation to settlement

of an amount upto ` 2,000 in a single transaction transacted through
credit card, debit card, charge card or other payment card service.
Explanation.— For the purposes of this entry, “acquiring bank” means
any banking company, financial institution including non-banking
financial company or any other person, who makes the payment to any
person who accepts such card.
39A Services by an intermediary of financial services located in a multi

services SEZ with International Financial Services Centre (IFSC) status
to a customer located outside India for international financial
services in currencies other than Indian rupees (INR).
Explanation.- For the purposes of this entry, the intermediary of
financial services in IFSC is a person,-
(i) who is permitted or recognised as such by the Government of
India or any Regulator appointed for regulation of IFSC; or
(ii) who is treated as a person resident outside India under the
Foreign Exchange Management (International Financial Services
Centre) Regulations, 2015; or
(iii) who is registered under the Insurance Regulatory and
Development Authority of India (International Financial Service
Centre) Guidelines, 2015 as IFSC Insurance Office; or
(iv) who is permitted as such by Securities and Exchange Board of
India (SEBI) under the Securities and Exchange Board of India
(International Financial Services Centres) Guidelines, 2015.
ANALYSIS
Banks and financial institutions provide a bouquet of financial
services relating to lending or borrowing of money or
investments in money.
All services provided by the Reserve Bank of India are covered
under Entry 26 and are thus, exempt from GST. However, services
provided to the Reserve Bank of India are not covered under said entry and
would be taxable unless otherwise covered in any other entry of the Notification.

4.48 INDIRECT TAXES
Specified banking services exempt from GST vide Entry 27 have been discussed
below:
(A) Services by way of extending deposits, loans or advances in so far as
the consideration is represented by way of interest or discount: This
entry covers any such service wherein moneys due are
allowed to be used or retained on payment of interest or on a
discount. The words used are ‘deposits, loans or advances’
and have to be taken in the generic sense.
They would cover any facility by which an amount of money is lent or allowed
to be used or retained on payment of what is commonly called the time value
of money which could be in the form of an interest or a discount. This entry
would not cover investments by way of equity or any other manner where the
investor is entitled to a share of profit.
Interest: means interest payable in any manner in respect of any
moneys borrowed or debt incurred (including a deposit, claim or
other similar right or obligation) but does not include any service
fee or other charge in respect of the moneys borrowed or debt
incurred or in respect of any credit facility which has not been utilized.
Illustrations of such services are -
 Fixed deposits or saving deposits or any other such
deposits in a bank or a financial institution for which
return is received by way of interest.
 Providing a loan or overdraft facility or a credit limit facility in
consideration for payment of interest.
 Mortgages or loans with a collateral security to the extent that the
consideration for advancing such loans or advances are represented by
way of interest.
 Corporate deposits to the extent that the consideration for advancing
such loans or advances are represented by way of interest or discount.
 Service charges or administrative charges or entry charges collected
over and above interest on loan, advance or a deposit are not exempt
and thus, represent taxable consideration.
 Invoice discounting/cheque discounting or any other similar form of
discounting is covered only to the extent consideration is represented

by way of discount as such discounting is a manner of extending a credit

facility or a loan.
(B) Services provided by banks or authorized dealers of foreign exchange
by way of sale of foreign exchange: The term ‘authorised dealer of
foreign exchange’ means an authorised dealer, money changer,
off-shore banking unit or any other person for the time being
authorised under section 10(1) of FEMA, 1999 to deal in foreign
exchange or foreign securities [Section 2(c) of the Foreign Exchange
Management Act, 1999] .
It is important to note that such services provided to general

public will not be covered in this entry as this entry only covers
sale and purchase of foreign exchange between banks and authorized dealers
of foreign exchange or between banks and such dealers.
10. Life insurance business services

No.
28 Services of life insurance business provided by way of annuity under

the National Pension System regulated by the Pension Fund
Regulatory and Development Authority of India under the Pension
Fund Regulatory and Development Authority Act, 2013.
29 Services of life insurance business provided or agreed to be provided

by the Army, Naval and Air Force Group Insurance Funds to
members of the Army, Navy and Air Force, respectively, under the
Group Insurance Schemes of the Central Government.
29A Services of life insurance provided or agreed to be provided by the

Naval Group Insurance Fund to the personnel of Coast Guard under
the Group Insurance Schemes of the Central Government.
36 Services of life insurance business provided under following schemes-

(a) Janashree Bima Yojana;
(b) Aam Aadmi Bima Yojana;
(c) Life micro-insurance product** as approved by the Insurance
Regulatory and Development Authority, having maximum amount

4.50 INDIRECT TAXES
of cover of ` 2,00,000;
(d) Varishtha Pension BimaYojana;
(e) Pradhan Mantri Jeevan Jyoti BimaYojana;
(f) Pradhan Mantri Jan DhanYogana;
(g) Pradhan Mantri Vaya Vandan Yojana.
**Life micro-insurance product means any term insurance contract
with/without return of premium, any endowment insurance contract or
health insurance contract, with/without an accident benefit rider, either
on individual/group basis, as per terms stated in Schedule-II appended
to the regulations [Regulation 2(e) of the Insurance Regulatory and Development
Authority (Micro-insurance) Regulations, 2005].
11. Services provided by specified bodies

No.
30 Services by the Employees’ State Insurance Corporation to

persons governed under the Employees’ State Insurance Act,
1948.
31 Services provided by the Employees Provident Fund

Organisation to the persons governed under the Employees
Provident Funds and the Miscellaneous Provisions Act, 1952.
31A Services by Coal Mines Provident Fund Organisation to persons

governed by the Coal Mines Provident Fund and Miscellaneous
Provisions Act, 1948.
31B Services by National Pension System (NPS) Trust to its

members against consideration in the form of
administrative fee.
32 Services provided by the IRDAI (Insurance Regulatory and

Development Authority of India) to insurers under IRDAI Act,
1999.
33 Services provided by the SEBI (Securities and Exchange Board

of India) set up under the SEBI Act, 1992 by way of protecting

the interests of investors in securities and to promote the development

of, and to regulate, the securities market.
12. General insurance business services

No.
35 Services of general insurance business provided under following
schemes –
(a) Hut Insurance Scheme;
(b) Cattle Insurance under Swarnajaynti Gram Swarozgar Yojna12;
(c) Scheme for Insurance of Tribals;
(d) Janata Personal Accident Policy and Gramin Accident Policy;
(e) Group Personal Accident Policy for Self-Employed Women;
(f) Agricultural Pumpset and Failed Well Insurance;
(g) premia collected on export credit insurance;
(h) Restructured Weather Based Crop Insurance Scheme (RWCIS),
approved by the Government of India and implemented by the
Ministry of Agriculture;
(i) Jan Arogya Bima Policy;
(j) Pradhan Mantri Fasal Bima Yojana (PMFBY);
(k) Pilot Scheme on Seed Crop Insurance;
(l) Central Sector Scheme on Cattle Insurance;
(m) Universal Health Insurance Scheme;
(n) Rashtriya Swasthya Bima Yojana;
(o) Coconut Palm Insurance Scheme;
(p) Pradhan Mantri Suraksha BimaYojna;
(q) Niramaya Health Insurance Scheme implemented by the Trust
constituted under the provisions of the National Trust for the
Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation
and Multiple Disabilities Act, 1999.
12
earlier known as Integrated Rural Development Programme

4.52 INDIRECT TAXES
36A Services by way of reinsurance of the insurance schemes specified

in serial number 35 or 36.
13. Pension schemes

No.
37 Services by way of collection of contribution under the Atal Pension
Yojana.
38 Services by way of collection of contribution under any pension
scheme of the State Governments.
14. Business facilitator/correspondent

Entry 39: Services by the following persons in respective capacities –
(a) business facilitator or a business correspondent to a banking company with
respect to accounts in its rural area branch;
(b) any person as an intermediary to a business facilitator or a business
correspondent with respect to services mentioned in entry (a); or
(c) business facilitator or a business correspondent to an insurance company in a
rural area.
Business facilitator or business correspondent: means an intermediary
appointed under the business facilitator model or the business correspondent
model by a banking company or an insurance company under the guidelines
issued by the Reserve Bank of India.
Insurance company: means a company carrying on life insurance business or
general insurance business.
Intermediary means a broker, an agent or any other person, by whatever
name called, who arranges or facilitates the supply of goods or services or
both, or securities, between two or more persons, but does not include a
person who supplies such goods or services or both or securities on his own
account [Section 2(13) of the IGST Act, 2017].

Rural area: means the area comprised in a village as defined in land revenue
records, excluding the area under any municipal committee, municipal
corporation, town area committee, cantonment board or notified area
committee; or any area that may be notified as an urban area by the Central
Government or a State Government.
15. Services provided to Government

No.
3 Pure services provided TO Government:

 Pure services (excluding works contract service or other composite
supplies involving supply of any goods)
 provided to the Central Government, State Government or Union
territory or local authority or a Governmental authority or a
Government Entity
 by way of any activity:
 in relation to any function entrusted to a Panchayat under
article 243G of the Constitution or
 in relation to any function entrusted to a Municipality under
article 243W of the Constitution.
3A Composite supply of goods and services TO Government:

 Composite supply of goods and services in which the value of
supply of goods constitutes not more than 25% of the value of
the said composite supply
 provided to the Central Government, State Government or
Union territory or local authority or a Governmental authority
or a Government Entity
 by way of any activity:
 in relation to any function entrusted to a Panchayat under
article 243G of the Constitution or
 in relation to any function entrusted to a Municipality
under article 243W of the Constitution.

4.54 INDIRECT TAXES
11A Service provided by Fair Price Shops to

Central Government, State Government or
Union territory by way of sale of food grains,
kerosene, sugar, edible oil, etc. under Public
Distribution System against consideration in
the form of commission or margin.
40 Services provided to the Central Government, State Government,

Union territory under any insurance scheme for which total premium
is paid by the Central Government, State Government, Union territory.
72 Services provided to the Central Government, State Government,

Union territory administration under any training programme for
which total expenditure is borne by the Central Government, State
Government, Union territory administration.
51 Services provided by the GSTN (Goods and Services Tax Network) to

the Central Government or State Governments or Union territories for
implementation of Goods and Services Tax.
ANALYSIS
Entry 3 exempts the supply of ‘pure services’ to Government. Supply of ‘pure
services’ means supply of services without involving any supply of goods.
Further, ‘composite supply of goods and services’* to Government is exempted
vide Entry 3A.
*in which value of supply of goods constitutes not more than 25% of value of such
composite supply.
For example, supply of man power for cleanliness of roads, public places,
architect services, consulting engineer services, advisory services, and like services
provided by business entities not involving any supply of goods would be treated
as supply of pure services.
On the other hand, let us take the example of a governmental authority awarding the
work of maintenance of street lights in a Municipal area to an agency which involves

apart from maintenance, replacement of defunct lights and other spares. In this case,
the scope of the service involves maintenance work and supply of goods13.
16. Leasing services

No.
41 Upfront amount (called as premium, salami, cost, price,

development charges or by any other name) payable in respect of
service by way of granting of long term lease of 30 years, or more)
of industrial plots or plots for development of infrastructure for
financial business, provided by the State Government Industrial
Development Corporations or Undertakings or by any other entity
having 50% or more ownership of Central Government, State
Government, Union territory to the industrial units or the
developers in any industrial or financial business area.
Explanation - For the purpose of this exemption, the Central
Government, State Government or Union territory shall have 50 %
or more ownership in the entity directly or through an entity which
is wholly owned by the Central Government, State Government or
Union territory.
43 Services of leasing of assets (rolling stock assets including wagons,

coaches, locos) by the Indian Railways Finance Corporation to Indian
Railways.
17. Legal services

Entry 45: Services provided by-
(a) an arbitral tribunal to –
(i) any person other than a business entity; or
(ii) a business entity with an aggregate turnover up to ` 20 lakh (`10 lakh in
the case of Special Category States) in the preceding financial year;
(iii) the Central Government, State Government, Union territory, local
13
As clarified vide question 25 of CBIC FAQs on Government Services

4.56 INDIRECT TAXES
authority, Governmental Authority or Government Entity.

(b) a partnership firm of advocates or an individual as an advocate other than a
senior advocate, by way of legal services to-
(i) an advocate or partnership firm of advocates providing legal services;
(ii) any person other than a business entity; or
(iii) a business entity with an aggregate turnover up to ` 20 lakh (`10 lakh in
the case of Special Category States) in the preceding financial year;
(iv) the Central Government, State Government, Union territory, local
(c) a senior advocate by way of legal services to-
(i) any person other than a business entity; or
(ii) a business entity with an aggregate turnover up to ` 20 lakh (`10 lakh in
the case of Special Category States) in the preceding financial year.
(iii) the Central Government, State Government, Union territory, local
Legal service: means any service provided in relation to advice, consultancy
or assistance in any branch of law, in any manner and includes
representational services before any court, tribunal or authority.
Advocate means an advocate entered in any roll under the provisions of the
Advocates Act, 1961 [Section 2(1)(a) of the Advocates Act, 1961].
Arbitral tribunal means a sole arbitrator or a panel of arbitrators [Section 2(d) of
the Arbitration and Conciliation Act, 1996].
Senior advocate: An advocate may, with his consent, be designated as senior

advocate if the Supreme Court or a High Court is of opinion that by virtue of
his ability standing at the Bar or special knowledge or experience in law he is
deserving of such distinction. Senior advocates shall, in the matter of their
practice, be subject to such restrictions as the Bar Council of India may, in the
interest of the legal profession, prescribe.
18. Sponsorship of sports events
Entry 53: Services by way of sponsorship of sporting events organised -

(a) by a national sports federation, or its affiliated federations, where the

participating teams or individuals represent any district, State, zone or
Country;
(b) by Association of Indian Universities, Inter-University Sports Board, School
Games Federation of India, All India Sports Council for the Deaf, Paralympic
Committee of India or Special Olympics Bharat;
(c) by the Central Civil Services Cultural and Sports Board;
(d) as part of national games, by the Indian Olympic Association; or
(e) under the Panchayat Yuva Kreeda Aur Khel Abhiyaan Scheme.
19. Skill Development services

No.
69 Any services provided by, _

(a) the National Skill Development Corporation set up by the
Government of India;
(b) a Sector Skill Council approved by the National Skill Development
Corporation;
(c) an assessment agency approved by the Sector Skill Council or the
National Skill Development Corporation;
(d) a training partner approved by the National Skill Development
Corporation or the Sector Skill Council,
in relation to-
(i) the National Skill Development Programme implemented by the
National Skill Development Corporation; or
(ii) a vocational skill development course under the National Skill
Certification and Monetary Reward Scheme; or
(iii) any other Scheme implemented by the National Skill Development
Corporation.
70 Services of assessing bodies empanelled centrally by the Directorate

General of Training, Ministry of Skill Development and
Entrepreneurship by way of assessments under the Skill Development
Initiative Scheme.

4.58 INDIRECT TAXES
71 Services provided by training providers (Project implementation

agencies) under Deen Dayal Upadhyaya Grameen Kaushalya Yojana
(DDUGKY) implemented by the Ministry of Rural Development,
Government of India by way of offering skill or vocational training
courses certified by the National Council for Vocational Training.
20. Performance by an artist

Entry 78: Services by an artist by way of a performance in folk or classical art
forms of-
(a) music, or
(b) dance, or
(c) theatre,
if the consideration charged for such performance is not more than
` 1,50,000 are exempt from GST.
The activities by a performing artist in folk or classical art forms of music, dance, or
theatre are exempt if consideration does not exceed ` 1,50,000. However, if
consideration from such activities exceeds ` 1,50,000, entire consideration is subject
to GST.
Further, all other activities by an artist in other art forms e.g. western music or
dance, modern theatres, performance of actors in films or television serials would be
taxable. Similarly activities of artists in still art forms e.g. painting, sculpture making
etc. are taxable.
However, the exemption shall not apply to service provided by such artist as a
brand ambassador. ‘Brand ambassador’ means a person engaged for promotion
or marketing of a brand of goods, service, property or actionable claim, event or
endorsement of name, including a trade name, logo or house mark of any person.
21. Right to admission to various events

No.
79 Services by way of admission to a museum, national park, wildlife

sanctuary, tiger reserve or zoo**.
**Zoo means an establishment, whether stationary or mobile, where

captive animals are kept for exhibition to the public but does not
include a circus and an establishment of a licensed dealer in captive
animals [Section 2(39) of the Wild Life (Protection) Act, 1972].
79A Services by way of admission to a protected monument so declared

under the Ancient Monuments and Archaeological Sites & Remains
Act 1958 or any of the State Acts, for the time being in force.
81 Services by way of right to admission to-

(a) circus, dance, or theatrical performance including drama or
ballet;
(b) award function, concert, pageant, musical performance or any
sporting event other than a recognised sporting event;
(c) recognised sporting event;
(d) planetarium,
where the consideration for right to admission to the events or
places as referred to in items (a), (b), (c) or (d) above is not more
than ` 500 per person.
Recognised sporting event means any sporting event,-
(i) organised by a recognised sports body** where the participating
team or individual represent any district, state, zone or country;
(ii) organized
(A) by a national sports federation, or its affiliated federations,
where the participating teams or individuals represent any
district, State or zone;
(B) by Association of Indian Universities, Inter-University Sports
Board, School Games Federation of India, All India Sports
Council for the Deaf, Paralympic Committee of India or Special
Olympics Bharat;
(C) by Central Civil Services Cultural and Sports Board;
(D) as part of national games, by Indian Olympic Association; or
(E) under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA)
Scheme.
**Recognised sports body means –
(i) the Indian Olympic Association;
(ii) Sports Authority of India;

4.60 INDIRECT TAXES
(iii) a national sports federation recognised by the Ministry of Sports

and Youth Affairs of the Central Government, and its affiliate
federations;
(iv) national sports promotion organisations recognised by the
Ministry of Sports and Youth Affairs of the Central Government;
(v) the International Olympic Association or a federation recognised
by the International Olympic Association; or
(vi) a federation or a body which regulates a sport at international
level and its affiliated federations or bodies regulating a sport in
India.
22. Services by an unincorporated body or a non- profit entity

No.
77 Service by an unincorporated body or a non- profit entity registered

under any law for the time being in force, to its own members by way
of reimbursement of charges or share of contribution –
(a) as a trade union
(b) for the provision of carrying out any activity which is exempt from
the levy of Goods and Services Tax; or
(c) up to an amount of ` 7,500 per month per member for sourcing
of goods or services from a third person for the common use of its
members in a housing society or a residential complex.
77A Services provided by an unincorporated body or a non-profit entity

registered under any law for the time being in force, engaged in,-
(i) activities relating to the welfare of industrial or agricultural
labour or farmers; or
(ii) promotion of trade, commerce, industry, agriculture, art,
science, literature, culture, sports, education, social welfare,
charitable activities and protection of environment,
to its own members against consideration in the form of
membership fee upto an amount of ` 1000/- per member per year.

ANALYSIS
Co-operative Housing Society
Co-operative Housing Societies are entities registered under the co-operative
laws of the respective States. These are a collective body of persons, who stay in
a residential society and as a collective body, they supply certain services to its
members, be it collecting statutory dues from its members and remitting to
statutory authorities, maintenance of the building, security etc.
A Co-operative Housing Society is akin to a club, which is composed of its
members. Service provided by a Housing Society to its members is treated as
service provided by one person to another. The activities of the housing society
would attract the levy of GST and the housing society would be required to
register and comply with the GST Law.
GST on services provided by a Co-operative Housing Society
If the turnover of housing society is above ` 20 lakhs, it needs to take registration
under GST in terms of section 22 of the CGST Act, 2017 [Refer Chapter-7:
Registration for detailed discussion on registration]. However, taking registration
does not mean that the housing society has to compulsorily charge GST in the
monthly maintenance bills raised on its members. If the services provided by it
are exempt under exemption notification, then it is not required to charge GST on
the said activities.
For instance, in view of entry 77(c) above, a society may be registered under GST,
but if the monthly contribution received from the members is less than ` 7,500/-
(and the amount is for the purpose of sourcing of goods and services from a third
person for the common use of its members), no GST is to be charged by the
housing society on the monthly bill raised by the society. However, if the monthly
contribution exceeds ` 7,500/-, GST would be applicable.
Further, if the turnover of the society is less than ` 20 lakh or even if the turnover
is beyond ` 20 lakh, but the monthly contribution of all the individual members
towards maintenance is less than ` 7,500/- (such services being exempt) and the
society is providing no other taxable service to its members or outsiders, then the
society (essentially exclusively providing wholly exempt services) need not take
registration under GST.

4.62 INDIRECT TAXES
Monthly limit of ` 7,500 referred in Entry 77

 Statutory dues such as property tax, electricity charges etc. forming part of
the monthly maintenance bill raised by the society on its members would be
excluded while computing the aforesaid monthly limit of ` 7,500
 If the monthly bill is say ` 8,000/- (and the same is on account of services for
common use of its members), exemption is available up to an amount of
` 7,500/- and GST would be applicable on the amount in excess of ` 7,500/-
(viz. ` 500 in this case)14.
23. Other exempt services

No.
2 Services by way of transfer of a going concern, as a whole or an

independent part thereof.
Transfer of a going concern means transfer of a running business
which is capable of being carried on by the purchaser as an
independent business, but shall not cover mere or predominant
transfer of an activity comprising a service.
Such sale of business as a whole will comprise comprehensive sale of
immovable property, goods and transfer of unexecuted orders,
employees, goodwill etc. Since the transfer in title is not merely a
transfer in title of either the immovable property or goods or even
both it may amount to service and has thus been exempted.
Royal Hotel Group is in the business of running a chain of
restaurants. It intends to sell its business. It is not required
to pay GST on such sale of its business.
9B Supply of services associated with transit cargo to Nepal and

Bhutan (landlocked countries).
12 Services by way of renting of residential dwelling for use as residence.
14
Primarily based on the CBIC GST Flyer ‘GST on Co-Operative Housing Societies’ and CBIC
FAQs on levy of GST on Supply of Services to Co-operative Society. The flyer and FAQs were
based on the monthly limit of ` 5,000 which was subsequently increased to ` 7,500.
Therefore, increased monthly limit has been considered in the above discussion.

14 Services by a hotel, inn, guest house, club or campsite, by

whatever name called, for residential or lodging purposes,
having Value of Supply of a unit of accommodation
below ` 1,000 per day or equivalent.
22 Services by way of giving on hire –

(a) to a state transport undertaking (STU), a motor vehicle meant to
carry more than 12 passengers**; or
(b) to a goods transport agency, a means of transportation of goods.
(c) motor vehicle for transport of students, faculty and staff, to a
person providing services of transportation of students, faculty
and staff to an educational institution providing services by
way of pre-school education and education upto higher
secondary school or equivalent.
**Exemption under item (a) of the above entry is applicable to services
provided to State Transport Undertaking and not to other departments
of Government or local authority.
Generally, such State Transport Undertakings/ Corporations are
established by law with a view to providing public transport facility to
the commuters. If transport undertakings hire the buses on lease basis
from private persons on payment of consideration, the services by way
of supply of motor vehicles to such STU are exempt from payment of
tax. However, supplies of motor vehicles to Government Departments
other than the STUs are taxable15.
23 Service by way of access to a road or a bridge on payment of toll charges.
23A Service by way of access to a road or a bridge on payment of annuity.
25 Transmission/distribution of electricity by an electricity

transmission/ distribution utility.
However, in this regard CBIC has clarified that the
other services provided by DISCOMS (distribution
companies) to consumer against charges are liable to GST such as,-
i. Application fee for releasing connection of electricity;
15
As clarified vide question 26 of CBIC FAQs on Government Services

4.64 INDIRECT TAXES
ii. Rental Charges against metering equipment;

iii. Testing fee for meters/transformers, capacitors etc.;
iv. Labour charges from customers for shifting of meters or
shifting of service lines;
v. charges for duplicate bill [Circular No. 34/8/2018 GST dated
01.03.2018].
44 Services provided by an incubatee up to a total turnover of ` 50 lakh in

a financial year subject to the following conditions, namely:-
(a) the total turnover had not exceeded ` 50 lakh during the
preceding financial year; and
(b) a period of 3 years has not elapsed from the date of entering into
an agreement as an incubatee.
Incubatee: means an entrepreneur located within the premises of a
Technology Business Incubator (TBI)/ Science and Technology
Entrepreneurship Park (STEP) recognised by the National Science and
Technology Entrepreneurship Development Board of the Department
of Science and Technology, Government of India (NSTEDB) and who
has entered into an agreement with the TBI/STEP to enable himself to
develop and produce hi-tech and innovative products.
47A Services by way of licensing, registration and analysis or testing of

food samples supplied by the Food Safety and Standards Authority
of India (FSSAI) to Food Business Operators.
48 Taxable services, provided or to be provided, by a TBI/STEP recognised

by NSTEDB or bio- incubators recognised by the Biotechnology
Industry Research Assistance Council, under the Department of
Biotechnology, Government of India (BIRAC).
49 Services by way of collecting or providing news by an independent

journalist, Press Trust of India or United News of India.
50 Services of public libraries by way of lending of books, publications or

any other knowledge-enhancing content or material.
52 Services by an organiser to any person in respect of a business

exhibition held outside India.
56 Services by way of slaughtering of animals.
57 Services by way of pre-conditioning, pre- cooling, ripening, waxing,

retail packing, labelling of fruits and vegetables which do not change
or alter the essential characteristics of the said fruits or vegetables.
58 Services provided by the National Centre for Cold Chain

Development under the Ministry of Agriculture, Cooperation and
Farmer’s Welfare by way of cold chain knowledge dissemination.
59 Services by a foreign diplomatic mission located in India.
65A Services by way of providing information under the RTI Act (Right
to Information Act, 2005).
68 Services provided to a recognised sports body by-

(a) an individual as a player, referee, umpire, coach or team manager
for participation in a sporting event organised by a recognized
sports body;
(b) another recognised sports body.
However, services by individuals such as selectors, commentators,
curators, technical experts are taxable. The service of a player to a
franchisee which is not a recognized sports body is also taxable. The
term ‘recognised sports body’ has been defined earlier in this chapter.
75 Services provided by operators of the common bio-medical waste

treatment facility to a clinical establishment by way of treatment or
disposal of bio-medical waste or the processes incidental thereto.
76 Services by way of public conveniences such as provision of facilities

of bathroom, washrooms, lavatories, urinal or toilets.
Note: For the purpose of this exemption notification, a “Limited Liability

Partnership” formed and registered under the provisions of the Limited Liability
Partnership Act, 2008 shall also be considered as a partnership firm or a firm.

4.66 INDIRECT TAXES
II. OTHER EXEMPTIONS
S.No. Description of services
1 Intra-State supplies received by a registered person from any

unregistered supplier exempt from CGST
Intra-State supplies of goods or services or both received by a registered
person from any unregistered supplier,
are exempt from the whole of the central tax leviable thereon under section
9(4) till 30.09.2019 [Notification No.8/2017 CT (R) dated 28.06.2017].
2 Central Government’s share of profit petroleum exempted from CGST

Intra-State supply of services by way of grant of license or lease to
explore or mine petroleum crude or natural gas or both, has been
exempted from so much of CGST as is leviable on the consideration
paid to the Central Government in the form of Central Government’s
share of profit petroleum as defined in the contract entered into by the
Central Government in this behalf.
[Notification No. 5/2018 CT (R) dated 25.01.2018]
Students may note that some of the entries granting exemption from GST are
similar to the negative list entry/entry granting exemption under the erstwhile
service tax law. Therefore, clarification pertaining to said negative list
entry/exemption provided in the ‘Service Tax Education Guide’, which may also
hold good under the GST law, have been incorporated at relevant places.

1. Power to exempt from tax [Section 11 of the CGST Act/ section 6 of IGST
Act]
Power to exempt from tax
by way of issuance of
Notification Special order
 exempt generally exempt from payment of tax under

 either absolutely or subject to such circumstances of an exceptional nature to
conditions as may be specified, be stated in such order, in public interest.
 goods and/or services of any specified
description.

1. Transportation of passengers by ______________ are exempt from GST.
(a) Railway in first class
(b) Railway in an air-conditioned coach
(c) Metro
2. Transportation of _______________ by a GTA in a goods carriage is exempt from GST.
(a) Agricultural produce
(b) Organic manure
(c) Milk
3. What of the following services provided to an educational institution – Debo Public
School- are exempt from GST?
(a) Transportation of staff of the school
(b) Cleaning of the school
(c) Services relating to conduct of higher secondary exams

4.68 INDIRECT TAXES
4. Transportation of passengers by ______________ are exempt from GST.

(a) air conditioned stage carriage
(b) radio taxi
(c) air, terminating in Nagaland airport
5. Which of the following services provided by Department of Posts are exempt from
GST?
(a) Speed posts
(b) Life Insurance
(c) Express parcel posts
6. An individual acts as a referee in a football match organized by Sports Authority of
India. He has also acted as a referee in another charity football match organized
by a local sports club, in lieu of a lump sum payment. Discuss whether he is
required to pay any GST?
7. RXL Pvt. Ltd. manufactures beauty soap with the brand name ‘Forever Young’. RXL
Pvt. Ltd. has organized a concert to promote its brand. Ms. Ahana Kapoor, its
brand ambassador, who is a leading film actress, has given a classical dance
performance in the said concert. The proceeds of the concert worth ` 1,20,000 will
be donated to a charitable organization.
Whether Ms. Ahana Kapoor will be required to pay any GST?
8. Determine taxable value of supply under GST law with respect to each of the
following independent services provided by the registered persons:
Particulars Gross amount

charged (`)
Fees charged for yoga camp conducted by a 50,000

charitable trust registered under section 12AA of
the Income-tax Act, 1961
Amount charged by business correspondent for 1,00,000
the services provided to the rural branch of a
bank with respect to Savings Bank Accounts

Amount charged by cord blood bank for 5,00,000

preservation of stem cells
Amount charged for service provided by 5,20,000

commentator to a recognized sports body
9. Examine whether GST is exempted on the following independent supplies of

services:
(i) Service provided by a private transport operator to Scholar Boys Higher
Secondary School in relation to transportation of students to and from the
school.
(ii) Services provided by way of vehicle parking to general public in a shopping
mall.
10. Discuss whether GST is payable in respect of transportation services provided
by Raghav Goods Transport Agency in each of the following independent cases:
Customer Nature of services provided Amount charged
A Transportation of milk ` 20,000
B Transportation of books on a ` 3,000

consignment transported in a single
goods carriage
C Transportation of chairs for a single ` 600

consignee in the goods carriage
7. ANSWERS/HINTS
1. (c) 2. (d) 3. (d) 4. (c) 5. (d)
6. Services provided to a recognized sports body by an individual inter alia as a
referee in a sporting event organized by a recognized sports body is exempt
from GST.
Since in the first case, the football match is organized by Sports Authority of
India, which is a recognized sports body, services provided by the individual
as a referee in such football match will be exempt.
However, when he acts as a referee in a charity football match organized by a
local sports club, he would not be entitled to afore-mentioned exemption as

4.70 INDIRECT TAXES
a local sports club is not a recognized sports body and thus, GST will be
payable in this case.
7. Services by an artist by way of a performance in folk or classical art forms of
(i) music, or (ii) dance, or (iii) theatre are exempt from GST, if the
consideration charged for such performance is not more than ` 1,50,000.
However, such exemption is not available in respect of service provided by
such artist as a brand ambassador.
Since Ms. Ahana Kapoor is the brand ambassador of ‘Forever Young’ soap
manufactured by RXL Pvt. Ltd., the services rendered by her by way of a
classical dance performance in the concert organized by RXL Pvt. Ltd. to
promote its brand will not be eligible for the above-mentioned exemption
and thus, be liable to GST. The fact that the proceeds of the concert will be
donated to a charitable organization will not have any bearing on the
eligibility or otherwise to the above-mentioned exemption.
8. Computation of value of taxable supply
Particulars (` )
Fees charged for yoga camp conducted by a charitable trust Nil
registered under section 12AA of the Income-tax Act, 1961
[Note-1]
Amount charged by business correspondent for the services Nil
provided to the rural branch of a bank with respect to
Savings Bank Accounts [Note-2]
Amount charged by cord blood bank for preservation of stem Nil
cells [Note-3]
Service provided by commentator to a recognized sports 5,20,000
body [Note-4]
Notes:
1. Services by an entity registered under section 12AA of the Income-tax
Act, 1961 by way of charitable activities are exempt from GST. The
activities relating to advancement of yoga are included in the definition
of charitable activities. So, such activities are exempt from GST.
2. Services by business facilitator or a business correspondent to a banking
company with respect to accounts in its rural area branch have been

exempted from GST.

3. Services provided by cord blood banks by way of preservation of stem
cells or any other service in relation to such preservation are exempt
from GST.
4. Services provided to a recognized sports body only by an individual as a
player, referee, umpire, coach or team manager for participation in a
sporting event organized by a recognized sports body are exempt from
GST. Thus, services provided by commentators are liable to GST.
9. (i) Yes. Services provided TO an educational institution by way of
transportation of students are exempted from GST.
(ii) No. Services provided by way of vehicle parking to general public are not
exempted from GST. Therefore, GST is payable on the same.
10.
Customer Nature of services Amount Taxability

provided charged
A Transportation of ` 20,000 Exempt. Transportation of
milk milk by goods transport
agency is exempt.
B Transportation of ` 3,000 GST is payable. Exemption is
books on a available for transportation
consignment of goods only where the
transported in a consideration for
single goods transportation of goods on a
carriage consignment transported in
a single goods carriage does
not exceed ` 1,500.
C Transportation of ` 600 Exempt. Transportation of
chairs for a single goods where consideration
consignee in the for transportation of all
goods carriage goods for a single consignee
does not exceed ` 750 is
exempt.

CHAPTER
5
TIME AND VALUE OF

SUPPLY
The section numbers referred to in the Chapter pertain to CGST Act, unless otherwise
specified.
UNIT – I : Time of Supply
LEARNING OUTCOMES
After studying this Unit, you will be able to identify the

point in time when the liability to pay GST arises -
 on supply of goods or services where GST is payable under
forward charge
 on supply of goods or services where GST is payable under
reverse charge
 on supply of vouchers exchangeable for goods and services
 on supply of goods and services in residual cases
 in case of enhancement of value of supply by way of interest,
late fee/penalty paid for delay in payment of consideration
 apply the concepts relating to time of supply of goods and/or
services in problem solving

5.2 INDIRECT TAXES
Time of supply under forward

charge
Time of supply under reverse

charge
Time of supply of goods
Time of supply of vouchers
exchangeable for goods
Time of Supply
Time of supply in residual cases
Time of supply under forward

charge
Time of supply under reverse

charge
Time of supply of services
Time of supply of vouchers
exchangeable for services
Time of supply in residual cases
1. INTRODUCTION
GST is payable on supply of goods or services. A supply consists of elements that
can be separated in time, like purchase order / agreement, despatch (of goods),
delivery (of goods) or provision or performance of service, entry in the records,
payment, and entry of the payment in the records
or deposit in the bank.
So, at which of these points of time will GST
become payable? Will it become payable when an
agreement to supply goods or services is made, or
when the goods are shipped or the services are
provided, or when the invoice is issued or when
payment is made? What if the goods are shipped

TIME & VALUE OF SUPPLY 5.3
over a period of time? What if the service is provided over a period of time?
Provisions relating to ‘time of supply’ provide answer to all such and other
questions that arise on the timing of the liability to pay CGST and SGST/UTGST
(intra-State supply) and IGST (inter-State supply) as time of supply fixes the point
in time when the liability to pay tax arises.
The CGST Act provides separate provisions for time of supply for goods and services
vide sections 12 and 13 of CGST Act. Section 14 provides for the method of
determining the time of supply in case there is a change in the rate of tax on supply
of goods or services. 1 Sections 12 and 13 use the provisions of section 31 relating to
issue of tax invoice as a reference point, hence it will be advantageous to refer to
Chapter 8: Tax Invoice, Credit and Debit Notes; E-Way Bill in conjunction with this one.
Events like issuing of invoices, receipt of payment, provision of service, receipt of
services in books of account need to be analysed to determine the time of supply when
the tax on supply is payable under forward charge. When the tax on supply is payable
under reverse charge, events like date of receipt of goods, date of making payment
etc. need to be analysed to determine the time of supply. The provisions relating to
time of supply essentially push the tax collection event to the earliest possible time.
In the subsequent pages of this Unit, sections 12 and 13 are extracted, followed by
their analysis, to understand how to determine the time of supply of goods and
services respectively. When studying the statutory provisions, the definitions
(extracted first) must also be referred to simultaneously, so as to understand the
precise meaning of the terms used.
Provisions of time of supply under CGST Act have also been made
applicable to IGST Act vide section 20 of the IGST Act.
Associated enterprises shall have the same meaning as assigned to it in section
92A of the Income-tax Act, 1961 [Section 2(12)].
Document includes written or printed record of any sort and electronic record as
1
Provisions of section 14 relating to determination of time of supply in case of change in rate of
tax in respect of supply of goods or services will be discussed at the Final level.

5.4 INDIRECT TAXES
defined in clause (t) of section 2 of the Information Technology Act, 2000 [Section
2(41)].
Goods means every kind of movable property other than money and securities
but includes actionable claim, 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 [Section 2(52)].
GOODS
MEANS
All kind of movable property EXCLUDES Money & Securities
INCLUDES
Actionable claim, Growing

Crops, Grass & Things forming
part of land agreed to be
severed before supply or under
a contract of supply
Prescribed means prescribed by rules made under this Act on the

recommendations of the Council [Section 2(87)].
Services means anything other than goods, money and securities but includes
activities relating to the use of money or its conversion by cash or by any
other mode, from one form, currency or denomination, to another form,
currency or denomination for which a separate consideration is charged
[Section 2(102)].
Reverse charge means the liability to pay tax by the recipient of supply of goods
or services or both instead of the supplier of such goods or services or both
under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or
sub- section (4) of section 5 of the Integrated Goods and Services Tax Act
[Section 2(98)].

SERVICES
MEANS
Activities
relating to use
of money or its
Anything INCLUDING conversion for a
consideration
EXCLUDING
Goods Money Securities
Supplier in relation to any goods or services or both, shall mean the person
supplying the said goods or services or both and shall include an agent acting
as such on behalf of such supplier in relation to the goods or services or both
supplied [Section 2(105)].
and includes an
agent acting on
means the person behalf of such
supplying the said supplier in relation
goods and/or to the goods
Supplier in
services and/or services
relation to any
goods and/or
services
Recipient of supply of goods or services or both, means—

(a) where a consideration is payable for the supply of goods or services or
both, the person who is liable to pay that consideration;

5.6 INDIRECT TAXES
(b) where no consideration is payable for the supply of goods, the person
to whom the goods are delivered or made available, or to whom
possession or use of the goods is given or made available; and
(c) where no consideration is payable for the supply of a service, the person
to whom the service is rendered,
and any reference to a person to whom a supply is made shall be construed as
a reference to the recipient of the supply and shall include an agent acting as
such on behalf of the recipient in relation to the goods or services or both
Recipient
If consideration is
Person liable to pay the
payable for supply of
consideration
goods and/or services
Person to whom goods are

If no consideration is delivered/made available or to
payable for supply of whom possession/use of the
goods goods is given/ made available
If no consideration is Person to whom the service is

payable for the supply of rendered
services
Recipient includes an agent acting on behalf of the recipient in relation to

the goods and/or services supplied
Voucher means an instrument where there is an obligation to accept it as

consideration or part consideration for a supply of goods or services or both
and where the goods or services or both to be supplied or the identities of
their potential suppliers are either indicated on the instrument itself or in
related documentation, including the terms and conditions of use of such
instrument [Section 2(118)].

3. TIME OF SUPPLY OF GOODS [SECTION 12]
Section 12 Time of supply of goods
Sub-section Clause Particulars
(1) The liability to pay tax on goods shall arise at the time of supply
as determined in terms of the provisions of this section.
(2) The time of supply of goods shall be the earlier of the following
dates, namely:-
(a) the date of issue of invoice by the supplier or the last date
on which he is required, under sub-section (1) of section
31, to issue the invoice with respect to the supply; or
The date on which the supplier receives the payment with

(b)
respect to the supply:
Provided that where the supplier of taxable goods receives an

amount up to one thousand rupees in excess of the amount
indicated in the tax invoice, the time of supply to the extent of such
excess shall, at the option of the said supplier, be the date of issue
of invoice in respect of such excess amount.
Explanation 1. For the purposes of clauses (a) and (b), the “supply”
shall be deemed to have been made to the extent it is covered by
the invoice or, as the case may be, the payment.
Explanation 2. For the purpose of clause (b), “the date on which the
supplier receives the payment” shall be the date on which the
payment is entered in his books of account or the date on which
the payment is credited to his bank account, whichever is earlier.
(3) In case of supplies in respect of which tax is paid or liable to be paid

on reverse charge basis, the time of supply shall be the earliest of the
following dates, namely:

5.8 INDIRECT TAXES
(a) the date of the receipt of the goods, or
(b) the date of payment as entered in the books of account

of the recipient or the date on which the payment is
debited in his bank account, whichever is earlier, or
(c) the date immediately following thirty days from the date
of issue of invoice or any other document, by whatever
name called, in lieu thereof by the supplier:
Provided that where it is not possible to determine the time of

supply under clause (a), (b), or (c), the time of supply shall be the
date of entry in the books of account of the recipient of supply.
(4) In case of supply of vouchers by a supplier, the time of supply shall be
(a) the date of issue of voucher, if the supply is identifiable at

that point; or
(b) the date of redemption of voucher, in all other cases.
(5) Where it is not possible to determine the time of supply under the
provisions of sub-section (2) or sub-section (3) or sub-section (4),
the time of supply shall––
(a) in a case where a periodical return has to be filed, be the

date on which such return is to be filed; or
(b) in any other case, be the date on which the tax is paid.
(6) The time of supply to the extent it relates to an addition in the

value of supply by way of interest, late fee or penalty for delayed
payment of any consideration shall be the date on which the
supplier receives such addition in value.
Section 31 Tax invoice (to the extent relevant to time of supply)
(1) A registered person supplying taxable goods shall, before or at the

time of,—
(a) removal of goods for supply to the recipient, where the

supply involves movement of goods; or
(b) delivery of goods or making available thereof to the

recipient, in any other case,
issue a tax invoice showing the description, quantity and value of

goods, the tax charged thereon and such other particulars as may
be prescribed:
Provided that the Government may, on the recommendations of

the Council, by notification, specify the categories of goods or
supplies in respect of which a tax invoice shall be issued, within
such time and in such manner as may be prescribed.
(4) In case of continuous supply of goods, where successive statements

of accounts or successive payments are involved, the invoice shall
be issued before or at the time each such statement is issued or, as
the case may be, each such payment is received.
(7) Notwithstanding anything contained in sub-section (1), where the

goods being sent or taken on approval for sale or return are
removed before the supply takes place, the invoice shall be issued
before or at the time of supply or six months from the date of
removal, whichever is earlier.
Section 12 must be read with section 31, which prescribes in

detail the date on which tax invoice for a supply of goods must
be issued.
ANALYSIS
Section 12 covers the determination of time of supply in the following situations:
 Supply of goods by supplier where supplier is liable to pay tax;
 Receipt of goods that are taxable under reverse charge;
 Supply of vouchers that can be used to pay for goods;

5.10 INDIRECT TAXES
 Residual cases
 Addition to value of supply by way of interest or fee or penalty for delayed
payment.
We consider below how the time of supply is determined in each of these situations.
(i) Supply of goods where supplier is liable to pay tax (Forward charge)
[Section 12(2)]
As per section 12(2)(a) and (b), the time of supply of goods by a person who
is liable to pay GST on the supply, is the earlier of the following two dates:
 Date of issue of invoice or the last date on which invoice ought to have
been issued in terms of section 31, or
 Date of receipt of payment, to the extent the payment covers the goods.
Exemption from payment of tax on advances received for supply of
goods – Special procedure for payment of tax in case of supply of goods
Time of supply is linked with payment of tax. Liability to pay tax arises
at the time of supply and the same can be paid by the prescribed due
date.
In exercise of the powers conferred by section 1482, the Central
Government, on the recommendation of the GST Council, has issued
Notification No. 66/2017 CT dated 15.11.2017 to specify that a
registered person (excluding composition supplier) should pay GST on
the outward supply of goods at the time of supply as specified in section
12(2)(a) i.e., date of issue of invoice or the last date on which invoice
ought to have been issued in terms of section 31.
In simple words, all taxpayers (except composition suppliers) are
exempted from paying GST at the time of receipt of advance in relation
to supply of goods. The entire GST shall be payable only when the invoice
for the supply of such goods is issued or ought to have been issued.
2
Provisions of section 148 will be discussed at the Final level. Section 148 provides that the
Government may, on the recommendations of the Council, and subject to such conditions and
safeguards as may be prescribed, notify certain classes of registered persons, and the special
procedures to be followed by such persons including those with regard to registration, furnishing
of return, payment of tax and administration of such persons.

A composition supplier has to pay, in lieu of tax payable by him, an

amount calculated at the prescribed rate applied on his ‘turnover in the
State/Union Territory’ for a quarter. Therefore, the composition supplier
is not required to pay any tax on advance received as the same does not
form part of taxable supplies and, in turn, also does not form part of the
‘turnover in a State/Union Territory’ at the end of the quarter (tax
period).3
Meaning of “Date of receipt of payment”
“Date of receipt of payment” in the above situation refers to the date on which
the payment is recorded in the books of account of the entity (supplier of
goods) that receives the payment, or the date on which the payment is
credited to the entity’s bank account, whichever is earlier.
Significance of “to the extent the payment covers the goods”
Suppose, a part of the consideration is paid in advance or invoice is issued
for part payment, the time of supply will not cover the full supply. The supply
shall be deemed to have been made to the extent it is covered by the invoice
or the part advance payment.
However, it may be noted that in case of goods, tax will be payable only
on the issuance of invoice/last date of issuance of invoice even if any
advance or part payment has been received before the issuance of
invoice/last date of issuance of invoice.
Time limit for issuance of invoice for supply of goods
 As per section 31(1), the invoice needs to be issued either before or at the
time of removal (where supply involves movement of goods) of goods/
delivery of goods/ making goods available to recipient.
 In case of continuous supply of goods, the invoice should be issued before
or at the time of issuance of periodical statement/receipt of periodical
payment [Section 31(4)].
 In case of goods sent or taken on approval for sale or return, invoice should
be issued before or at the time of supply or 6 months from the date of
removal, whichever is earlier [Section 31(7)].
3
Based on CBIC GST Flyer Chapter 6 - GST on Advances Received for Future Supplies

5.12 INDIRECT TAXES
The provisions relating to time of supply of goods as contained in section 12

in case of forward charge, have been depicted by way of a diagram given
below.
TIME OF SUPPLY OF GOODS UNDER FORWARD CHARGE AS

PER SECTION 12
Date of issue of invoice /

Last date of issue of
Whichever is earlier
invoice under section 31
Date on which the

payment is recorded in
the books of account of
the supplier
BANK
Date on which the
payment is credited to the
supplier’s bank account
SPECIAL PROCEDURE UNDER SECTION 148 FOR PAYMENT OF TAX

IN CASE OF GOODS
GST to be paid at the

As specified in section 12(2)(a)
time of supply
Date of issue of invoice

/ Last date of issue of
invoice under section 31
Effectively, in case of goods, no GST will be payable on advances

received for supply of goods.

ILLUSTRATION 1
A machine has to be supplied at site. It is done by sourcing various components

from vendors and assembling the machine at site. The details of the various
events are:
17th September Purchase order with advance of ` 50,000 is received for goods
worth ` 12 lakh and entry duly made in the seller’s books of
account
20th October The machine is assembled, tested at site, and accepted by

buyer
23rd October Invoice raised
4th November Balance payment of ` 11,50,000 received
Determine the time of supply(ies) in the above scenario for the purpose of
payment of tax.
ANSWER
As per Notification No. 66/2017 CT dated 15.11.2017, a registered person
(excluding composition supplier) has to pay GST on the outward supply of
goods at the time of supply as specified in section 12(2)(a) i.e., date of issue
of invoice or the last date on which invoice ought to have been issued in
terms of section 31.
Therefore, the time of supply of goods for the entire amount of ` 12,00,000
is 20th October which is the date on which the goods were made available to
the recipient as per section 31(1)(b), and the invoice should have been issued
on this date [Section 12(2)(a)].
ILLUSTRATION 2
Gas is supplied by a pipeline. Monthly payments are made by the recipient as

per contract. Every quarter, invoice is issued by the supplier supported by a
statement of the goods dispatched and payments made, and the recipient has
to pay the differential amount, if any. The details of the various event s are:

5.14 INDIRECT TAXES
August 5, September 5, Payments of ` 2 lakh made in each month

October 6
October 3 Statement of accounts issued by supplier, with

invoice for the quarter July – September
October 17 Differential payment of ` 56,000 received by

supplier for the quarter July – September as per
statement of accounts
Determine the time of supply for the purpose of payment of tax.
ANSWER
As per Notification No. 66/2017 CT dated 15.11.2017, a registered person

As per section 31(4), in case of continuous supply of goods, where successive
statements of accounts or successive payments are involved, the invoice is
issued before or at the time of each such statement is issued or, as the case
may be, each such payment is received. Therefore, invoice should be issued
on August 5, September 5 and October 6 when monthly payments of ` 2 lakh
are received.
Thus, time of supply will be August 5, September 5 and October 6 respectively
for goods valued at ` 2 lakh each. Time of supply for goods valued at ` 56,000
will be October 3, the date of issuance of invoice.
Excess payment upto ` 1000: Option of taking invoice date as time of supply
In terms of the proviso to sub-section (2) of section 12, if payment received
is up to ` 1,000 in excess of the value of the goods invoiced, the supplier can
choose to take the date of invoice issued with respect to such excess amount
as the time of supply of goods for such excess value.
If neither the date of invoice nor the date of payment is available, the
residual provisions under sub-section (5) of section 12 become applicable
[discussed under point (iv)].

(ii) Receipt of goods that are taxable under reverse charge

[Section 12(3)]
The time of supply of goods on which GST is payable on reverse charge basis
under sub-sections (3) and (4) of section 9 of CGST Act is determined in terms
of section 12(3)(a), (b) and (c), as follows:
The time of supply for such goods will be the earliest of the following dates:
 Date on which the goods are received, or
 Date on which payment is recorded in the books of account of the entity
that receives the goods, or the date on which it is debited from the entity’s
bank account, whichever is earlier, or
 Date immediately following 30 days from the date of issue of invoice (or
document by some other name in lieu of invoice) by the supplier.
If it is not possible to determine the time of supply by using these parameters,
then the time of supply will be the date of entry of goods in the books of
account of the recipient of supply.
ILLUSTRATION 3
Determine the time of supply from the given information.
May 4 Supplier invoices goods taxable on reverse charge basis to Bridge &
Co. (30 days from the date of issuance of invoice elapse on June 3)
May 12 Bridge & Co receives the goods
May 30 Bridge & Co makes the payment
ANSWER
Here, May 12 will be the time of supply, being the earliest of the three stipulated
dates namely, receipt of goods, date of payment and date immediately following
30 days of issuance of invoice [Section 12(3)]. (Here, date of invoice is relevant
only for calculating thirty days from that date.)
The provisions relating to time of supply of goods in case of reverse charge can
be depicted as under:

5.16 INDIRECT TAXES
TIME OF SUPPLY OF GOODS UNDER REVERSE CHARGE
Date on which
goods are received
Date on which the
payment is recorded
in the books of
account of the
recipient of goods
BANK Date on which the

payment is debited
from the bank
account of the
recipient of goods
31st day from the

st DAY
issue of invoice by
the supplier
If it is not possible to determine the time of supply through above parameters,

THEN
TIME OF SUPPLY WILL BE
Date on which goods are

recorded in the books of
account of the recipient of
supply

ILLUSTRATION 4
May 4 Supplier invoices goods taxable on reverse charge basis to Pillar &
Co. (30 days from the date of issuance of invoice elapse on June 3)
June 12 Pillar & Co receives the goods, which were held up in transit
July 3 Payment made for the goods
ANSWER
Here, June 4, 31st day from the date of supplier’s invoice, will be the time of
supply, being the earliest of the three stipulated dates namely, receipt of goods,
date of payment and date immediately following 30 days of issuance of invoice
[Section 12(3)].
(iii) Vouchers [Section 12(4)]
As commonly understood, vouchers are instruments that can be exchanged
as payment for goods or services of the designated value. As per the
definition, they are instruments that certain persons (potential suppliers) are
obliged to accept as consideration, part or full, for goods and/or services; the
instrument or its related documentation sets out the terms and conditions of
use, the goods / services covered, and the identity of the potential suppliers
of these.
As per section 12(4), the time of supply of vouchers exchangeable for goods
is-
 Date of issue of the voucher, if the supply that it covers is identifiable at
that point, or
 Date of redemption of the voucher in other cases.
Acmesales Limited sells food coupons to a company, which gives these
to its employees as part of the agreed perquisites. The coupons can be
redeemed for purchase of any item of food /provisions in the outlets
that are part of the program.
As the supply against which the coupon will be redeemed is not known on the
date of the sale of the coupon, the time of supply of the coupon will be the date
on which the employee redeems it against food / provision items of his choice.

5.18 INDIRECT TAXES
With each purchase of a large pizza during the Christmas week from
Perfect Pizza, one can buy a voucher for ` 20 which will be redeemable
till 5 Jan for a small pizza. As the supply against which the voucher
will be redeemed is known on the date of the sale, the time of supply is the date
of issue of the voucher.
TIME OF SUPPLY OF VOUCHERS EXCHANGEABLE FOR GOODS
Any food Supply is DATE OF

item can be not REDEMPT
purchased identifiab -ION OF
from the le at the VOUCHER
food pass time of
issue of
the
voucher
Only a shirt Supply is DATE OF

can be identifiab ISSUE OF
purchased le at the VOUCHER
from the time of
shirt coupon issue of
voucher
(iv) Residual case [Section 12(5)]

If the situation is not covered by any of the provisions discussed above, the time
of supply is fixed under sub-section (5) of section 12, in the following manner:
 Due date for filing of the periodical return, or
 In any other case, date on which GST is paid.

TIME OF SUPPLY OF GOODS UNDER RESIDUAL CASE
Where a periodical return

is to be filed
DATE ON WHICH RETURN IS

REQUIRED TO BE FILED
DATE ON WHICH GST IS PAID
(v) Enhancement in value on account of interest/late fee etc. for

delayed payment of consideration [Section 12(6)]
Commercially, all the contract of supplies stipulate payment of interest/late
fee/penalty etc. for payment of consideration beyond the agreed time period.
Such interest etc. is includible in value of taxable supply [This concept has
been discussed in detail in Unit II: Value of Supply in the subsequent pages of
this Chapter]. So, the question arises as to when would the liability to pay
GST arise in such cases of addition in value.
Section 12(6) prescribes that time of supply in case of addition in value by
way of interest/ late fee/penalty for delayed payment of consideration for
goods is the date on which the supplier receives such addition in value.
Radha Traders sold goods to Shyam Sales on 6th June with a condition
that interest @ 2% per month will be charged if Shyam Sales failed
to make payment within 15 days of the delivery of the goods. Goods
were delivered as also the invoice was issued on 6th June. Shyam Sales paid the
consideration for the goods on 6th July along with applicable interest.
Time of supply for the goods sold is the date of issue of invoice i.e., 6th June and
the time of supply for addition in value by way of interest is the date when such
addition in value is received by Radha Traders i.e., 6th July.

5.20 INDIRECT TAXES
The provisions relating to time of supply of goods as contained in section 12

are summarised in the diagram given below
Time of supply of goods Time of supply of goods Time of supply of vouchers

under forward charge under reverse charge exchangeable for goods
Date of issue/ due date of Date of issue of voucher, if the

issue of tax invoice under Date of receipt of goods supply is identifiable at that
section 31 point
Date of recording the payment
Date of recording the payment in the books of accounts of Date of redemption of voucher
in the books of accounts of the recipient of goods in other cases
the supplier
Date on which payment is
Date on which payment is debited from the bank account
credited in the bank account of the recipient of goods
of the supplier
31st day from supplier’s
whichever is earlier invoice
whichever is earlier
No GST on advances received

for supply of goods: GST to
be paid on date of issue/due If the above events are
date of issue of tax invoice UNASCERTAINABLE
under section 31 Time of supply = Date of entry of good in
books of account of recipient of goods
Residual case (If all Due date of periodical return

the above do not work Time of supply OR
for a situation) In any other case, the date on
which tax is paid
Addition in value by
way of interest, late
fee/penalty for delayed
payment of Date on which the supplier
Time of supply
consideration for receives such addition in value
goods

4. TIME OF SUPPLY OF SERVICES [SECTION 13]
Section 13 Time of supply of services
(1) The liability to pay tax on services shall arise at the time of supply, as
determined in terms of the provisions of this section.
(2) The time of supply of services shall be the earliest of the following dates,
namely:-
(a) the date of issue of invoice by the supplier, if the invoice is issued
within the period prescribed under sub-section (2) of section 31
or the date of receipt of payment, whichever is earlier; or
(b) the date of provision of service, if the invoice is not issued within
the period prescribed under sub-section (2) of section 31 or the
date of receipt of payment, whichever is earlier; or
(c) the date on which the recipient shows the receipt of services in
his books of account, in a case where the provisions of clause
(a) or clause (b) do not apply:
Provided that where the supplier of taxable service receives an amount

up to one thousand rupees in excess of the amount indicated in the tax
invoice, the time of supply to the extent of such excess amount shall, at
the option of the said supplier, be the date of issue of invoice relating to
such excess amount.
Explanation - For the purposes of clauses (a) and (b) -
(i) the supply shall be deemed to have been made to the extent it
is covered by the invoice or, as the case may be, the payment.
(ii) “the date of receipt of payment” shall be the date on which the
payment is entered in the books of account of the supplier or

5.22 INDIRECT TAXES
the date on which the payment is credited to his bank account,

whichever is earlier.
(3) In case of supplies in respect of which tax is paid or liable to be paid on

reverse charge basis, the time of supply shall be the earlier of the
following dates, namely-
(a) the date of payment as entered in the books of account of the

recipient or the date on which the payment is debited in his
bank account, whichever is earlier; or
(b) the date immediately following sixty days from the date of issue
of invoice or any other document, by whatever name called, in
lieu thereof by the supplier:
Provided that where it is not possible to determine the time of supply

under clause (a) or (b), the time of supply shall be the date of entry in the
books of account of the recipient of supply:
Provided further that in case of supply by ‘associated enterprises’, where

the supplier of service is located outside India, the time of supply shall be
the date of entry in the books of account of the recipient of supply or the
date of payment, whichever is earlier.
(4) In case of supply of vouchers by a supplier, the time of supply shall be-
(a) the date of issue of voucher, if the supply is identifiable at that

point; or
(b) the date of redemption of voucher, in all other cases;
(5) Where it is not possible to determine the time of supply of services under
the provisions of sub-section (2) or sub-section (3) or sub-section (4), the
time of supply shall
(a) in a case where a periodical return has to be filed, be the date

on which such return is to be filed; or
(b) in any other case, be the date on which the tax is paid.

(6) The time of supply to the extent it relates to an addition in the value of
supply by way of interest, late fee or penalty for delayed payment of any
consideration shall be the date on which the supplier receives such
addition in value.
Section 31 Tax invoice (to the extent relevant to time of supply)
A registered person supplying taxable services shall, before or after the

provision of service but within a prescribed period, issue a tax invoice,
showing the description, value, tax charged thereon and such other
particulars as may be prescribed:
Provided that the Government may, on the recommendations of the

(2) Council, by notification and subject to such conditions as may be
mentioned therein, specify the categories of services in respect of which–
(a) any other document issued in relation to the supply shall be

deemed to be a tax invoice; or
(b) tax invoice may not be issued.
Subject to the provisions of clause (d) of sub-section (3), in case of

continuous supply of services,––
(a) where the due date of payment is ascertainable from the

contract, the invoice shall be issued on or before the due date
of payment;
(5) (b) where the due date of payment is not ascertainable from the
contract, the invoice shall be issued before or at the time when
the supplier of service receives the payment;
(c) where the payment is linked to the completion of an event, the

invoice shall be issued on or before the date of completion of
that event.
(6) In a case where the supply of services ceases under a contract before the
completion of the supply, the invoice shall be issued at the time when the
supply ceases and such invoice shall be issued to the extent of the supply
made before such cessation.

5.24 INDIRECT TAXES
Chapter VI: Tax Invoice, Credit and Debit Notes of CGST Rules
Time limit for issuing tax invoice
The invoice referred to in rule 46, in case of taxable supply of services,

shall be issued within a period of thirty days from the date of supply of
service:
Provided that where the supplier of services is an insurer or a banking

company or a financial institution, including a non-banking financial
company, the period within which the invoice or any document in lieu
thereof is to be issued shall be forty five days from the date of supply of
Rule 47 service:
Provided further that an insurer or a banking company or a financial

institution, including a non- banking financial company, or a telecom
operator, or any other class of supplier of services as may be notified by
the Government on the recommendations of the Council, making taxable
supplies of services between distinct persons as specified in section 25,
may issue the invoice before or at the time such supplier records the same
in his books of account or before the expiry of the quarter during which
the supply was made.
Section 13 must be read with section 31 and rule 47 of CGST Rules,

which prescribe in detail the date on which tax invoice for a supply
of service must be issued.
ANALYSIS
Section 13 stipulates how to determine time of supply in the following situations:
 Supply of service on which the supplier is liable to pay tax,
 Receipt of service that is taxable under reverse charge basis,
 Supply of vouchers that can be used to pay for services,
 Residual cases,

 Addition to value of supply by way of interest or fee or penalty for delayed

payment.
Below we consider these in more detail.
(i) Supply of service where supplier is liable to pay tax (Forward charge)
[Section 13(2)]
For supply of service on which the supplier is liable to pay tax, the time of
supply will be the earlier of the dates arrived at by methods (A) and (B), as
follows:
(A) Date of invoice or date of receipt of payment (to the extent the payment
covers the services), whichever is earlier, if the invoice is issued in time
as per section 31;
(B) Date of provision of service or date of receipt of payment (to the extent
the payment covers the services), whichever is earlier, if the invoice is
not issued in time as per section 31,
If these two methods are not applicable, the time of supply will be the date
on which the recipient of service shows receipt of the service in his books of
account.
Meaning of “date of receipt of payment”
“Date of receipt of payment” in the above situation refers to the date on which
the payment is recorded in the books of account of the entity (supplier of
service) that receives the payment, or the date on which the payment is
credited to the entity’s bank account, whichever is earlier.
Significance of “to the extent the payment covers the services”
Suppose, a part of the consideration is paid in advance or invoice is issued
for part payment, the time of supply will not cover the full supply. The supply
shall be deemed to have been made to the extent it is covered by the invoice
or the part payment.
The provisions relating to time of supply of services in case of forward charge
can be depicted by way of a diagram given at page no. 5.29.
Time limit for issuance of invoice for supply of services
 As per section 31(2) read with rule 47 of CGST Rules, the tax invoice
needs to be issued either before the provision of service or within 30

5.26 INDIRECT TAXES
days (45 days in case of insurance companies/ banking companies/

financial institutions including NBFCs) from the date of supply of service.
 In case of insurance companies/ banking companies/ financial
institutions including NBFCs/ telecom companies/ notified supplier of
services making taxable supplies between distinct persons as specified
in section 254, invoice may be issued before or at the time of recording
such supply in the books of account or before the expiry of the quarter
during which the supply was made [Second proviso to rule 47].
 In case of continuous supply of services, the invoice should be issued
either (i) on/ before the due date of payment or (ii) before/ at the time
when the supplier of service receives the payment, if the due date of
payment is not known (iii) on/ before the date of completion of the
milestone event when the payment is linked to completion of an event
[Section 31(5)].
 In case of cessation of supply of services before completion of supply,
the invoice (to the extent of the supply made before such cessation)
should be issued at the time when the supply ceases [Section 31(6)].
Special procedure under section 148 for payment of tax in case of joint
development agreements in real estate sector
In a joint development agreement (JDA), a landowner transfers the land/
development rights over the land to a developer to develop and construct
a real estate project and in return gets a certain percentage of
constructed area in the project, depending upon the terms and conditions
agreed upon between them. The developer receives consideration for the
construction service provided by him, from (i) landowner, in the form of
land /development rights; and (ii) from other buyers (of the constructed
area), normally in the form of money.
In exercise of the powers conferred by section 148, the Central
Government, on the recommendations of the GST Council, has issued
Notification Nos. 4/2018 CT (R) & 4/2018 IT (R) both dated 25.01.2018
to defer the liability to pay GST in case of
4
Concept of distinct persons has been discussed in Chapter 7: Registration

 supply of development rights against consideration in the form of

construction service of complex, building or civil structure;
 supply of construction service of complex, building or civil structure
against consideration in the form of transfer of development rights
to the time when the possession or right in the property is transferred to
the land owner by entering into a conveyance deed or similar instrument
(e.g. allotment letter).
Mr. X enters into a joint development agreement with SM
Constructions Ltd. on 12th January whereby the development
right over the plot of land owned by Mr. X is transferred to SM
Constructions to build a residential complex. SM Constructions
agrees to transfer 3 flats out of 20 flats to be built in the residential complex
to Mr. X as a consideration for transfer of development rights.
The other details are:
Land development rights are transferred on 31st January
Construction begins on 1st April
Construction of 3 flats gets completed on 30th June
Construction of entire complex gets completed on 30th November
Allotment letter for 3 flats issued to Mr. X on 25th December
By virtue of the special procedure notified under section 148, payment of
GST on transfer of development rights by Mr. X and supply of construction
service by SM Constructions to Mr X is postponed to the date of allotment
letter i.e., 25th December.
ILLUSTRATION 5
Determine the time of supply from the following particulars:
6th May Booking of convention hall, sum agreed ` 15000, advance of

` 3000 received
15th September Function held in convention hall
th
27 October Invoice issued for ` 15000, indicating balance of ` 12000 payable
3rd November Balance payment of ` 12000 received

5.28 INDIRECT TAXES
ANSWER
As per section 31(2) read with rule 47 of CGST Rules, the tax invoice is to be
issued within 30 days of supply of service. In the given case, the invoice is not
issued within the prescribed time limit. As per section 13(2)(b), in a case where
the invoice is not issued within the prescribed time, the time of supply of service
is the date of provision of service or receipt of payment, whichever is earlier.
Therefore, the time of supply of service to the extent of ` 3,000 is 6th May as
the date of payment of ` 3000 is earlier than the date of provision of service.
The time of supply of service to the extent of the balance ` 12,000 is
15th September which is the date of provision of service.
ILLUSTRATION 6
Investigation shows that ABC & Co carried out service of cleaning and repairs of
tanks in an apartment complex, for which the Apartment Owners’ Association
showed a payment in cash on 4th April to them against work of this description.
The dates of the work are not clear from the records of ABC & Co. ABC & Co have
not issued invoice or entered the payment in their books of account.
ANSWER
The time of supply cannot be determined vide the provisions of clauses (a) and
(b) of section 13(2) as neither the invoice has been issued nor the date of
provision of service is available as also the date of receipt of payment in the
books of the supplier is also not available. Therefore, the time of supply will be
determined vide clause (c) of section 13(2) i.e., the date on which the recipient
of service shows receipt of the service in his books of account.
Thus, time of supply will be 4th April, the date on which the Apartment Owners’
Association records the receipt of service in its books of account.
Excess payment upto ` 1000: Option of taking invoice date as time
of supply
In terms of the proviso to sub-section (2) of section 13, if payment received is up
to ` 1,000 in excess of the invoice value, the supplier can choose to take the
related invoice date as the time of supply in relation to this excess value.
A telephone company receives ` 5000 against an invoice of ` 4800. The
excess amount of ` 200 can be adjusted against next invoice. The
company has the option to take date of next invoice as the time of supply
of service in relation to the amount of ` 200 received in excess against earlier invoice.

TIME OF SUPPLY OF SERVICES UNDER FORWARD CHARGE
Is invoice
YES Time of
issued within Date of issue of
Supply
the time invoice
specified u/s
31? Date on which the
NO payment is
recorded in the
Time of
Supply books of account of
the supplier
BANK
Date on which the
payment is credited
to the supplier’s
bank account
Date of Date on which the Date on

provision of payment is which the
service recorded in the payment is
books of account of credited to
the supplier the supplier’s
bank account
If time of supply
cannot be Date of receipt of services in
determined by the books of account of the
both the above recipient
methods, then

5.30 INDIRECT TAXES
SPECIAL PROCEDURE UNDER SECTION 148 FOR PAYMENT OF TAX

IN CASE OF JOINT DEVELOPMENT AGREEMENTS IN REAL ESTATE
SECTOR
Transfer of development
Construction of complex,
rights against
building or civil
consideration in the
structure against
form of construction
consideration in the
service of complex,
form of transfer of
building or civil
development rights
structure
GST to be paid at
the time
When the possession or right in the

property is transferred to the land owner
by entering into a conveyance deed or
similar instrument (e.g. allotment letter)
(ii) Receipt of services that are taxable under reverse charge

[Section 13(3)]
The time of supply of service on which GST is payable on reverse charge basis
(except on services received from associated enterprises located outside India)
under sub-sections (3) and (4) of section 9 is determined in terms of section
13(3)(a) and (b) as follows:
The time of supply for such service will be the earlier of the following:
 Date of payment, or
 Date immediately following 60 days since issue of invoice (or any other
document in lieu of invoice) by the supplier.

If it is not possible to determine the time of supply by using these parameters,

then the time of supply will be the date of entry of the service in the books
of account of the recipient of supply.
Meaning of “Date of payment”
“Date of payment” in the above situation refers to the date on which the
payment is recorded in the books of account of the entity that receives the
service (recipient of service), or the date on which the payment is debited
from the entity’s bank account, whichever is earlier.
Import of services between associated enterprises
In the case of service received from an associated enterprise located outside

India, the time of supply will be the date of payment for the service, or the
date of entry of the service in the books of account of the recipient, whichever
is earlier.
The provisions relating to time of supply of services in case of reverse charge

can be depicted by way of a diagram given at the next page.
ILLUSTRATION 7
Determine the time of supply from the given information. (Assuming that
service being supplied is taxable under reverse charge)
May 4 The supplier of service issues invoice for service provided.

There is a dispute about amount payable, and payment is
delayed.
August 21 Payment made to the supplier of service
ANSWER
Here, July 4 will be the time of supply, being the earliest of the two stipulated
dates namely, date of payment and date immediately following 60 days since
issue of invoice.

5.32 INDIRECT TAXES
TIME OF SUPPLY OF SERVICES UNDER REVERSE CHARGE
Date on which the

payment is recorded in
the books of account of
the recipient of services
Date on which the
payment is debited from
the bank account of the
recipient of services
st DAY
61st day from issue of
invoice by the supplier
If it is not possible to determine the time of supply through above parameters,

THEN
TIME OF SUPPLY WILL BE
Date of entry of service in the

books of account of the recipient
of supply
Supply of services
from AE located
outside India
Date of payment for the

service
Date of
Associated Enterprises (AE) entry of the
service in
the books
of account
of the
recipient

ILLUSTRATION 8
May 4 A German company issues email informing its associated company

ABC Ltd. of the cost of technical services provided to it.
July 2 ABC Ltd transfers the amount to the account of the German company
ANSWER
As there is no prior entry of the amount in the books of account of ABC Ltd.,
July 2 will be the time of supply, being the date of payment in terms of second
proviso to section 13(3).
(iii) Vouchers [Section 13(4)]
The term voucher has already been explained under the Heading “Time of
Supply of Goods”. The time of supply of vouchers that are exchangeable for
services is stipulated as the date of issue of the voucher, if the supply is
identifiable at that point, or the date of redemption of the voucher in other cases.
Best Hospitality Services enters into agreement with Drive
Marketing Ltd by which Drive Marketing Ltd. markets Best
Hospitality Services’ hotel rooms and sells coupons / vouchers
redeemable for a discount against stay in the hotel.
As the supply against which the voucher will be redeemed is identifiable, the
time of supply of the voucher will be its date of issue.
(iv) Residual case [Section 13(5)]
If the situation is not covered by any of the provisions discussed above, the
time of supply is fixed under sub-section (5) of section 13, in the following
manner:
 Date on which periodical return for the period is required to be filed, or
 In any other case, date on which GST is paid.
(v) Enhancement of value on account of interest/late fee etc. for delayed
payment of consideration [Section 13(6)]
The provisions for time of supply in case of addition in value by way of
interest, late fee/penalty for delayed payment of consideration are same for
goods and services.

5.34 INDIRECT TAXES
Section 13(6) prescribes that time of supply in case of addition in value by

way of interest/ late fee/penalty for delayed payment of consideration for a
service is the date on which the supplier receives such addition in value.
The provisions relating to time of supply of services as contained in section

13 are summarised in the diagram given below
Time of supply of services Time of supply of services

Time of supply of Time of supply of
under forward charge when under forward charge when
services under vouchers exchangeable for
the invoice is issued within the invoice is not issued
reverse charge services
the time specified u/s 31 within the time specified u/s
31
Date of recording the
payment in the books of Date of issue of voucher,
Date of issue of tax Date of provision of if the supply is
service accounts of the recipient of
invoice services identifiable at that point
Date of recording the Date on which payment is

Date of recording the
payment in the books of debited from the bank Date of redemption of
payment in the books of
accounts of the supplier account of the recipient of voucher in other cases
accounts of the supplier
services
Date on which payment is Date on which payment is 61st day from supplier’s
credited in the bank credited in the bank invoice
account of the supplier account of the supplier
whichever is earlier whichever is earlier whichever is earlier
If the above events are UNASCERTAINABLE If the above events are

UNASCERTAINABLE
Time of Supply = Date of receipt of services in the
books of account of the recipient of supply Time of supply = Date of entry of
services in books of account of the
recipient of supply
Residual case (If all the Due date of periodical return

above do not work for a OR
situation) Time of supply In any other case, the date on which tax is
paid
Addition in value by way of

interest, late fee/penalty for
Date on which the supplier receives
delayed payment of Time of supply
such addition in value
consideration for services

The provisions relating to time of supply of goods and services can be better
understood if the same are studied simultaneously appreciating the similarities and
differences between the two scenarios. Therefore, such provisions have been
summarised by way of a comparison table to help students remember and retain
the provisions in a better and effective manner:
TIME OF SUPPLY WHERE TAX IS PAYABLE UNDER FORWARD CHARGE
Time of supply of goods [Section Time of supply of services [Section

12(2)] 13(2)]
Earliest of the following: (a) Invoice issued within the

(a) Date of issue of invoice by the prescribed time period
supplier or the last date on which Earliest of the following:
he is required, to issue the  Date of issue of invoice by the
invoice with respect to the supply supplier
(b) Date on which the supplier  Date of receipt of payment
receives the payment (entering (entering the payment in books
the payment in books of account or of account or crediting of
crediting of payment in bank payment in bank account,
account, whichever is earlier) with whichever is earlier)
respect to the supply (b) Invoice not issued within the
No GST on advances received for prescribed time period
supply of goods: In case of supply of Earliest of the following:
goods by a registered person
 Date of provision of service
(excluding composition supplier),
 Date of receipt of payment
GST is to be paid on the outward
(entering the payment in books
supply of goods on the date of issue
of account or crediting of
of invoice or the last date on which
payment in bank account,
invoice ought to have been issued in
whichever is earlier)
terms of section 31 [Notification No.
66/2017 CT dated 15.11.2017]. (c) When the above events are
unascertainable
 Date on which the recipient
shows the receipt of services in
his books of account

5.36 INDIRECT TAXES
Time for payment of tax in case of joint

development agreements in real estate
sector
In case of-
 supply of development rights
against consideration in the form
of construction service of
complex, building or civil
structure;
 supply of construction service of
complex, building or civil
structure against consideration in
the form of transfer of
development rights
GST is to be paid at the time when the
possession or right in the property is
transferred to the land owner by
entering into a conveyance deed or
similar instrument (e.g. allotment
letter) [Notification Nos. 4/2018 CT
(R) & 4/2018 IT (R) both dated
25.01.2018].
GENERAL TIME LIMIT FOR RAISING INVOICES
Supply of goods Supply of services
Before or at the time of,- Before or after the provision of service

(a) removal of goods for supply to but within 30 days [45 days in case of
the recipient, where the supply insurance cos./banking and financial
involves movement of goods, or institutions including NBFCs] from the
date of supply of services
(b) delivery of goods or making
available thereof to the
recipient, in any other case

TIME OF SUPPLY WHERE TAX IS PAYABLE UNDER REVERSE CHARGE
Time of supply of goods [Section Time of supply of services [Section

12(3)] 13(3)]
Earliest of the following: Earliest of the following:

(a) Date of receipt of goods, or (a) Date of payment as entered in
(b) Date of payment as entered in the the books of account of the
books of account of the recipient or recipient or the date on which the
the date on which the payment is payment is debited to his bank
debited to his bank account, account, whichever is earlier, or
whichever is earlier, or (b) 61st day from the date of issue
(c) 31st day from the date of issue of of invoice
invoice
Where the above events are not ascertainable, the time of supply shall be the
date of entry in the books of account of the recipient of supply
- Import of service from associated

enterprise Date of entry in the books
of account of the recipient or the date
of payment, whichever is earlier
TIME OF SUPPLY OF VOUCHERS EXCHANGEABLE FOR GOODS AND SERVICES
Supply of vouchers exchangeable for goods and services [Sections 12(4) and 13(4)]
(a) Supply of goods or services is identifiable at the time of issue of voucher

 Date of issue of the voucher
(b) Other cases
 Date of redemption of the voucher

5.38 INDIRECT TAXES
TIME OF SUPPLY OF GOODS AND SERVICES IN RESIDUAL CASES
Supply of goods and services in residual cases [Sections 12(5) and 13(5)]
(a) Where a periodical return is required to be filed

 Due date of filing such return
(b) Other cases
 Date of payment of tax
TIME OF SUPPLY FOR ADDITION IN VALUE BY WAY OF INTEREST/ LATE

FEE/PENALTY FOR DELAYED PAYMENT OF CONSIDERATION
Addition in value by way of interest, late fee/penalty for delayed payment of

consideration
Time of Supply Date on which the supplier receives such addition in value
The provisions relating to time of supply of vouchers that are

exchangeable for goods are same as that of the vouchers that are
exchangeable for services. Similarly, the provisions relating to time
of supply of goods falling in the residual category are same as that
of the time of supply of services falling in the residual category. Also, provisions
relating to time of supply for addition in value by way of interest, late fee/penalty
for delayed payment of consideration are same for goods and services.
Furthermore, concepts like option of taking invoice date as time of supply in case
of excess payment upto ` 1000, meaning of “Date of receipt of payment”,
significance of words “to the extent the payment covers the services” are also
same for goods and services.
Students may make a note of the above points as it will help them in
understanding and remembering the provisions in a better manner.


1. Date on which the supplier receives the payment as per section 12 of CGST Act
is
(a) Date entered in books of accounts
(b) Date of credit in bank account
(c) Date entered in books of accounts or date of credit in bank account,
whichever is earlier
(d) Date on which receipt voucher is issued by supplier
2. What is time of supply of goods liable to tax under reverse charge mechanism?
(a) Date of receipt of goods
(b) Date on which the payment is made
(c) Date immediately following 30 days from the date of issue of invoice by
the supplier
(d) Earlier of (a) or (b) or (c)
3. What is the time of supply of vouchers when the supply with respect to the
voucher is identifiable?
(a) Date of issue of voucher
(b) Date of redemption of voucher
(c) Date of entry in books of accounts
4. What is the time of supply of vouchers when the supply with respect to the
voucher is not identifiable?
(a) Date of issue of voucher
(b) Date of redemption of voucher
(c) Date of entry in books of accounts
5. What is the time of supply of service if the invoice is issued within 30 days from
the date of provision of service?

5.40 INDIRECT TAXES
(a) Date of issue of invoice

(b) Date on which the supplier receives payment
(c) Date of provision of service
(d) Earlier of (a) & (b)
6. What is the time of supply of service if the invoice is not issued within 30 days
from the date of provision of service?
(a) Date of issue of invoice
(b) Date on which the supplier receives payment
(c) Date of provision of service
(d) Earlier of (b) & (c)
7. What is the time of supply of service in case of reverse charge mechanism?
(a) Date on which payment is made to the supplier
(b) Date immediately following 60 days from the date of issue of invoice
(c) Date of invoice
(d) Earlier of (a) and (b)
8. What is the time of supply of service where services are received from an
associated enterprise located outside India?
(a) Date of entry of services in the books of account of recipient of service
(b) Date of payment
(c) Earlier of (a) & (b)
(d) Date of entry of services in the books of the supplier of service
9. Determine the time of supply in the following cases assuming that GST is
payable under reverse charge:
S. No. Date of receipt Date of payment by Date of issue of invoice

of goods recipient of goods by supplier of goods
(1) (2) (3)
(i) July 1 August 10 June 29
(ii) July 1 June 25 June 29

(iii) July 1 Part payment made on June 29

June 30 and balance
amount paid on July 20
(iv) July 5 Payment is entered in June 1
the books of account on
June 28 and debited in
recipient’s bank account
on June 30
(v) July 1 Payment is entered in June 29
the books of account on
June 30 and debited in
recipient’s bank account
on June 26
(vi) August 1 August 10 June 29
10. Determine the time of supply in the following cases assuming that GST is
payable under reverse charge:
S. No. Date of payment by recipient for Date of issue of invoice

supply of services by supplier of services
(1) (2)
(i) August 10 June 29
(ii) August 10 June 1
(iii) Part payment made on June 30 and June 29
balance amount paid on September 1
(iv) Payment is entered in the books of June 1
account on June 28 and debited in
recipient’s bank account on June 30
(v) Payment is entered in the books of June 29
account on June 30 and debited in
recipient’s bank account on June 26
11. Kabira Industries Ltd engaged the services of a transporter for road transport
of a consignment on 17th June and made advance payment for the transport
on the same date, i.e., 17th June. However, the consignment could not be sent

5.42 INDIRECT TAXES
immediately on account of a strike in the factory, and instead was sent on

20th July. Invoice was received from the transporter on 22 nd July.
What is the time of supply of the transporter’s service?
Note: Transporter’s service is taxed on reverse charge basis.
12. Raju Pvt Ltd. receives the order and advance payment on 5 th January for
carrying out an architectural design job. It delivers the designs on 23 rd April.
By oversight, no invoice is issued at that time, and it is issued much lat er, after
the expiry of prescribed period for issue of invoice.
When is the time of supply of service?
13. Investigation shows that 150 cartons of ceramic capacitors were despatched on
2nd August but no invoice was made and the cartons were not entered in the
accounts. There was no evidence of receipt of payment.
What is the time of supply of 150 cartons for the purpose of payment of tax?
14. An order is placed on Ram & Co. on 18 th August for supply of a consignment of
customised shoes. Ram & Co. gets the consignment ready and informs the
customer and issues the invoice on 2 nd December. The customer collects the
consignment from the premises of Ram & Co. on 7 th December and
electronically transfers the payment on the same date, which is entered in the
accounts on the next day, 8 th December.
What is the time of supply of the shoes for the purpose of payment of tax?
15. Sodexo meal coupons are sold to a company on 9 th August for being distributed
to the employees of the said company. The coupons are valid for six months
and can be used against purchase of food items. The employees use them in
various stores for purchases of various edible items on different dates
throughout the six months.
What is the date of supply of the coupons?
16. A firm of advocates issues invoice for services to ABC Ltd. on 17 th Feb. The
payment is contested by ABC Ltd. on the ground that on account of negligence
of the firm, the company’s case was dismissed by the Court for non-appearance,
which necessitated further appearance for which the firm is billing the
company. The dispute drags on and finally payment is made on 3 rd November.
Identify the time of supply of the legal services.
Note: Legal services are taxable on reverse charge basis.

17. Modern Security Co. provides service of testing of electronic devices. In one
case, it tested a batch of devices on 4 th and 5 th September but could not raise
invoice till 19 th November because of some dispute about the condition of the
devices on return. The payment was made in December.
What is the method to fix the time of supply of the service?
7. ANSWERS/HINTS
1. (c) 2. (d) 3. (a) 4. (b) 5. (d) 6. (d) 7. (d)
8. (c)
9.
S. Date of Date of payment by Date of Date Time of supply

No. receipt recipient of goods issue of immedia of goods
of goods invoice tely [Earlier of (1),
by followin (2) & (4)]
supplier g 30 days
of goods from
date of
invoice
(1) (2) (3) (4) (5)
(i) July 1 August 10 June 29 July 30 July 1
(ii) July 1 June 25 June 29 July 30 June 25
(iii) July 1 Part payment made June 29 July 30 June 30 for
on June 30 and part payment
balance amount paid made and July
on July 20 1 for balance
amount
(iv) July 5 Payment is entered in June 1 July 2 June 28 (i.e.,
the books of account when payment
on June 28 and is entered in
debited in recipient’s the books of
bank account on June account of the
30 recipient)

5.44 INDIRECT TAXES
(v) July 1 Payment is entered in June 29 July 30 June 26 (i.e.,

the books of account when payment
on June 30 and is debited in
debited in recipient’s the recipient’s
bank account on June bank account)
26
(vi) August 1 August 10 June 29 July 30 July 30 (i.e.,
31st day from
issuance of
invoice)
10.
S. Date of payment by Date of Date Time of

No. recipient for supply of issue of immediately supply of
services invoice following 60 goods
by days from [Earlier of
supplier invoice (1) & (3)]
of
services
(1) (2) (3)
(i) August 10 June 29 August 29 August 10
(ii) August 10 June 1 August 1 August 1
(iii) Part payment made on June June 29 August 29 June 30 for
30 and balance amount part
paid on September 1 payment
and August
29 for
balance
amount
(iv) Payment is entered in the June 1 August 1 June 28 (i.e.
books of account on June when
28 and debited in recipient’s payment is
bank account on June 30 entered in
the books of
account of

the
recipient)
(v) Payment is entered in the June 29 August 29 June 26 (i.e.

books of account on June when
30 and debited in recipient’s payment is
bank account on June 26 debited in
the
recipient’s
bank
account)
11. Time of supply of service taxable under reverse charge is the earlier of the
following two dates in terms of section 13(3):
 Date of payment
 61st day from the date of issue of invoice
In this case, the date of payment precedes 61st day from the date of issue of
invoice by the supplier of service. Hence, the date of payment, that is 17 th
June, will be treated as the time of supply of service [Section 13(3)(a)].
12. Since the invoice has not been issued within the prescribed time period, time
of supply of service will be the earlier of the following two dates in terms of
section 13(2)(b):
 Date of provision of service
 Date of receipt of payment
The payment was received on 5 th January and the service was provided on
23rd April. Therefore, the date of payment, i.e., 5th January is the time of
supply of the service in this case.
13. As per Notification No. 66/2017 CT dated 15.11.2017, a registered person

5.46 INDIRECT TAXES
In this case since the invoice has not been issued, the time of supply will be
the last date on which the invoice is required to be issued.
The invoice for supply of goods must be issued on or before the despatch of
goods i.e., on 2 nd August. Therefore, time of supply of the goods will be 2nd
August, the date when the invoice should have been issued.
14. As per Notification No. 66/2017 CT dated 15.11.2017, a registered person
In this case, the invoice is issued before the removal of the goods and is thus,
within the time limit prescribed under section 31(1). Therefore, time of supply
is the date of issue of invoice, which is 2nd December.
15. As the coupons can be used for a variety of food items, which are taxed at
different rates, the supply cannot be identified at the time of purchase of the
coupons. Therefore, the time of supply of the coupons is the date of their
redemption in terms of section 12(4).
16. Time of supply of services that are taxable under reverse charge is earliest of
the following two dates in terms of section 13(3):
 Date of payment [3rd November]
 61st day from the date of issue of invoice [19th April]
The date of payment comes subsequent to the 61st day from the issue of
invoice by the supplier of service. Therefore, the 61st day from supplier’s
invoice has to be taken as the time of supply. This fixes 19th April as the time
of supply.
17. The time of supply of services, if the invoice is not issued in time, is the date
of payment or the date of provision of service, whichever is earlier [Section
13(2)(b)]. In this case, the service is provided on 5th September but not
invoiced within the prescribed time limit. Therefore, the date of provision of
service, i.e., 5th September, will be the time of supply.

UNIT – II : Value of Supply
LEARNING OUTCOMES
After studying this Unit, you will be able to-
 understand what constitutes the value of a taxable supply of
goods / services when the supply is made to an unrelated
person and price is the sole consideration for the supply
 identify the various inclusions in/exclusions from the value of
taxable supply
 pinpoint the situations when the discount will be included /not
included in the value of supply
 ascertain who are related persons
 compute the value of taxable supply when price is the sole
consideration for the supply and the supplier and recipient are
not related
VALUE OF SUPPLY
Value of supply made

Inclusions
to unrelated person
in/exclusions from Discount
with price as the sole
value of supply
consideration

5.48 INDIRECT TAXES
1. INTRODUCTION
GST is payable (i) on supply of goods and / or services for a consideration in the
course of or furtherance of business; (ii) on certain supplies made without a
consideration as specified in Schedule I to the CGST Act.
As GST is levied as a percentage of the value of
supply, whether of goods or of services, it
becomes important to know how to arrive at the
value on which tax is to be paid. Provisions
relating to ‘value of supply’ set out the mechanism
to compute such value basis which CGST and
SGST/UTGST (intra-State supply) and IGST (inter-
State supply) should be paid.
Section 15 of the CGST Act supplemented with the Chapter IV: Determination of
Value of Supply of CGST Rules1 prescribes the provisions for determining the value
of goods and services.
Section 15 of the CGST Act provides common provisions for determining the value
of goods and services. It provides the mechanism for determining the value of a
supply which is made between unrelated persons and when price and only the price
is the sole consideration of the supply. When value cannot be determined under
section 15, the same is determined using Chapter IV: Determination of Value of
Supply of CGST Rules.
Provisions of value of supply under CGST Act have also been made applicable
to IGST Act vide section 20 of the IGST Act.
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 [Section 2(5)].
1
Chapter IV: Determination of Value of Supply of CGST Rules will be discussed at the Final level.

Factor Who
carries on
business of
Broker
supply of
goods and
Commission agent /or
services
AGENT
Arhatia
Del Credre agent
On behalf
Auctioneer of another
Mercantile agent
Cess shall have the same meaning as assigned to it in the Goods and Services
Tax (Compensation to States) Act [Section 2(22)].
Consideration in relation to the supply of goods or services or both includes –
(a) any payment made or to be made, whether in money or otherwise, in
respect of, in response to, or for the inducement of, the supply of goods
or services or both, whether by the recipient or by any other person but
shall not include any subsidy given by the Central Government or a
State Government;
(b) the monetary value of any act or forbearance, in respect of, in response
to, or for the inducement of, the supply of goods or services or both,
whether by the recipient or by any other person but shall not include
any subsidy given by the Central Government or a State Government;
Provided that a deposit given in respect of the supply of goods or services or
both shall not be considered as payment made for such supply unless the
supplier applies the deposit as consideration for the said supply [Section
2(31)].

5.50 INDIRECT TAXES
CONSIDERATION
Payment in money Monetary value of

or otherwise for any act or
the supply forbearance for the
By recipient or supply
any other
Deposit to be person
considered as payment
ONLY Excluding subsidy given

by Central/State
Governments
When the supplier
applies such deposit as
consideration for the
said supply
Goods means every kind of movable property other than money and securities
but includes actionable claim, 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 [Section 2(52)].
Market value shall mean the full amount which a recipient of a supply is
required to pay in order to obtain the goods or services or both of like kind and
quality at or about the same time and at the same commercial level where the
recipient and the supplier are not related [Section 2(73)].
of like kind & quality
at or about the same

time
Full amount which a
to obtain goods and / or
MARKET VALUE recipient is required to
services
pay
at the same commercial
level
where recipient &

supplier are not related

Money means the Indian legal tender or any foreign currency, cheque,
promissory note, bill of exchange, letter of credit, draft, pay order, traveller
cheque, money order, postal or electronic remittance or any other instrument
recognised by the Reserve Bank of India when used as a consideration to settle
an obligation or exchange with Indian legal tender of another denomination but
shall not include any currency that is held for its numismatic value [Section 2(75)].
Indian legal tender
Foreign Currency
Cheque
Promissory note
Bill of Exchange When used as

a
consideration
Letter of Credit to settle an
Currency
obligation or
EXCLUDING held for its
exchange
numismatic
Money Draft with Indian
value
legal tender of
another
Pay Order denomination
Traveller Cheque
Money Order
Postal or electronic
remittance
Any other instrument

recognised by RBI
Person includes-
(a) an individual;
(b) a Hindu Undivided Family;

5.52 INDIRECT TAXES
(c) a company;
(d) a firm;
(e) a Limited Liability Partnership;
(f) an association of persons or a body of individuals, whether
incorporated or not, in India or outside India;
(g) any corporation established by or under any Central Act, State Act or Provincial
Act or a Government company as defined in section 2(45) of the Companies Act,
2013;
(h) any body corporate incorporated by or under the laws of a country
outside India;
(i) a co-operative society registered under any law relating to cooperative
societies;
(j) a local authority;
(k) Central Government or a State Government;
(l) society as defined under the Societies Registration Act, 1860;
(m) trust; and
(n) every artificial juridical person, not falling within any of the above
[Section 2(84)].
Prescribed means prescribed by rules made under this Act on the
recommendations of the Council [Section 2(87)].
Recipient of supply of goods or services or both, means—
(a) where a consideration is payable for the supply of goods or services or
both, the person who is liable to pay that consideration;
(b) where no consideration is payable for the supply of goods, the person
to whom the goods are delivered or made available, or to whom
possession or use of the goods is given or made available; and
(c) where no consideration is payable for the supply of a service, the person
to whom the service is rendered,
and any reference to a person to whom a supply is made shall be construed
as a reference to the recipient of the supply and shall include an agent acting

as such on behalf of the recipient in relation to the goods or services or both

Services means anything other than goods, money and securities but includes
activities relating to the use of money or its conversion by cash or by any other
mode, from one form, currency or denomination, to another form, currency or
denomination for which a separate consideration is charged
Supplier in relation to any goods or services or both, shall mean the person
supplying the said goods or services or both and shall include an agent acting
as such on behalf of such supplier in relation to the goods or services or both
Voucher means an instrument where there is an obligation to accept it as
consideration or part consideration for a supply of goods or services or both and
where the goods or services or both to be supplied or the identities of their
potential suppliers are either indicated on the instrument itself or in related
documentation, including the terms and conditions of use of such instrument
[Section 2(118)].
3. VALUE OF SUPPLY [SECTION 15]
Section 15 Value of taxable supply
(1) The value of a supply of goods or services or both shall be the

transaction value, which is the price actually paid or payable for the
said supply of goods or services or both where the supplier and the
recipient of the supply are not related and the price is the sole
consideration for the supply.
(2) The value of supply shall include-
(a) any taxes, duties, cesses, fees and charges levied under any
law for the time being in force other than this Act, the State

5.54 INDIRECT TAXES
Goods and Services Tax Act, the Union Territory Goods and
Services Tax Act and the Goods and Services Tax
(Compensation to States) Act, if charged separately by the
supplier;
(b) any amount that the supplier is liable to pay in relation to

such supply but which has been incurred by the recipient
of the supply and not included in the price actually paid or
payable for the goods or services or both;
(c) incidental expenses, including commission and packing,

charged by the supplier to the recipient of a supply and
any amount charged for anything done by the supplier in
respect of the supply of goods or services or both at the
time of, or before delivery of goods or supply of services;
(d) interest or late fee or penalty for delayed payment of any

consideration for any supply; and
(e) subsidies directly linked to the price excluding subsidies

provided by the Central Government and State
Governments.
Explanation.––For the purposes of this sub-section, the amount of

subsidy shall be included in the value of supply of the supplier who
receives the subsidy.
(3) The value of the supply shall not include any discount which is given
(a) before or at the time of the supply if such discount has

been duly recorded in the invoice issued in respect of such
supply; and
(b) after the supply has been effected, if—
(i) such discount is established in terms of an

agreement entered into at or before the time of such
supply and specifically linked to relevant invoices;
and

(ii) input tax credit as is attributable to the discount on

the basis of document issued by the supplier has
been reversed by the recipient of the supply.
(4) Where the value of the supply of goods or services or both cannot
be determined under sub-section (1), the same shall be determined
in such manner as may be prescribed.
(5) Notwithstanding anything contained in sub-section (1) or sub-

section (4), the value of such supplies as may be notified by the
Government on the recommendations of the Council shall be
determined in such manner as may be prescribed.
Explanation—For the purposes of this Act,––
(a) persons shall be deemed to be “related persons” if––
(i) such persons are officers or directors of one another’s

businesses;
(ii) such persons are legally recognised partners in business;
(iii) such persons are employer and employee;
(iv) any person directly or indirectly owns, controls or holds

twenty-five per cent or more of the outstanding voting stock
or shares of both of them;
(v) one of them directly or indirectly controls the other;
(vi) both of them are directly or indirectly controlled by a third

person;
(vii) together they directly or indirectly control a third person; or

they are members of the same family;
(b) the term “person” also includes legal persons;

5.56 INDIRECT TAXES
(c) persons who are associated in the business of one another in that one
is the sole agent or sole distributor or sole concessionaire, howsoever
described, of the other, shall be deemed to be related
ANALYSIS
The CGST law has different provisions for determining the value of a supply of
goods / services in the following situations:
 Supplies made for a price in money (monetary consideration), to unrelated
persons  Sub-section (1) of section 15;
 Supplies made for non-monetary consideration, or for part monetary
consideration and part other, or involving additional consideration, or to
related persons, or for specific classes of supply  Sub-sections (4) and (5)
of section 15 read with the Chapter IV: Determination of Value of Supply of
CGST Rules.
The ‘Explanation’ to section 15 defines ‘related person’ to cover various situations
of control, including sole agent, sole distributor and sole concessionaire. The
concept of related person has been presented in diagram at page no.5.58.
A. Supplies to unrelated persons where price is the sole
consideration
(i) Transaction value [Section 15(1)]
When a transaction of supply of goods / services is made
 between two persons (see definition of “person”) who are not related
to each other (see definition of “related person” in ‘Explanation’ to
section 15), and
 price is the sole consideration (see definition of consideration) for the
supply,

the value of supply will be the “transaction value” .
Price is the Value of

Supply is
sole supply will
between
considerati be
unrelated Transaction
-on for the
persons value
supply
Under section 15(1), the transaction value which is applicable between

unrelated persons where price is the sole consideration for the supply is -
the price actually paid or payable for the said supply of goods or services
or both.
This is the price for the specific supply that is being valued. It includes the
amount already paid at the time the supply is being valued for tax, as well as the
amount payable and not yet paid at that time. The word ‘payable’ refers to price
that is agreed to be paid for the goods / services.
Wholesale price for 1 MT of cement sold by X Ltd. in the ordinary
course of business : ` 7,000.
Price of 1 MT of cement sold by X Ltd. to Y : ` 6,700.
Value of supply made by X Ltd. to Y is ` 6,700 which is the price actually paid or
payable and not the wholesale price.
The value of taxable supply of goods and services shall

ordinarily be ‘the transaction value’ which is the price paid
or payable, when the parties are not related and price is the
sole consideration. Section 15 of the CGST Act further
elaborates various inclusions and exclusions from the ambit of
transaction value. For example, the transaction value shall not include
discount allowed subject to certain conditions.

5.58 INDIRECT TAXES
Related persons [Explanation to section 15]
IF Such persons are

Persons including DEEMED AS RELATED officers/directors of one
Legal Persons PERSONS another’s business
Such persons are legally

recognised partners
Such persons are employer &

employee

(directly/indirectly) or own/
holds ≥ 25% voting
stock/shares of both of them
One of them controls

(directly/indirectly) the other

(directly/indirectly) both of
them
Such persons together control

(directly/indirectly) a third
person
Such persons are members of

the same family
One of them is the sole

agent/sole distributor/sole
concessionaire of the other

(ii) Inclusions in value [Section 15(2)]

The value of supply includes certain elements which are enumerated and
discussed below.
 Taxes, duties, fees and charges other than CGST, SGST, UTGST, GST
Compensation Cess, if charged separately [Value under IGST will include
taxes other than IGST and the GST Compensation Cess in terms of third
proviso to section 20 of IGST Act]
 Payments to third parties  Any amount that the supplier is liable to
pay but which has been incurred by the recipient of the supply and not
already included in the price.
 Incidental expenses, such as, commission and packing, charged by the
supplier to the recipient of a supply, including any amount charged for
anything done by the supplier in respect of the supply of goods/services
at the time of, or before delivery of the goods /supply of the services
 Interest or late fee or penalty for delayed payment of consideration
 Subsidies, provided in any manner, linked to the price, other than
subsidies given by the State or Central Governments
The above ingredients are discussed below.
Taxes other than GST, if charged separately by the supplier [Section
15(2)(a)]
IGST, CGST, SGST, UTGST and GST Compensation Cess are not part of value,
but other taxes/cesses/fees etc. will form part of the value of supply, if
separately billed. For instance, if a supplier of goods pays a municipal tax in
relation to the goods being supplied and bills the same separately, such tax
will form part of the value of supply. In the same situation, if the supplier
pays the municipal tax but does not charge the same separately, even then
such tax will form part of the value of supply as the supplier would have
factored such tax while computing the cost of the goods. Therefore, in this
scenario, the municipal tax need not be included again in the value of supply.
Payments made to third parties by the recipient on behalf of the
supplier in relation to the supply [Section 15(2)(b)]
A supplier may need to incur various expenses in order to make a particular
supply of goods / services. In the normal course, he would pay these amounts

5.60 INDIRECT TAXES
and they would form part of the value that he charges from the customer
(recipient of supply). However, even if the customer makes direct payment of
some of such liabilities (of the supplier) to the third parties, and the supplier does
not include this amount in his bill, it would still form part of the value of the
supply.
A point to note here is that amount paid by the recipient to third parties will be
added to the value under this clause only when the supplier is under contractual
liability to make payment to such third parties and the said payment is in relation
to such supply.
Grand Biz contracts with ABC Co. to conduct a dealers’ meet. In
furtherance of this, Grand Biz contracts with vendors to deliver goods
/ services, like water, soft drinks, audio system, projector, catering,
flowers etc. at the venue on the stipulated dates at the stipulated
prices. Grand Biz is liable to make these payments as contracted.
The soft drinks supplier wants payment upon delivery; ABC Co. agrees to pay the
bill raised by the soft drinks vendor on Grand Biz on receiving the crates of soft
drinks. This amount is not billed by Grand Biz to ABC Co. However, it would be
added to the value of service provided by Grand Biz to ABC Co. for payment of GST.
Incidental expenses [Section 15(2)(c)]
Incidental expenses, such as, commission and packing charged by the supplier
or anything else done by the supplier in relation to the supply at the time of or
before the delivery of goods or supply of services must be added to value.
Commission: This may be paid to an agent and recovered from the
buyer of the goods / services; this is part of the value of the supply.
Packing, if charged by the supplier to the recipient, is similarly part
of the value of the supply.
Inspection or certification charges are another element that may be added
to the value, if billed to the recipient of supply.
Installation and testing charges at the recipient’s site will also be added,
being an amount charged for something done by the supplier in respect of the
supply at the time of making the supply.
Weighment charges, loading & designing charges incurred before
supply

Outward freight, transit insurance

Where the supplier agrees to deliver the goods at the buyer’s premises and
arranges for transport (FOR contract), the contract of supply becomes a
composite supply, the principal supply being the supply of goods. Therefore,
outward freight becomes part of the value of the composite supply and GST
is payable thereon at the same rate as applicable for the relevant goods.
However, if the contract for supply is on ex-factory basis where buyer pays
the outward freight, the same will not be included in the value of supply of
goods. Similarly, in FOR contracts of supply of goods, transit insurance will
also become part of the value of composite supply.
Interest, late fee and penalty for delayed payment [Section 15(2)(d)]
The value for a supply will include not only the base price but also the charges
for delay in payment.
A supply priced at ` 2,000 is made, with a credit period of 1 month
for payment. Thereafter interest of 12% is charged. The payment
is received after the lapse of two months from the date of supply.
The amount of 12% p.a. (i.e. 1% per month) on ` 2,000 for one
month after the free credit period is ` 20. Such interest will be added to the
value and thus, the value of supply will work out to be ` 2,020, assuming the
interest to be exclusive of GST.
Subsidies [Section 15(2)(e)]
Subsidy is a sum of money given to keep the price of a service or commodity
low. If the subsidy is given by the State or Central Government; the lower
price, after adjusting the subsidy, is the value. If the subsidy is given by a
person or entity other than the State or Central Government, it does not lower
the value. The subsidy is added to the value of supply of the supplier who
receives the subsidy.
The selling price of a notebook is ` 50. For notebooks sold to
students in Government schools, a company uses its CSR funds to
pay the seller ` 30, so that the students pay only ` 20 per
notebook. The value of the notebook will be ` 50, as this is a non-
government subsidy. If the same subsidy is paid by the Central Government
or State Government, the value of the notebook would be ` 20.

5.62 INDIRECT TAXES
(iii) Exclusion of discounts from value [Section 15(3)]

The principle here is that price as established at the time of supply forms the
basis of value. Discounts that are allowed are as follows:
 Discounts that are allowed before or at the time of supply and shown
in the invoice;
 Discounts that are allowed after supply in terms of an agreement that
existed at the time of supply and are worked out invoice-wise and the
proportionate input tax credit is reversed by the recipient.
Examples of discount deductible from value of supply

(i) Royal Biscuit Co. gives a discount of 30% on the list price to its
distributors. Thus, for a carton of Spicebisk, in the invoice the list
price is mentioned as ` 200, on which a discount of 30% is given to arrive at
the final price of ` 140. The value is ` 140, as the discount is allowed at the
time of supply and shown in the invoice.
(ii) The agreement of Raju Electrical Appliances with its dealers is that sale
of rice cookers over 100 pieces in the Diwali month will entitle them to
discount of 5% per cooker sold to them in the next month. The next month’s
stock has already been despatched when the sales figures for the Diwali
month are worked out. However, as the agreement was in existence at the
time of supply, and the discount can be worked out for each invoice, the value
will be billed price minus 5%. The dealer must reverse the proportionate input
tax credit on the relevant stock to bring it in line with the reduced tax.
Example of non-deductible discount

A company announces turnover discounts after reviewing dealer
performance during the year. The discounts are based on
performance slabs and are given as cash-back. As these discounts
were not known at the time of supply of the goods, they will not be deducted
from value of those goods.
The provisions relating to discount have been depicted by way of diagram
given at the next page.

At the time of supply

+ Yes
Shown in the No
invoice
Discounts given Before the supply

+
Discounts
+
In terms of an not
agreement that included in
After the supply existed at the the value
time of supply of supply
+
Can be linked Discounts
to invoices included in
+
the value of
supply
Proportionate
ITC reversed by
recipient
No
Yes
B. Supplies where value cannot be determined u/s 15(1) and

notified supplies [Sub-sections (4) and (5) of section 15]
Section 15(4) lays down that where sub-section (1) is not applicable, that is,
if the transaction is with a related party, and/or price is not the sole
consideration for the supply of goods / services, then the value will be
determined in the manner as prescribed, which means as stipulated in the
rules for valuation [See the definition of ‘prescribed’]. Further, section 15(5)
lays down that in respect of certain notified supplies also, the value will be
determined in the manner as stipulated in the rules for valuation. As stated
earlier, these rules will be discussed at the Final level.

5.64 INDIRECT TAXES
Value of supply under section 15
Supply to be valued as per

Chapter IV: Determination
Whether price is the sole No of Value of Supply of CGST
consideration for supply? Rules
Yes
Whether supplier and the Yes

recipient are related?
No
Yes
Whether the supply is a
notified supply u/s 15(5)?
No
Value of supply =
Transaction value u/s 15(1)
ILLUSTRATION 1
Black and White Pvt. Ltd. has provided the following particulars relating to goods
sold by it to Colourful Pvt. Ltd.
Particulars `
List price of the goods (exclusive of taxes and discounts) 50,000
Tax levied by Municipal Authority on the sale of such goods 5,000
CGST and SGST chargeable on the goods 10,440

Packing charges (not included in price above) 1,000
Black and White Pvt. Ltd. received ` 2000 as a subsidy from a NGO on sale of such
goods. The price of ` 50,000 of the goods is after considering such subsidy. Black and
White Ltd. offers 2% discount on the list price of the goods which is recorded in the
invoice for the goods.
Determine the value of taxable supply made by Black and White Pvt. Ltd.
ANSWER
Computation of value of taxable supply
Particulars `
List price of the goods (exclusive of taxes and discounts) 50,000
Tax levied by Municipal Authority on the sale of such goods 5,000

[Includible in the value as per section 15(2)(a)]
CGST and SGST chargeable on the goods [Not includible in the

value as per section 15(2)(a)]
Packing charges [Includible in the value as per section 15(2)(c)] 1,000
Subsidy received from a non-Government body [Since subsidy is 2,000

received from a non-Government body, the same is included in the
value in terms of section 15(2)(e)]
Total 58,000
Less: Discount @ 2% on ` 50,000 [Since discount is known at the 1,000

time of supply, it is deductible from the value in terms of section
15(3)(a)]
Value of taxable supply 57,000

5.66 INDIRECT TAXES
ILLUSTRATION 2
Samriddhi Advertisers conceptualised and designed the advertising campaign for a

new product launched by New Moon Pvt Ltd. for a consideration of ` 5,00,000.
Samriddhi Advertisers owed ` 20,000 to one of its vendors in relation to the
advertising service provided by it to New Moon Pvt Ltd. Such liability of Samriddhi
Advertisers was discharged by New Moon Pvt Ltd. New Moon Pvt Ltd. delayed the
payment of consideration and thus, paid ` 15,000 as interest. Assume the rate of
GST to be 18%.
Determine the value of taxable supply made by Samriddhi Advertisers.
ANSWER
Computation of value of taxable supply
Particulars `
Service charges 5,00,000
Payment made by New Moon Pvt. Ltd to vendor of Samriddhi 20,000

Advertisers [Liability of the supplier being discharged by the
recipient, is includible in the value in terms of section 15(2)(b)]
Interest for delay in payment of consideration [Includible in the 12,712

value in terms of section 15(2)(d) – Refer note below] (rounded off)
Value of taxable supply 5,32,712
Note: The interest for delay in payment of consideration will be includible in the
value of supply but the time of supply of such interest will be the date when such
interest is received in terms of section 13(6). Such interest has been assumed to be
inclusive of GST and the value computed by making back calculations [Interest /100
+ tax rate) x 100].

VALUE OF SUPPLY
Supply made to
Supply where price Supply is a
unrelated person Supply made to is not the sole notified supply
where price is the related person consideration u/s 15(4)
sole consideration
Value of supply
=
Transaction value u/s 15(1) Value to be determined under Chapter IV:
Determination of Value of Supply of CGST
Rules
Inclusions in value u/s 15(2)

 Taxes other than GST
 Third party payments made by customer in relation to supply, which supplier was
liable to pay and were not included in the price
 Incidental expenses including anything done by the supplier in respect of the
supply till delivery of goods/ for supply of services, if charged to recipient
 Subsidies linked to price of supply other than the ones given by Central/State
Governments
 Interest/late fee/penalty for delay in payment of consideration
Exclusions from value u/s 15(2)

 Discounts given before or at the time of supply and recorded in the invoice
 Post supply discount/incentive, if known in advance & linked with invoices and
proportionate input tax credit has been reversed by the recipient

5.68 INDIRECT TAXES

1. Value of supply under section 15(1) is :
(a) Wholesale price
(b) Market value
(c) Maximum retail price
(d) Transaction value
2. The value of supply should include:
(a) Any non-GST taxes, duties, cesses, fees charged separately by supplier
(b) Interest, late fee or penalty for delayed payment of any consideration for
any supply
(c) Subsidies directly linked to the price except subsidies provided by the
Central and State Governments
3. Which of the following shall not be included in value of supply?
(a) GST
(b) Interest
(c) Late fee
(d) Commission
4. When can the transaction value be rejected for computation of value of supply?
(a) When the buyer and seller are related and price is not the sole
consideration
(b) When the buyer and seller are related or price is not the sole
consideration
(c) It can never be rejected
(d) When the goods are sold at very low margins
5. Which of the following statement(s) is/are correct?
(a) Section 15 of CGST Act prescribes different provisions for valuation of
goods and services

(b) CGST Act and IGST Act have different provisions for valuation of supply
(c) Section 15 of CGST Act prescribes same set of provisions for valuation of
goods and services
(d) (a) and (b)
6. Discount given after the supply is deducted from the value of supply, if –
(a) such discount is given as per the agreement entered into at/or before the
supply
(b) such discount is linked to the relevant invoices
(c) proportionate input tax credit is reversed by the recipient of supply
(d) all of the above
7. AKJ Foods Pvt. Ltd. gets an order for supply of processed food from a customer.
The customer wants the consignment tested for gluten or specified chemical
residues. AKJ Foods Pvt. Ltd. does the testing and charges a testing fee for the
same from the customer. AKJ Foods Pvt. Ltd. argues that such testing fess
should not form part of the consideration for the sale as it is a separate activity.
Is his argument correct in the light of section 15?
8. A philanthropic association makes a substantial donation each year to a
reputed private management institution to subsidise the education of low
income group students who have gained admission there. The fee for these
individuals is reduced thereby, coming to ` 3 lakh a year compared to ` 5 lakh
a year for other students.
What would be the value of the service of coaching and instruction provided by
the institution to the low income group students?
9. Mezda Banners, an advertising firm, gives an interest-free credit period of 30
days for payment by the customer. Its customer ABC paid for the supply 32
days after the supply of service. Mezda Banners waived the interest payable
for delay of two days.
The Department wants to add interest for two days as per contract. Should
notional interest be added to the value?
10. Crunch Bakery Products Ltd sells biscuits and cakes through its dealers, to
whom it charges the list price minus standard discount and pays GST

5.70 INDIRECT TAXES
accordingly. When goods remain unsold with the dealers, it offers additional
discounts on the stock as an incentive to push the sales.
Can this additional discount be reduced from the price at which the goods were
sold and concomitant tax adjustments made?
6. ANSWERS/HINTS
1. (d) 2. (d) 3. (a) 4. (a) & (b) 5. (c) 6. (d)
7. Section 15(2) mandates the addition of certain elements in the value of
supply. Clause (c) of section 15(2) specifies that amount charged for anything
done by the supplier in respect of the supply at the time of or before delivery
of goods or supply of services shall be included in the value of supply.
Since AKJ Foods Pvt. Ltd. does the testing before the delivery of goods, the
charges therefor will be included in the value of the consignment. Therefore,
AKJ Foods Pvt. Ltd.’s argument is not correct. The testing fee should be added
to the price to arrive at value of the consignment.
8. As per section 15(2)(e), the value of a supply includes subsidies directly linked
to the price, excluding State Government and Central Government subsidies.
In this case, the subsidy is not from the Government but is from a
philanthropic association. Therefore, the subsidy is to be added back to the
price to arrive at the value, which comes to ` 5 lakh a year.
9. This is a supply that is valued as per transaction value under section 15(1) as
the price is the sole consideration for the supply and the supply is made to
unrelated person. The value of a supply includes certain elements like interest
which are actually payable. Once waived, the interest is not payable and is
therefore, not to be added to the value.
10. The discounts were not known or agreed at the time of supply of goods to
the dealers. Therefore, such discounts cannot be reduced from the price on
which tax had been paid in terms of section 15(3).

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Intermediate Course

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Edition : September, 2018

Committee/ : Board of Studies

Price (All Modules) : `

Published by : The Publication Department on behalf of The Institute of

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The traditional role of a chartered accountant restricted to accounting and

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© The Institute of Chartered Accountants of India

Components About the component

1. Learning Learning outcomes which you need to demonstrate after

2. Chapter As the name suggests, the flow chart/table/diagram

3. Content The GST law has been explained by following a

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of concepts/provisions. These value additions will, thus,

4. Let Us A summary of the chapter, in the form of

5. Test Your This section comprises of variety of questions which will

6. Answers After you work out the problems/questions given under

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existing on 25.09.2018. The reference to years/months subsequent to such

Happy Reading and Best Wishes!

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To develop an understanding of the provisions of income-tax law and goods and

SECTION A: INCOME TAX LAW (60 MARKS)

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(iii) Profits and gains of business or profession

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9. Advance tax, tax deduction at source and introduction to tax

SECTION B – INDIRECT TAXES (40 MARKS)

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a) Application of CGST/IGST law

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CHAPTER-1: GST IN INDIA–AN INTRODUCTION

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CHAPTER-3: CHARGE OF GST

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3. Time of Supply of Goods [Section 12] ........................................................................... 5.7

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© The Institute of Chartered Accountants of India

Direct and Indirect Taxes

Features of indirect taxes

Genesis of GST in india

Need for GST in India

Framework of GST as introduced in India

What is a tax? A tax may be defined as a "pecuniary burden laid upon

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2. DIRECT AND INDIRECT TAXES

At Intermediate level, we will study the concept of Goods and

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Burden of tax borne Burden of tax shifted

Direct Tax Indirect Tax

Direct taxes Income tax

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3. FEATURES OF INDIRECT TAXES

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4. GENESIS OF GST IN INDIA

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