Basics of Goods and Services

Lesson 12 Tax
Key Concepts One Learning Objectives Regulatory
Should Know
To understand Framework
• Supply
• Concepts of GST 1. Central Goods and Services Tax
• Consideration
• Destination Principle Act, 2017
• CGST
• Dual GST Model
• UTGST Section Deals with
• Outside the scope of GST
• Composition Section 2(30) Definition of
• Basic calculation of GST Composite Supply
Scheme
• Meaning of Related Section 2(74) Definition of Mixed
• Composite Supply Supply
persons and distinct
• Mixed Supply person Section 7 Meaning and Scope
of Supply
• Concept of Supply
Section 10 Composition
• Composite Supply and Scheme
Mixed Supply Section 11 Power to grant
exemption from tax
• Composition Scheme
Section 15 Value of Taxable
• Forward Charge Supply
Mechanism and Reverse Section 25 Procedure for
Charge Mechanism Registration

Lesson Outline
• Basic concepts and overview of GST
• Regulatory Framework
• GST Model
• Constitutional Framework of GST
• Taxable Event
• Calculation of GST
• Concept of supply including composite and mixed supply
• Levy and collection of Tax
• Composition Scheme & Reverse Charge
• Exemptions under GST
• LESSON ROUND UP
• GLOSSARY
• TEST YOURSELF
• LIST OF FURTHER READINGS
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BASIC CONCEPTS AND OVERVIEW OF GOODS AND SERVICES TAX

Meaning of GST
GST is a single, unified tax on every value-add, right from Destination Based Tax:
manufacture to sale / consumption of goods / services. Hence,
Destination Based Tax is the tax based on
with the advent of GST, the legacy taxes on manufacture (Excise),
destination or consumption of the goods or
Inter-State sales (CST), Intra-State sales (VAT) and Service Tax
services. It is different from origin based
have been subsumed. There has been a paradigm shift in the way
taxation because origin based tax is levied
the tax is being levied. We have now moved from source based to
where goods or services are produced.
destination-based taxation, with GST coming into foray. Hence GST
is also labelled as a destination-based / consumption-based tax.
Continuous chain of tax credits
GST also does away with the cascading effects of taxation, by providing a comprehensive and continuous chain of
tax credits, end to end and taxing only the value-added at every stage. The final tax is borne by the end consumer, as
all the parties in the interim can extinguish their respective collections against their respective liabilities and the tax
already paid by them (Input Tax Credit).

GST MODEL
Dual GST Model:
India has adopted a dual GST model, i.e., where the tax is imposed concurrently by the Centre and the States. For an
intra-State sale, the GST is equally divided between the Centre and the State (CGST + SGST), and for inter-State sales,
the GST is collected by the Centre (IGST).
CGST/SGST/UTGST/IGST
• GST is a destination-based tax applicable on all transactions, involving supply of goods/services for a
consideration, and comprises of Central Goods & Services Tax (CGST), levied by the Central Government,
and State Goods and Services Tax (SGST), levied by the State Government; OR
• Union Territory Goods and Services Tax (UTGST) levied by Union Territories, on intra-State supplies of
taxable goods & services. Inter-State supplies of taxable goods/services are subject to Integrated Goods &
Services Tax (IGST), which is levied by the Central Government and is equal to CGST + SGST.

Legislative Framework:
The CGST is levied under the CGST Act, 2017. UTGST is levied under the UTGST Act, 2017 and this is applicable to
Union Territories, i.e., Andaman & Nicobar Islands, Lakshadweep, Dadra & Nagar Haveli and Daman & Diu (w.e.f.
26.01.2020), Chandigarh, Jammu & Kashmir (w.e.f. 31.10.2019), Ladakh (w.e.f. 31.10.2019),
National Capital Territory of Delhi and Puducherry (earlier Pondicherry). SGST is levied under the respective state
legislations. Jammu & Kashmir & Ladakh has been made union territories. The reorganization took effect from
October 31, 2019. Dadra & Nagar Haveli & Daman & Diu are merged into a single Union Territory.

CGST
Intra-State
SGST
GST

Inter-State IGST
 Lesson 12 • Basics of Goods and Services Tax 635

CONSTITUTIONAL FRAMEWORK OF GOODS & SERVICES TAX

Power to levy Goods and Services Tax (GST), has been conferred by Article 246A of the Constitution. This was
introduced, by the Constitution (101st Amendment) Act, 2016. GST is levied on all goods and services except
alcoholic liquor for human consumption and petroleum crude, diesel, petrol, ATF and natural gas.
Presently not taxable under GST
In respect of the goods shown in diagram, the provisions around chargeability of GST would apply from the date
when recommended by the GST Council.

Central
Excise
Duty

Therefore, Central Excise Duty continues to be levied on manufacture/production, of Petroleum Crude, High
Speed Diesel, Petrol, Natural Gas and Aviation Turbine Fuel and inter-State/intra-State sale of the same is
subject to CST / VAT.
Alcoholic Liquor for human consumption:
State Excise Duty continues to be levied on manufacture / production of alcoholic liquor for human consumption
and inter State sale of the same is subject to CST/VAT respectively.
Tobacco:
GST is leviable on tobacco. However, union government has retained the power to levy excise duties on tobacco and
tobacco products manufactured in India. Hence Tobacco attracts both Excise and GST.
Outside the scope of GST
Petroleum Products and Alcoholic Liquor for human consumption is kept outside the ambit of GST. Additionally,
though, electricity has not been explicitly excluded from GST but it is considered as Nil rated in GST and continues
to be charged with pre-GST taxes, i.e., electricity duty by the State Governments.
TAXABLE EVENT
The crux of any taxation system is the incidence, i.e., the point at which the liability to charge tax arises, and that
event is nomenclated as the taxable event.
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Goods and Services Tax, with its introduction and in the process of
subsuming the other Acts, has overcome many shortcomings of the
legacy system too, one of them being, the definition of taxable event. The The taxable event in GST is the
multitude of tax laws that prevailed earlier, that is Central Excise, Sales Supply of goods or services rather
Tax, Service Tax, VAT etc., were prone to ambiguity and controversies than sale, manufacture, production
which has been overcome to a great extent by the comprehensive of goods and provision of services.
approach and definition as laid down by GST.
GST has kept it not only simple, but also robust, by stating that the entire
value of supply of goods / services are taxed in an integrated manner.

CALCULATION OF GST
GST can be calculated simply by multiplying the Taxable amount by GST rate. If CGST & SGST/UTGST is to be applied
then CGST and SGST both amounts are half of the total GST amount.
Goods and Services Tax = Taxable Amount x GST Rate
If you have the amount which is already including the GST then you can calculate the GST excluding amount by
below formula:
GST excluding amount = GST including amount / (1+ GST rate/100)
For example, GST including amount of a product in UP is Rs. 1180 and GST rate is 18%.
GST excluding amount = 1180 / (1+18/100) = 1180/1.18 = 1000 GST is calculated on the transaction amount and
not on the MRP. So, GST is Rs. 180; SGST is Rs. 90 and CGST is Rs. 90.
DEFINITIONS

Goods [Section 2(52) of CGST Act, 2017]

“Goods’’ means :
every kind of movable property other than money and securities
but includes
actionable claims, growing crops, grass and things attached to or forming part of the land which are agreed
to be severed before supply or under a contract of supply.
Money [Section 2(75) of CGST Act, 2017]
as defined in Section 2(75) “money means 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 recognized by the Reserve Bank of India when used as 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".
Securities [Section 2(90) of CGST Act, 2017]

“securities” shall have meaning assigned to it in sub-section (h) of section 2 of the Securities Contracts (Regulation)
Act, 1956 (42 of 1956)”
Under Section 2(h) of SCRA “Securities” include—
• shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in
or of any incorporated company or other body corporate;
• derivative;
• Units issued by any Collective Investment Scheme to the investors in such scheme;
• Security receipt as defined in Section 2(zg) of the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002;
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• Units or any other such instruments issued to the investors under any Mutual fund scheme;
• Government Securities;
• Such other instruments, rights or interest therein shall be declared by the government to be securities be
declared by the government to be securities.

Actionable Claim

Section 2(1) of GST Act states that actionable claims shall have the meaning assigned to it in section 3 of Transfer of
Property Act, 1882.
As per section 3 of above act, actionable claim means a claims to any debt, other than a debt secured by mortgage
of immovable property or by hypothecation or pledge of movable property, or by any beneficial interest in movable
property, either actual or constructive, of claimant, which the civil courts recognise as affording ground for relief,
whether such debt or beneficial interest be existent, accruing, conditional or contingent.
“Services’’[Section 2(102) of CGST Act 2017] : 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;
Explanation 1 Services include transactions in money but does not include money and securities. Meaning
thereby that if transaction is done without any separate charge /consideration no service.
Explanation 2 But transaction in money 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 then it is service.

Consideration [Section 2(31) of CGST Act 2017]

Section 2(31) ‘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 such deposit as consideration for the said supply;

Business [Section 2(17) of CGST Act 2017]

“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;
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(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 totalizator or a license 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.

CONCEPT OF SUPPLY
(a) Generic meaning of ‘supply’: Supply includes all forms of supply (goods and / or services) and includes
agreeing to supply when the supply is for a consideration and in the course or furtherance of business (as defined
under Section 7 of the Act). It specifically provides for the inclusion of the following 8 classes of transactions:
(i) Sale
Sale is a lawful, permanent and absolute transfer of ownership of property in goods for money
consideration under a valid contract such that no rights are left behind with the transferor;
(ii) Transfer
Transfer is to lawfully convey property from one person to another. Here, consent of transferor and
capacity of transferee need not be present although all other ingredients of a lawful contract are
incumbent;
(iii) Barter
Barter is where the consideration is in the form of goods or services (and not in money) for a sale or
transfer. So in general, barter is itself not a supply but the form that consideration takes. But, when
barter is called one of the forms of supply, it covers other forms of supply whose consideration is non-
monetary. Therefore, barter will involve two supplies and not one. Each of these supplies would need
to be examined for its respective taxability;
(iv) Exchange
Exchange is where consideration is still not in money but in the form of immovable property (CIT v.
Motors and General Stores Pvt Ltd AIR 1968 SC 200). Similar to barter, exchange also involves two supplies.
Given that land and (completed) building is excluded from supply, exchange would be the supply whose
consideration is immovable property. And the object of supply itself may be of goods or of services;
(v) License
License is similar to lease except that possession is not transferred but mere permission to enter and
use the property (movable or immovable) is allowed along with all other ingredients of a lease.
Supplier of a license retains possession of the property during the term of license without right to use
(if license precludes joint use). And after expiry of the term of license or on termination of license, the
licensee will be a trespasser;
(vi) Rental
Rental is lease in respect of movable property. And since recurring payment in lease (of immovable
property) is called rental, transfer of possession with user rights for recurring payment of consideration
is interchangeably applied for movable and immovable property;
(vii) Lease
Lease is where possession is transferred along with the right to use immovable property with a duty
to care, protect and return subject to normal wear and tear along for consideration in the form of non-
recurring premium only or along with recurring rent. Essence of lease being delivery of possession
along with user rights is the reason lease is also used in the context of movable property (under the
earlier laws). Supplier of a lease does not have possession hence not enjoy the right to use but retains
right to repossess after term of lease. Lease is discussed first to contrast it with rental and license;
 Lesson 12 • Basics of Goods and Services Tax 639

(viii) Disposal
Disposal is sale or transfer but property that does not possess merchantable warranty. Articles that are
not merchantable are not ‘fit for sale’ but trade does take place for the reason that the supplier disposes
the article without ascribing any worth but the recipient accepts the article for some intrinsic worth
that he is able to extract or obtain.

Supply is the point of taxation or the taxable event under Goods & Services Tax. The meaning and scope of supply in
terms of section 7 of the CGST Act 2017 is as under:
1. For the purposes of this Act, the expression “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) import 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 the provisions of sub-sections (1), (1A) and (2), the Government may, on the recommendations
of the Council, specify, by notification, the transactions that are to be treated as—
(a) a supply of goods and not as a supply of services; or
(b) a supply of services and not as a supply of goods.
The meaning and scope of supply in terms of section 7 can be understood with the help of following parameters:
1) Supply should be of goods or services. Anything which is not goods / services (like money, securities
etc.) does not attract GST.
• It must be reiterated that only movable property is construed as goods
• Barters and exchanges would be leviable to GST
• Licences, leases, rentals with or without transfer of the right to use are considered as supply and
leviable to GST.
2) Supply should be made for a consideration which could be in the form of money or otherwise
• Supply includes the flow of money from a 3rd party in lieu of OR on behalf of the recipient
• Deposit is not consideration unless specifically applied to by the supplier
Donation received by charitable institutions from individual donors without quid pro-quo:
An important feature of consideration is quid pro-quo [something in return]. Donation received by
charitable institutions. Donations received by the charitable orgnisation are treated as consideration
only if there exist quid pro quo, i.e, there is an obligation on part of recipient of the donation or gift to
do anything (supply a service).
Individual donors provide financial help or any other support in the form of donation or gift to institutions
such as religious institutions, charitable organisations, schools, hospitals, orphanages, old age homes etc. The
recipient institutions place a name plate or similar such acknowledgement in their premises to express the
gratitude.
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When the name of the donor is displayed in recipient institution premises, in such a manner, which can be
said to be an expression of gratitude and public recognition of donor’s act of philanthropy and is not aimed at
giving publicity to the donor in such manner that it would be an advertising or promotion of his business,
then it can be said that there is no supply of service for a consideration (in the form of donation). There is no
obligation (quid pro quo) on part of recipient of the donation or gift to do anything (supply a service).
Therefore, there is no GST liability on such consideration.
3) Supply should be made in the course of OR for the furtherance of business.
• Any supply made for personal consumption OR in personal capacity does not attract GST.
• Supply should be made by a taxable person.
• Supply between both non-taxable parties is not leviable to GST.
• Supply could be made to a non-taxable person also.
• A taxable person is one who is registered OR is liable to be registered under the Act.

Activities without consideration treated as deemed supply

Schedule I:
There are a few transactions which, even without consideration are construed as supply, also known as deemed
supplies as specified in Schedule I:

Permanent transfer or disposal of business assets where

input tax credit has been availed on such assets

Supply of goods/services/ 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.

Supply of goods by a principal to his agent where the agent

undertakes to supply such goods on behalf of the principal

Supply of goods by an agent to his principal where the agent

undertakes to receive such goods on behalf of the principal

Import of services by a person from a related person or from

any of his other establishments outside India

As per Schedule I, in the following four cases, activities made without consideration will be treated as supply under
section 7 of the CGST Act:
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(1) Permanent transfer or disposal of business assets where input tax credit has been availed on such
assets. [Para 1 of Schedule I]:
In order to qualify as supply under this para, following conditions need to be satisfied:
• There must be a disposal or transfer of business assets.
• Transfer/disposal must be permanent.
• ITC must have been availed on such business assets.
(2) Supply of goods or services or both between related persons or between distinct persons as specified
in section 25 [Para 2 of Schedule I]:
The deemed supplies covered in this paragraph are based on a relationship between the supplier and
recipient. The relationship covered under this paragraph as related persons defined by way of an explanation
to Section 15 and distinct persons in terms of Section 25(4) and 25(5) of the Act.
Meaning of Related Person:
Persons including legal person are deemed as related persons if:
• Such persons are officers/directors of one another’s business
• businesses legally recognised as partners
• Such persons are employer & employee
• A third person controls / owns / 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.
Meaning of Distinct Person [Section 25]
Section 25(4) of the CGST Act: 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(5) of the CGST Act: 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.
It may also be noted that a gift need not always be in terms of goods. A service can also constitute a gift, such
as gift vouchers for a beauty treatment.
Question which arises that is on what value will the GST liability be calculated in case the gift amount exceeds
Rs.50,000/-. Although it is not expressly mentioned in the GST Act. But a reasonable construction can be
drawn that GST shall be levied on the whole amount in case the gift amount exceeds Rs. 50,000/-.
(3) Principal – Agent [Para 3 of Schedule I]:
Supply of goods by a principal to his agent and vice-versa, without consideration, where the agent undertakes
to supply such goods on behalf of the principal and vice-versa, is considered as supply.
CBIC has clarified by way of Circular No. 57/31/2018-GST.
Scope of Principal-agent relationship in the context of Schedule I of the CGST Act.
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Example 1:
Mr. A appoints Mr. B to procure certain goods from the market. Mr. B identifies various suppliers who can provide
the goods as desired by Mr. A, and asks the supplier (Mr. C) to send the goods and issue the invoice directly to Mr.
A. In this scenario, Mr. B is only acting as the PROCUREMENT AGENT, and has in no way involved himself in the
supply or receipt of the goods. Hence, in accordance with the provisions of this Act, Mr.B is not an agent of Mr. A
for supply of goods in terms of Schedule I.
Example 2:
M/s XYZ, a banking company, appoints Mr. B (auctioneer) to auction certain goods. The auctioneer arranges for
the auction and identifies the potential bidders.
The highest bid is accepted and the goods are sold to the highest bidder by M/s XYZ. The invoice for the supply
of the goods is issued by M/s XYZ to the successful bidder.
In this scenario, the auctioneer is merely providing the auctioneering services with no role played in the supply
of the goods. Even in this scenario, B is not an agent of M/s XYZ for the supply of goods in terms of Para 3. of
Schedule I
Example 3:
Mr. A, an artist, appoints Mr. B (auctioneer) to auction his painting. Mr. 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 Mr. B on the behalf of Mr. A but in his own name and the painting is
delivered to the successful bidder. In this scenario, Mr. B is not merely providing auctioneering services, but is
also supplying the painting on behalf of Mr. A to the bidder, and has the authority to transfer the title of the
painting on behalf of Mr. A. This scenario is covered under Schedule I.

Import of Services [Para 4 of Schedule I]

Import of services by a person from a related person or from his establishments located outside India, without
consideration, in the course or furtherance of business shall be treated as “supply”.
Schedule II:
Schedule II of the Central Goods & Services Tax Act, 2017 lists activities or transactions which are to be treated as
supply of goods or supply of services.

Form of Supply Description

Supply of Goods Transfer of title in goods.
Example: A of Delhi deals in Electronic Goods. He transfers the title of a television
set for an agreed consideration to B of Delhi in Jan. 2020. In the given case, the
transfer of title in television shall be considered as supply of goods.
Supply of Goods Transfer of title in goods under an agreement where property in goods passes at
a future date on payment of full consideration.
Example: Under a scheme of finance, a supplier of a car gives the possession of
car to the buyer in March 2020. He, agrees to transfer the ownership of the car to
the buyer in August 2020 upon payment of full consideration of Rs. 26,60,000 in
instalments as agreed. The aforesaid transaction shall be treated as supply of
goods.
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Supply of Goods Permanent transfer or disposal of goods forming part of business assets by or
under the directions of the person carrying on the business whether or not for
consideration.
Example :
A is carrying on the business of consumer durable products. He disposed of a
defective refrigerator for Rs. 50,000 to B whereas its normal price is Rs. 3,50,000.
Aforesaid disposal shall be considered as supply of goods by B.
Any goods forming a part of business assets will be deemed to be transferred in
furtherance of business, before any person ceases to be a taxable person.
Exception
• The business is transferred as a going concern
• The business is carried on by a personal representative who is deemed to
be a taxable person.
Supply of Goods Supply of goods by any unincorporated association or body of persons to a
member thereof for cash, deferred payment or other valuable consideration.
Supply of Services Any transfer of right in goods or undivided share in goods without transfer of title.
Example: A transfers right to use of a generator for a period of 2 months for an
agreed consideration to B in Feb, 2020. The foregoing transfer of generator
without transfer of title in generator shall be treated as a supply of service.
Supply of Services Any lease, tenancy, easement, licence to occupy land.
Example: A the owner of a specific piece of land in Delhi, leases the same to B for
one year for an agreed consideration in Jan 2020. The aforesaid lease of land
shall be treated as a supply of services.
Any lease or letting out of the building including a commercial, industrial or
residential complex for business or commerce, either wholly or partly.
Supply of Services Any treatment or process which is applied to another person’s goods.
Example: A is a manufacturer of goods. He sends his goods for the purpose of
special packaging to B on job work. In the given case, the activity of special
packing by B shall be treated as supply of services. Further, it shall be immaterial
whether B uses his own packing material or the same is provided by A.
Supply of Services Where, by or under the direction of a person carrying on a business, goods held
as assets or used for the purpose of business are put for any private use or made
available to any person for any use other than for the purpose of business, at the
direction of the person carrying on the business, whether or not for a
consideration.
Example: A deals in home appliances like washing machines, refrigerator, etc. He
uses computers in his shops for keeping track of inventory and for other business
purposes. Out of 2 computers, A takes home one computer to be used by his son
for his studies during the month of January 2020 and thereafter computer is
brought back to the show room of A. The aforesaid private use of a computer by
A/his son shall be treated as a ‘supply of services.’
Supply of Services Renting of immovable property.
Supply of Services 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.
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Supply of Services Temporary transfer or permitting the use or enjoyment of any intellectual property
right.
Supply of Services Development design, programming, customisation, adaptation, upgradation,
enhancement, implementation of information technology software.
Supply of Services Agreeing to the obligation to refrain from an act, or to tolerate an act or a
situation, or to do an act.
Example:
A who is interested in taking loan from some bank but does not have any collateral
security, approaches B who agrees to mortgage his property as collateral security
to the bank for advancing loan to A .B charges some consideration from A for
providing such collateral security. Consideration received by B shall be covered
under the scope of this entry and shall be subject to tax as a supply of services.
Supply of Services Transfer of the right to use any goods for any purpose (whether or not for a
specified period) for cash, deferred payment or other valuable consideration.
Supply of Services Works Contract as defined under Section 2(119).
Supply of goods, as a part of any service or in any manner, being food or any other
article for human consumption or any drink (other than alcoholic liquor for
human consumption), where such supply or service is for cash deferred payment
or other valuable consideration.

Schedule III:
There are a few activities which are specifically not to be considered as Supply. Schedule III to CGST Act, 2017 lists
down the following activities which shall be treated neither as supply of goods nor supply of services.

Services from
Employee to Employer
Duties performed by any
Supply of goods by the consignee person as a Chairperson or a
to any other person, by Member or a Director in a
endorsement of documents of body established by the
title to the goods, after the goods Central Government or a State
have been dispatched from the Government or local
port of origin located outside authority and who is not
India but before clearance for deemed as an employee
home consumption before the commencement of
this clause

Functions performed by
Supply of warehoused goods to Members of Parliament,
any person before clearance for Members of State
home consumption. Legislature, Members of
Note: “warehoused goods” shall Panchayats, Members of
have the same meaning as Municipalities and
assigned to it in the Customs Act, Members of other local
1962 authorities

Duties performed by
any person who holds
any post in pursuance
Supply of goods from a place of the provisions of the
in the non-taxable territory to Constitution in that
another place in the non- capacity
taxable territory without such
goods entering into India
Services by any
Court ribunal
Note : he term
Court includes
Actionable claims, District Court, igh
other than lottery, Court Supreme
Court
betting and gambling.
Funeral, burial,
Sale of land and,
crematorium or
sub ect to clause b of
mortuary including
paragraph of
transportation of the
Schedule II, sale of
deceased
building
 Lesson 12 • Basics of Goods and Services Tax 645

There are certain activities which are items not covered under GST. They are beyond the scope of GST, i.e., GST will
not apply on them. These are classified under Schedule III of the GST Act as “Neither goods nor services”.
Services by an employee to the employer in relation to his employment
Related parties include employer-employee which raised many concerns whether employment now attracted
GST. This clarification has been brought in to clarify whether GST is not applicable on employment. An
employee will still pay income tax on salary earned.
Only Services that are provided by the employee to the employer in the course of employment are outside the
realm of supply. However, services provided outside the ambit of employment for a consideration would
qualify as supply.
Services by any Court including District Court, High Court and Supreme Court
Courts or Tribunal established under any law for the time being in force will not be chargeable to GST.
Duties performed by:
• The Members of Parliament, State Legislature, Panchayats, Municipalities and other local authorities
• Any person who holds any post in pursuance of the provisions of the Constitution in that capacity
• Any person as a Chairperson/Member/Director in a body established by the Central government or
State Government or a local authority and who is not deemed as an employee before the commencement
of this clause.
Services of a funeral, burial, crematorium or mortuary including transportation of the deceased
There are no taxes on funeral services for any religion.
Sale of land and subject to paragraph 5(b) of Schedule II, sale of building
Construction of a new building is subject to GST (being works contract).
Actionable claims (other than lottery, betting and gambling)
Actionable Claims’ means claims which can be enforced only by a legal action or a suit, example a book debt,
bill of exchange, promissory note. A book debt (debtor) is not goods because it can be transferred as per
Transfer of Property Act but cannot be sold. Bill of exchange, promissory note can be transferred under
Negotiable Instruments Act by delivery or endorsement but cannot be sold.
Actionable claims are neither products nor services. They can be considered as something in lieu of money.
So GST will not apply on these.
Lottery, betting and gambling attract 28% GST.
Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory
without such goods entering into India.
Supply in Customs port before Home consumption
(a) Supply of warehoused goods to any person before clearance for home consumption;
(b) Supply of goods by the consignee to any other person, by an endorsement of documents of title to the
goods, after the goods have been dispatched from the port of origin located outside India but before
clearance for home consumption.

COMPOSITE & MIXED SUPPLY

Often goods or services or both together are supplied in combination and that’s when it may not be simple enough
to distinguish supplies and identify them separately, as each of them may attract a different rate of tax but is sold as
one package.
 646 Lesson 12 • EP-TL

Composite Supply
Section 2 (30) defined “composite supply” as a supply made by a taxable person to a recipient consisting of two
or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled
and supplied in conjunction with each other in the ordinary course of business, one of which is a principal
supply;
The features of a composite supply are:
a) Two or more taxable supplies of goods / services / both which are supplied in conjunction with each other.
b) They are naturally bundled.
c) A single price is charged for the supply.
d) One of the supplies within the package is identifiable as a principal supply.

Mixed Supply
Under Section 2(74) of CGST Act, 2017, “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 features of a mixed supply are:
a) Two or more taxable supplies of goods / services / both which are supplied in conjunction with each other
b) They are deliberately bundled
c) A single price is charged for the supply
d) None of the supplies within the package is identifiable as a principal supply

S. Issue Clarification
No.
1. Supply of books, pamphlets, brochures, envelopes, In the case of printing of books, pamphlets,
annual reports, leaflets, cartons, boxes etc. printed brochures, annual reports, and the like,
with logo, design, name, address or other contents where only content is supplied by the
supplied by the recipient of such printed goods, publisher or the person who owns the usage
are composite supplies and the question, whether rights to the intangible inputs while the
such supplies constitute supply of goods or physical inputs including paper used for
services would be determined on the basis of what printing belong to the printer, supply of
constitutes the principal supply. printing [of the content supplied by the
recipient of supply] is the principal supply
Principal supply has been defined in Section 2(90) of and therefore such supplies would constitute
the Central Goods and Services Tax Act, 2017 as supply supply of service falling under heading 9989 of
of goods or services which constitutes the predominant the scheme of classification of services.
element of a composite supply and to which any other
In case of supply of printed envelopes, letter
supply forming part of that composite supply is
cards, printed boxes, tissues, napkins, wall
ancillary. paper etc. falling under Chapter 48 or 49,
printed with design, logo etc. supplied by the
recipient of goods but made using physical
inputs including paper belonging to the
printer, predominant supply is that of goods
and the supply of printing of the content
[supplied by the recipient of supply] is
ancillary to the principal supply of goods and
therefore such supplies would constitute
supply of goods falling under respective
headings of Chapter 48 or 49 of the Customs
Tariff.
 Lesson 12 • Basics of Goods and Services Tax 647

2. Whether retreading of tyres is a supply of goods or In retreading of tyres, which is a composite

services? supply, the pre-dominant element is the
process of retreading which is a supply of
service. Rubber used for retreading is an
ancillary supply. Which part of a composite
supply is the principal supply, must be
determined keeping in view the nature of the
supply involved. Value may be one of the
guiding factors in this determination, but not
the sole factor. The primary question that
should be asked is what is the essential
nature of the composite supply and which
element of the supply imparts that essential
nature to the composite supply.

Supply of retreaded tyres, where the old

tyres belong to the supplier of retreaded
tyres, is a supply of goods (retreaded tyres
under heading 4012 of the Customs Tariff
attracting GST @ 28%)
3. Whether Priority Sector Lending Certificates (PSLCs) In Reserve Bank of India FAQ on PSLC, it
are outside the purview of GST and therefore not has been mentioned that PSLC may be
taxable? construed to be in the nature of goods,
dealing in which has been notified as a
permissible activity under section 6(1) of
the Banking Regulation Act, 1949 vide
Government of India notification dated
4thFebruary, 2016. PSLC are not securities.
PSLC are akin to freely tradeable duty
scrips, Renewable Energy Certificates, REP
license or replenishment license, which
attracted VAT.

In GST there is no exemption to trading in

PSLCs. Thus, PSLCs are taxable as goods at
standard rate of 18% under the residuary
S. No. 453 of Schedule III of notification No.
1/2017-Central Tax(Rate). GST payable on
the certificates would be available as ITC to
the bank buying the certificates.

LEVY & COLLECTION OF TAX

GST is levied at the point of supply, that is at the time and place of supply and that’s when the liability to charge GST
arises.
As explained under Section 15 to Central Goods & Services tax Act, 2017, such GST would be levied on the transaction
value.
Rates (Goods)
Rates are broadly 0.25%, 3%, 5%, 12%, 18% and 28% and that is split into CGST and SGST equally for Intra- State
sales and fully leviable as IGST for Inter-State sale.
 648 Lesson 12 • EP-TL

Rates (Services)
Rates are broadly 5%, 12%, 18% and 28% and that is split in to CGST and SGST equally for Intra-State sales and fully
leviable as IGST for Inter-State sale.

COMPOSITION SCHEME
Section 10 of the CGST Act, 2017 contains the provisions
regarding composition levy. The objective of the scheme is to Small tax payers, who have an annual
bring about simplicity and to reduce compliance cost for the turnover of less than Rs. 1.5 crore (applicable
small taxpayers. from 1st April 2019 onwards) in the
The aggregate turnover would include value of all outward preceding Financial Year (FY) are eligible to
supplies, i.e.: opt for this scheme i.e., Composition Levy.
For the states namely (i) Arunachal Pradesh
i) Taxable supplies
(ii) Manipur, (iii) Meghalaya, (iv) Mizoram,
ii) Exempt supplies (v) Nagaland, (vi) Sikkim, (vii)Tripura, (viii)
iii) Zero-rated supplies (i.e., Exports) Uttarakhand aggregate turnover limit shall
be Rs. 75 lakh.
iv) Inter-State supplies of persons having the same PAN be
computed on all India basis but excludes
1. CGST/SGST/UTGST/IGST/Cess,
2. Value of inward supplies on which tax is payable under reverse charge.
The Reverse Charge Mechanism supplies are not included here, as these would be added to the turnover of the
unregistered supplier.

Conditions & Restrictions

1) The supplier who opts for Composition Levy cannot raise tax invoice;
2) Therefore, they need not collect any tax on supply;
3) Hence, the recipient of such supplies can’t claim any Input Tax Credit (ITC) on supplies from such suppliers
who have opted for Composition Levy;
4) Similarly, even they themselves cannot claim any ITC on the inward taxable supplies;
5) A person opting for the scheme shall mention on the invoices issued that he has opted for such scheme;
6) He shall also mention “composition taxable person” on every notice board displayed at the place of business;
7) The following cannot opt for composition levy:
a) Supplier of services save as provided in section 10(1).
b) Supplier of goods which are not leviable to tax.
c) Supplier of Inter-State outward supplies of goods [There is no restriction on composition supplier to
receive inter-State inward supplies of goods as also to make inter-State inward and outward supply of
services].
d) Person supplying goods through an electronic commerce operator who is required to collect tax at
source under section 52.
e) Manufacturers of ice-cream, pan masala tobacco and aerated waters.
f) casual taxable person and non-resident taxable person.

Rates
The tax rate prescribed for different categories of registered persons under the scheme is as follows:
 Lesson 12 • Basics of Goods and Services Tax 649

S. Total Tax
Registered Person CGST Rate SGST Rate
NO. Rate
1. Manufacturers (other than 0.5% of the turnover in the 0.5% of the 1%
manufacturers of goods as may be State/Union territory turnover in the
notified by the Government, i.e., ice State/Union
cream, pan masala, tobacco and territory
aerated waters)
2. Restaurant Services, i.e., suppliers of 2.5% of the turnover in the 2.5% of the 5%
food/ drink for human consumption State/Union territory turnover in the
(other than alcoholic liquour for State/Union
human consumption) territory
3. Traders or any other supplier eligible 0.5% of the turnover of 0.5% of the 1%
for composition levy TAXABLE supplies of goods turnover of
and services in the State or TAXABLE supplies
Union territory of goods and
services in the State
or Union territory

Turnover in case of traders has been defined as ‘Turnover of taxable supplies of goods and services’. Thus, for
traders, exempted supplies would not be added in the turnover for the purpose of levy of 1% Composition levy.
Benefit for marginal supply of services along with the supply of goods or restaurant services
Fundamentally, the composition scheme can be availed in respect of goods and only one service namely, restaurant
service. However, there are cases where a manufacturer/ trader is also engaged in supply of services other than
restaurant service though the percentage of such supply of services is very small as compared to the supplies of
goods. There may also be cases where a restaurant service provider is also engaged in supplying a small percentage
of other services.
With a view to enable such taxpayers to avail of the benefit of composition scheme, second proviso to section 10(1)
permits marginal supply of services [other than restaurant services] for a specified value along with the supply of
goods and/or restaurant service, as the case may be. This specified value is the value not exceeding:
(a) 10% of the turnover in a State/Union territory in the preceding financial year
Or
(b) Rs. 5 Lacs

whichever is higher.

For example: Mr. Ram is engaged in supply of goods. His aggregate turnover in preceding FY is Rs. 80 lakh. Since
his aggregate turnover in the preceding FY does not exceed Rs. 1.5 crore, he is eligible for composition scheme
in current FY. Further, in current FY, he can supply services [other than restaurant services] upto a value not
exceeding:
(a) 10% of Rs. 80 Lacs i.e., Rs. 8 Lacs
Or
(b) Rs. 5 Lacs

whichever is higher. Thus, he can supply services upto a value of Rs. 8 lakh in current FY. If the value of services
supplied exceeds Rs. 8 lakh, he becomes ineligible for the composition scheme and has to opt out of the
composition scheme
 650 Lesson 12 • EP-TL

New scheme of Composition: Section 10(2A)

As we have already seen that primarily, the composition scheme is available in respect of goods and only one service
namely, restaurant service. Further with the supply of goods and/or restaurant service. However, a person engaged
exclusively in supply of services other than restaurant service is not eligible for the composition scheme.
In order to provide benefit to such suppliers, a scheme to pay tax at the concessional rate has been formulated
primarily for small service providers like salon stylist, tailors etc. who are not otherwise eligible for composition
scheme.
Composition scheme for service providers
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, not eligible to opt to pay tax under sub-section (1) and sub-section
(2), 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 under sub-section (1) of section 9, an amount of tax calculated at such rate as
may be prescribed, but not exceeding three per cent. of the turnover in State or turnover in Union territory, if he
is not--
(a) engaged in making any supply of goods or services which are not leviable to tax under this Act; Under
composition scheme, restriction is only on supply of goods not leviable to tax;
(b) engaged in making any inter-State outward supplies of goods or services; Under composition scheme the
restriction is only on making inter-State outward supply of goods and not on inter-State outward supply of
services;
(c) engaged in making any supply of goods or services through an electronic commerce operator who is required
to collect tax at source under section 52;
(d) a manufacturer of notified goods [ice cream, pan masala, tobacco and aerated waters] or supplier of such
services as may be notified by the Government on the recommendations of the Council; and
(e) a casual taxable person or a non-resident taxable person.

Provided that where more than one registered person is 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 this sub-section
unless all such registered persons opt to pay tax under this sub-section.”
In computing aggregate turnover in order to determine eligibility of a registered person to pay tax under any of the
composition schemes , the expression “aggregate turnover” shall include the value of supplies made by such person
from the 1st day of April of a financial year up to the date when he becomes liable for registration under this Act,
but shall not include the value of exempt supply of services provided by way of extending deposits, loans or advances
in so far as the consideration is represented by way of interest or discount.
For the purposes of determining the tax payable by a person under this section, the expression “turnover in State or
turnover in Union territory” shall not include the value of following supplies, namely supplies from the first day of
April of a financial year up to the date when such person becomes liable for registration under this Act; and exempt
supply of services provided by way of extending deposits, loans or advances in so far as the consideration is
represented by way of interest or discount.’
The GST under Composition Scheme is not collected from the recipients / customers; this is simply a facility for
hassle free compliance under GST. The composition levy if opted is applicable under one PAN, and then it is applicable
for all businesses under that PAN, or none. This implies, that it is not allowed for some businesses under normal
levy and some under composition levy.

Once the turnover breaches the threshold, the composition levy is switched off and the normal levy is
applicable.
 Lesson 12 • Basics of Goods and Services Tax 651

Illustration 1
P, a trader who has a revenue of INR 50,00,000 inclusive of GST @ 5% has purchases amounting to INR 40,00,000
(GST @ 5% extra). Book-keeping and GST compliance costs are INR 2,50,000 and other administrative costs are INR
50,000. He now wants to switch to Composition Levy. You are requested to advise in your capacity as a GST consultant.

Normal Levy Composition Levy

Revenue 50,00,000 Revenue 50,00,000
Less: GST 2,38,095 Less: GST NIL
Net Revenue 47,61,905 Net Revenue 50,00,000
Less: Purchases 40,00,000 Less : Purchases 42,00,000
Book Keeping 2,50,000 Book Keeping 1,00,000
Other Costs 50,000 Other Costs 50,000
GST Liability 50,000
Profit 4,61,905 Profit 6,00,000
Payable 2,38,095 GST Liability 50,000
ITC 2,00,000 (1% of Turnover)
GST Liability 38,095
Cash Flow 4,23,810 Cash Flow 6,00,000
Notes:
1. GST liability wouldn’t exist if he opts for composition levy and the trader can now charge the full amount
which he was charging inclusive of GST earlier
2. For normal levy, the GST included in sales is 50,00,000 * 5 / 105
3. The ITC is available in case of normal levy and not composition levy
4. Hence, the taxes (input) are a part of purchase costs and the output is @ 1% of the turnover in case of
Composition Levy

Since the book keeping costs are substantially lower in case of composition levy, the profits and cash flows are
higher and hence the trader should be advised to switch to Composition Levy.

Composition Rules [Chapter II, CGST Rules, 2017]

Chapter II of Central Goods & Services Tax Rules, 2017 specify Composition Rules which lay down the conditions
and restrictions of composition levy. The person exercising the option to pay tax under section 10 shall comply with
the following conditions, namely:

• he is neither a casual taxable person nor a non- resident taxble person

a.

• the goods held in stock by him on the appointed day have not been purchased in the course
of inter State trade or commerce or imported from a place outside India or received from
his branch situated outside the State or from his agent or principal outside the State, where
b. the option is exercised under sub-rule (1) of rule 3
 652 Lesson 12 • EP-TL

• the goods held in stock by him have not been purchased from an unregistered supplier and
where purchased, he pays the tax under section 9 (4)
c.

• he shall pay tax under section 9 (3) or 9 (4) on inward supply of goods or services or both
d.

• he was not engaged in the manufacture of goods as notified under clause (e) of sub- section
(2) of section 10, during the preceding financial year
e.

• he shall mention the words "composition taxable person, not eligible to collect tacx on
supplies" at the top of the bill of supply issued by him, i.e., ice cream, pan masala and
f. tobacco)

• 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
g. place or places of business

Intimation for composition levy [Rule 3]

(1) Any person who has been granted registration on a provisional basis under clause (b) of sub-rule (1) of rule
24 and who opts to pay tax under section 10, shall electronically file an intimation in FORM GST CMP-01,
duly signed or verified through electronic verification code, on the common portal, either directly or through
a Facilitation Centre notified by the Commissioner, prior to the appointed day, but not later than thirty days
after the said day, or such further period as may be extended by the Commissioner in this behalf:
Provided that where the intimation in FORM GST CMP-01 is filed after the appointed day, the registered
person shall not collect any tax from the appointed day but shall issue bill of supply for supplies made after
the said day.
(2) Any person who applies for registration under sub-rule (1) of rule 8 may give an option to pay tax under
section 10 in Part B of FORM GST REG-01, which shall be considered as an intimation to pay tax under the
said section.
(3) Any registered person who opts to pay tax under section 10 shall electronically file an intimation in FORM
GST CMP-02, duly signed or verified through electronic verification code, on the common portal, either
directly or through a Facilitation Centre notified by the Commissioner, prior to the commencement of the
financial year for which the option to pay tax under the aforesaid section is exercised and shall furnish the
statement in FORM GST ITC-03 in accordance with the provisions of sub-rule (4) of rule 44 within a period of
(60) sixty days from the commencement of the relevant financial year.
(3A) Notwithstanding anything contained in sub-rules (1), (2) and (3), a person who has been granted registration
on a provisional basis under rule 24 or who has been granted certificate of registration under sub-rule (1) of
rule 10 may opt to pay tax under section 10 with effect from the first day of the month immediately succeeding
the month in which he file an intimation in FORM GST CMP-02, on the common portal either directly or
through a Facilitation Centre notified by the Commissioner, on or before the 31st day of March, 2018, and
 Lesson 12 • Basics of Goods and Services Tax 653

shall furnish the statement in FORM GST ITC-03 in accordance with the provisions of sub-rule (4) of rule 44
within a period of one hundred and eighty days from the day on which such person commences to pay tax
under section 10:
Provided that the said persons shall not be allowed to furnish the declaration in FORM GST TRAN-1 after the
statement in FORM GST ITC-03 has been furnished.
(4) Any person who files an intimation under sub-rule (1) to pay tax under section 10 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 to pay tax under the said section, electronically, in FORM GST CMP- 03,
on the common portal, either directly or through a Facilitation Centre notified by the Commissioner, within a
period of 180 days 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.
(5) Any intimation under sub-rule (1) or sub-rule (3) or sub-rule (3A) in respect of any place of business in any
State or Union territory shall be deemed to be an intimation in respect of all other places of business registered
on the same Permanent Account Number.

Effective date for composition levy [Rule 4]

(1) The option to pay tax under section 10 shall be effective from the beginning of the financial year, where the
intimation is filed under sub-rule (3) of rule 3 and the appointed day where the intimation is filed under sub-
rule of the said rule.
(2) The intimation under sub-rule (2) of rule 3, shall be considered only after the grant of registration to the
applicant and his option to pay tax under section 10 shall be effective from the date fixed under sub-rule (2)
or (3) of rule 10.

Validity of composition levy [Rule 6]

(1) The option exercised by a registered person to pay tax under section 10 shall remain valid so long as he
satisfies all the conditions mentioned in the said section and under these rules.
(2) The person referred to in sub-rule (1) shall be liable to pay tax under sub-section (1) of section 9 from the day
he ceases to satisfy any of the conditions mentioned in section 10 or the provisions of this Chapter and shall
issue tax invoice for every taxable supply made thereafter and he shall also file an intimation for withdrawal
from the scheme in FORM GST CMP-04 within seven days of the occurrence of such event.
(3) The registered person who intends to withdraw from the composition scheme shall, before the date of such
withdrawal, file an application in FORM GST CMP04, duly signed or verified through electronic verification
code, electronically on the common portal.
(4) Where the proper officer has reasons to believe that the registered person was not eligible to pay tax under
section 10 or has contravened the provisions of the Act or provisions of this Chapter, he may issue a notice to
such person in FORM GST CMP-05 to show cause within fifteen days of the receipt of such notice as to why
the option to pay tax under section 10 shall not be denied.
(5) Upon receipt of the reply to the show cause notice issued under sub-rule (4) from the registered person in
FORM GST CMP-06, the proper officer shall issue an order in FORM GST CMP-07within a period of thirty days
of the receipt of such reply, either accepting the reply, or denying the option to pay tax under section 10 from
the date of the option or from the date of the event concerning such contravention, as the case may be.
(6) Every person who has furnished an intimation under sub-rule (2) or filed an application for withdrawal
under sub-rule (3) or a person in respect of whom an order of withdrawal of option has been passed in FORM
GST CMP-07 under sub rule (5), may electronically furnish at the common portal, either directly or through a
Facilitation Centre notified by the Commissioner, a statement in FORM GST ITC01 containing details of the
stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on the date on
which the option is withdrawn or denied, within a period of thirty days from the date from which the option
is withdrawn or from the date of the order passed in FORM GST CMP-07, as the case may be.
 654 Lesson 12 • EP-TL

(7) Any intimation or application for withdrawal under sub-rule (2) or (3) or denial of the option to pay tax
under section 10 in accordance with sub-rule (5) in respect of any place of business in any State or Union
territory, shall be deemed to be an intimation in respect of all other places of business registered on the same
Permanent Account Number.

List of Forms related to Composition Scheme

Chapter II of Central Goods & Services Tax Rules, 2017 specify Composition Rules which lay down the forms to be
submitted by a person opting to be a Composition Dealer under Section 10 of the Act. The following is the list of
forms specified in relation to a Composition Dealer.

Form
S. No. Description Due date
Required
1. GST CMP-01 Intimation to pay tax under section 10 Prior to appointed date or within 30
(Only for persons registered under the days of the appointed date or such
existing law migrating on the appointed further period as may be extended
day) by the Commissioner in this behalf.
2. GST CMP-02 Intimation to pay tax under section 10 Prior to commencement of financial
(For persons registered under the Act) year for which the scheme is opted for

3. GST CMP-03 Intimation of details of stock and inward Within 90 days of exercise of option
supplies from unregistered person
4. GST CMP-04 Intimation/Application for withdrawal Within 7days of occurrence of event
from composition scheme
5. GST CMP-05 Show cause notice on contravention of rules On contravention
or act by proper officer
6. GST CMP-06 Reply to the notice to show cause Within 15 days from service of such
Notice
7. GST CMP-07 Order for acceptance / rejection of reply to Within 30 days
show cause notice

LIABILITY TO PAY GST

The liability to pay GST would depend on the mechanism the transaction aligns to, as under:
a) Forward Charge Mechanism
Forward charge or direct charge is the mechanism where the supplier of goods/services is liable to pay tax.
For instance, if a Company Secretary provided a service to his client, the service tax will be payable by the
Company Secretary. Here the supplier is registered under GST, he issues a tax invoice, collects the GST and
pays it to the Goverment.
b) Reverse Charge Mechanism
Generally, the supplier of goods or services is liable to pay GST. However, in specific cases like imports and
other notified supplies, the liability may be cast on the recipient under the reverse charge mechanism.
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. Here the supplier is not registered
under GST, hence, he cannot issue a tax invoice, and therefore the recipient pays the GST on the supply on
behalf of the supplier, directly to the Government.
It must be noted although, that Input Tax Credit can be availed in both the above scenarios, subject to the
fulfilment of conditions for availing Input Tax Credit.
 Lesson 12 • Basics of Goods and Services Tax 655

In case of E-commerce, the E-commerce operators, who are mandatorily required to register with GST, collect
tax at source at a specified percentage and pay the same to the Government.

EXEMPTIONS UNDER GOODS & SERVICES TAX

Governments offer exemptions which are based on goods and services consumed by low income people, people
living in disadvantaged regions and so on. Central Government has the power to grant exemption on goods and / or
services in the public interest generally or by special order.
General exemption is granted by notification and is available to all persons. It may be absolute or conditional. Such
exemption may be total or partial.
Specific, also known as ad hoc exemption is granted to persons under circumstances of an exceptional nature by a
special order communicated to the party seeking exemption. Example: charitable, educational, scientific, research,
defence purpose etc.
Central Government also has the power to interpret by an explanation the provisions of the notification or order at
a later date but within one year which has retrospective effect.

Central or State Government, based on the recommendation of the Council Section 11(3)
of CGST Act,
2017

On taxble goods and/ or services of any specified description Considers it necessary

Is satisfied that is necessary, in

the public interest Section 11(2) For the purpose of clarifying the
Section 11(1)
of CGST Act, of CGST Act, scope or applicability of A or B
2017 2017

By Notification-A By Special Order-B

By Notification
Exempt Generally Exempt

• Absolutely Insert an explanation in A or B, as

Under exceptional
(not optional): the case may be, within 1 year
circumstances,
or (Such clarification to have
explicitly specified in
retrospective effect)
• Subject to such Order
conditions

• Whole Tax: or
• Part tax Whole Tax

Power to grant exemption from tax [Section 11 of CGST Act, 2017]

(1) 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 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
 656 Lesson 12 • EP-TL

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.
Distinctions between General Exemption and Specific (Special Order) Exemption

General Exemption [Section 11(1) of CGST Act, 2017] Exemption By Special Order [Section 11(2) of CGST
Act, 2017]

This is granted by a notification This is granted by a special order

This is goods/ services specific. Any supplier supplying This is person specific and purpose specific. The goods
these notified goods or services can enjoy the are generally chargeable but exempted in special
exemption circumstances and hence not available to all persons
generally
It may be absolute or conditional. If absolute, the No such distinction
supplier has to avail it and he can collect tax only at
effective rates.
It may be partial or total It is always total

Both the exemptions are granted in the public interest and both can be explained within one year of issue by the
government. All the exemptions are based on the recommendations of the GST Council.
Section 6 of the IGST Act, 2017 also contains similar provisions and exemption of IGST is granted on interState
supply.
Exemptions under GST
Exempt supply has been defined as supply of any goods / services / both, which attract a NIL rate of tax, or which
may be wholly exempt from tax, and therefore includes non-taxable supplies.
Essential goods / services, have been exempted, some of the key ones are:
a) Unbranded atta / besan / maida
b) Milk
c) Eggs
d) Curd
e) Fresh vegetables
f) Health care &
g) Education
h) Services by the Government (except Post Office, transport of goods / passengers etc.)
i) Services by RBI
j) Services by ESIC / EPFO
k) Services by IRDA, SEBI.
Lesson 12 • Basics of Goods and Services Tax 657

Difference between Nil Rated, Exempt, Zero Rated and Non-GST supplies

Supply Name Description

Zero Rated Exports

Supplies made to SEZ or SEZ Developers.
Nil Rated Supplies that have a declared rate of 0% GST.
Example: Salt, grains, jaggery etc.
Exempt Supplies are taxable but do not attract GST and for which ITC cannot be claimed.
Example: Fresh milk, Fresh fruits, Curd, Bread etc.
Non-GST These supplies do not come under the purview of GST law.
Example: Alcohol for human consumption, Petrol etc.

LESSON ROUND-UP

• GST does away with the cascading effects of taxation, by providing a comprehensive and continuous chain
of tax credits, end to end and taxing only the value-add at every stage.
• India has adopted a dual GST model, i.e., where the tax is imposed concurrently by the Centre and the
States. For an intra-State sale, the GST is equally divided between the Centre and the State (CGST + SGST),
and for inter-State sales, the GST is collected by the Centre (IGST).
• The exemptions from GST are those that have been kept out of scope and have been notified separately.
• The taxable event is supply of goods / services for a consideration, during the course of business / for
furtherance of business by a taxable person, and exceptions to this have been set out in the separate
schedules.
• Key differences between a composite & mixed supply are that the supplies within a composite supply are
naturally bundled whereas within a mixed supply are deliberately bundled and that in the composite
supply, the principal supply is discernible, whereas that isn’t the case in a mixed supply.

GLOSSARY

• Taxable Event: The taxable event under GST shall be the supply of goods or services or both made for
consideration in the course or furtherance of business. The taxable events under the existing indirect tax laws
such as manufacture, sale, or provision of services shall stand subsumed in the taxable event known as ‘supply’.
• Composite supply is a supply consisting of two or more taxable supplies of goods or services or both or
any combination thereof, which are bundled in natural course and are supplied in conjunction with each
other in the ordinary course of business and where one of which is a principal supply. For example, when
a consumer buys a television set and he also gets warranty and a maintenance contract with the TV, this
supply is a composite supply. In this example, supply of TV is the principal supply, warranty and
maintenance service are ancillary.
• 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. For example, a supply of package consisting of canned foods, sweets,
chocolates, cakes, dry fruits, aerated drink and fruit juice when supplied for a single price is a mixed
supply. Each of these items can be supplied separately and it is not dependent on any other. It shall not be
a mixed supply if these items are supplied separately.
658 Lesson 12 • EP-TL

TEST YOURSELF
(These are meant for re-capitulation only. Answers to these questions are not to be submitted for evaluation.)
Multiple Choice Questions (MCQs)
1. The ---------------------------------- supply will be charged at the rate applicable to the supply that
attracts the highest rate of tax from within the consolidated package
a) Mixed
b) Composite
c) Principal
d) None of the Above
Answer: (a)
2. Any lease, tenancy, easement, licence to occupy land –
a) Supply of Services
b) Supply of Goods
c) Any of the Above
d) None of the Above
Answer: a
3. __________ lists down the activities which shall be treated neither as supply of goods nor supply of
services.
a) Schedule I
b) Schedule II
c) Schedule III
d) None of the Above
Answer: (c)
4. Section 10 of the CGST Act, 2017 contains provisions related to _______.
a) Procedure for registration
b) Composition Scheme
c) Meaning and Scope of Supply
d) None of the Above
Answer: (b)
5. Taxable event under GST is __________.
a) Supply
b) Manufacture
c) Purchase
d) None of the Above
Answer: (a)

LIST OF FURTHER READINGS

• Goods & Services Tax, Laws, Concepts and Impact Analysis-Bloomsbury – Dr. Sanjiv Agarwal & Sanjeev
Malhotra.
• GST Ready Reckoner- Taxmann – V.S. Datey.
• A complete guide to Goods & Services Tax Ready Reckoner in Q & A Format- Bloomsbury – Dr. Sanjiv
Agarwal & Sanjeev Malhotra.