GOODS AND SERVICE TAX (GST) - NOTES

The goods and services tax (GST) is a value-added tax levied on most goods and services sold
for domestic consumption. The GST is paid by consumers, but it is remitted to the government
by the businesses selling the goods and services. The main aim of this taxation system is to
curb the cascading effect of other Indirect taxes and it is applicable throughout India. The
components of GST includes CGST, SGST, UTGST and IGST.

Cascading tax effect is also termed as “tax on tax”. This effect occurs when a good is taxed
on every stage of production. Such a good is taxed till it is finally sold to the consumer. This
means each succeeding transfer of good is taxed inclusive of the taxes charged on the preceding
transfer. As a result, the final consumer bears the burden of the multiple taxes imposed on every
stage of production. Such a situation leads to inflationary prices.

Benefits of GST

1.It would help in simpler tax regime with fewer exemptions.

2.Common system of classification of goods and services to ensure certainty in tax

administration.

3.Seamless flow of tax credit from manufacturer/supplier to user/retailer to eliminate cascading

of taxes.

4.Benefit of exemption/compounding scheme for a large segment of small-scale suppliers to

make their products cheaper.

5.To create a unified common national market.

6.To boost investments and exports.

7.Harmonisation of laws, procedures and rates of tax across the country.

8.Common system of classification of goods and services to ensure certainty in tax

administration.

Services exempted from GST:

a. Agricultural services, including harvesting, packaging, warehouse, cultivation, supply,

leasing of machinery etc.

b. Public transportation services, auto-rickshaws, metered cabs, metro, etc.

c. Services of public libraries by way of lending of books, publications or any other knowledge-
enhancing content or material.

d. Services of life insurance business provided by way of annuity under the National Pension
System (NPS).

e. Supply of farm labour.

f. Services offered by RBI.

Goods exempted from GST- Fresh fruits and Vegetables, Milk, Butter milk, Curd, Natural
Honey, Flour, Besan, bread, All kinds of salt, Jaggery, Hulled cereal grains, Fresh meat, Fish,
chicken, eggs, Bindi, Sindoor, Kajal, Pooja equipment, Drawing and Colouring books, Stamps,
Judicial Papers, Printed books, Newspapers etc.

GST not applicable presently on petroleum products (i.e., petroleum crude, high speed diesel,
motor spirit or petrol), natural gas and aviation turbine fuel will continue under excise duty. It
maybe brought within the purview of GST by the Government in the future.

Six different GST rates have been notified for the purpose of charging tax on supply of
goods. Few examples are given below:

0.25% : precious stones(other than diamonds) and semi-precious stones(whether or not worked
or graded but not strung, mounted or set) etc.

3% : Pearls, imitation jewellery, platinum, articles of jewellery(and parts thereof) of precious

metal etc.

5% : Coffee(roasted), Olive oil, Palm oil, chalk, Vanilla, silk yarn, cotton & cotton waste etc.

12% : LED lamps, bicycles, pasta, gloves, hand bags, chess board, carom board etc.

18%: cocoa powder, pastry, ice-cream, biscuits, vinegar, beauty/makeup preparations,

plywood etc.

28% : Pan masala, revolvers & pistols, smoking pipes, air-conditioning machines, computer
monitor(exceeding 32 inches), racing cars, rowing boats etc.
Input Tax Credit - Input Tax Credit refers to the tax already paid by a person at time of
purchase of goods or services and which is available as deduction from tax payable. To avoid
the cascading effect, input tax credit is available. Output supplier of goods/services can avail
credit of CGST, SGST, UTGST and IGST charged by the input supplier of goods, services and
capital goods. The credit is available as follows:

1.ITC of SGST can be utilized for payment of SGST first and balance for payment of IGST on
outward supply.

2.ITC of UTGST can be utilized for payment of UTGST first and balance for payment of IGST
on outward supply.

3.ITC of CGST can be utilised for payment of CGST first and balance for payment of IGST
on outward supply.

4.ITC of IGST shall first be utilized towards payment of IGST, and the amount remaining, if
any, may be utilised towards payment of CGST and SGST/UTGST as the case may be.

5.ITC of SGST/UTGST can be utilized for payment of IGST only when the balance of the ITC
on account CGST is not available for payment of IGST.

6.ITC of SGST/UTGST cannot be used for payment of CGST. Similarly, ITC of CGST cannot
be used for payment of SGST/UTGST. Barring few exceptions, tax credit is available for all
input goods, services and capital goods used (or intended to be used) in the course of business.

Definitions

Aggregate Turnover – It means the value of all taxable supplies pertaining to intra-state/inter-
state activities; exempt supplies and exports of goods or services or both. It includes value of
stock transfers/ branch transfer.

Adjudicating Authority- As per GST the “adjudicating authority” is anyone competent to

pass any order or decision under this Act, but does not include the Board, the First Appellate
Authority and the Appellate Tribunal. Some examples include cancellation of registration, best
judgment assessment, decision on a refund claim, imposition of a penalty.

Agent - The GST Act defines an Agent as 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.

Casual taxable person- Casual taxable person means a person who occasionally undertakes
transactions involving supply of goods or services or both in the course or furtherance of
business, whether as principal, agent or in any other capacity, in a State or a Union territory
where he has no fixed place of business.

Goods - has been defined as 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.

Capital goods - capital goods means goods, the value of which is capitalised in the books of
accounts of the person claiming the credit and which are used or intended to be used in the
course or furtherance of business.

e-Commerce and e-Commerce operator- e-Commerce means the supply of goods or services
or both, including digital products over digital or electronic network. e-Commerce operator
means any person who owns, operates or manages digital or electronic facility or platform for
electronic commerce. The E-commerce operators are required to take GST registration
(Regular), irrespective of the aggregate turnover.

GST Council
GST council is an apex constitutional body. It was constituted by virtue of Article
279A(1).GST Council is the governing body for the implementation of GST rules in India. It
is tasked with the duties to make important decisions and changes in GST. The GST Council
is authorised to determine the rate of tax applicable under the GST model, tax exemption rules,
the due date of submitting GST forms, tax related laws and deadlines and special exemptions
for some States of India. The GST Council is tasked to ensure that one uniform rate of GST is
applied on goods and services all across India.
The GST council’s structure in India is:
1. Chairperson- Union Finance Minister
2.Vice chairperson- to be chosen from amongst the members of Ministers of State government
3. Members-
(a) The Union Minister of State, in-charge of Revenue of finance
(b) The Minister In-charge of finance or taxation or any other Minister nominated by each State
Government

Quorum and Decision-Making

 For a valid meeting of the members of the GST Council, at least 50 per cent of the total
number of members should be present at the meeting.
 Every Decision made during the meeting should be supported by at least 75 per cent
majority of the weighted votes of the members who are present and voting at the
meeting. In “article 279A” a principle is there which divides the total weighted vote
cast between Central Government and State Government:-
o The vote of the Central Government shall have the weight of one-third of the
total votes
o The votes of the State Government shall have the weight of two-third of the
total votes, cast in the meeting

Functions of the GST Council

The GST council will be supposed to make the recommendation to the Union and State on the
following matters:-

 principles of levy, model Goods and Services Tax Laws, the appointment of Goods and
Services Tax levied on supplies in the course of Inter-State trade or commerce under
article 269A, and the principles that govern the place of supply;
 for raising resources during any natural calamity or disaster, or any special rate or rates
for a specified period, to raise additional.
 as the Council may decide, any other matter relating to the goods and services tax.
 On subsuming of various taxes, cess, and surcharge in GST.
 Details of services and goods that will be subjected to GST or which will be exempted
from GST.
 On Threshold limit below which, services and goods will be exempted from GST.
 On GST rates including floor rate with bands of GST and any special rate for time being
to arrange resources to face any natural calamity.
  Making special provisions for the following states: Arunachal Pradesh, Assam, Jammu
and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal
Pradesh and Uttarakhand.
 On model law on GST, Principal of levy of GST and the principals which will govern
the Place of Supply.

Concept of ‘Supply’
Supply of goods or services or both is taxable event in GST. GST is applicable only if there is
supply of goods/services and it is for a consideration (GST is attracted in few cases where
consideration is absent or zero or supply is by way of gift). Supply is made by the supplier in
the course or furtherance of his business. GST is not applicable if supply pertains to
goods/services specified in exemption list.

Composite supply - U/s 2(30) of CGST Act, 2017 Composite supply means 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 ordinary course of business, and out of all supplies, one of which is principal
supply. (Principal supply means predominant element of composite supply for which other
supplies forming part of composite supply play an ancillary role). The tax rate applicable for
the goods or services which is treated as principal supply is the rate of tax for Composite
Supply.

Any supply of goods or services will be treated as composite supply if it satisfies the following
conditions simultaneously:

a) Supply of two or more taxable supply.

b) It is naturally bundled i.e.; goods or services are usually provided together in normal course
of business. They cannot be separated.

c)One of the supplies must be principal supply.

Mixed supply - As per Sec. 2(74) 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.
Exempted supply - Exempted supply means the supply of goods or services or both which
attracts nil rate of tax or which are specifically exempt from GST through government
notification and includes non-taxable supply.

Outward supply - Outward supply in relation to a taxable person, means supply of goods or
services or both, whether by sale, transfer, barter, exchange, license, rental, lease or disposal
or any other mode, made or agreed to be made by such person in the course or furtherance of
business.

Principal supply - principal supply means supply of goods or service which is the predominant
element of a composite supply to which the other supplies are only ancillary. The supply of
goods, packing materials, transport and insurance is a composite supply. Insurance, transport
cannot be done separately if there are no goods to supply. Thus, the supply of goods is the
principal supply. Tax liability will be the tax on the principal supply i.e., GST rate on the goods.

Place of Supply - Place of Supply is the location at where movement of goods terminates for
delivery to the recipient. It is immaterial who moves the goods. Goods can be moved either
by the Supplier or by the Recipient or by Any Other Person. The Address of the Recipient will
be termination point. If address of the Recipient is not available to the Supplier the termination
point shall be the location of the Supplier.

Input Service Distributor (ISD) - An Input Service Distributor (ISD) is a taxpayer that
receives invoices for services used by its branches. It distributes the tax paid known as the Input
Tax Credit (ITC), to such branches on a proportional basis by issuing ISD invoices. The
branches must have the same PAN as that of ISD.

Job work - Job work means undertaking any treatment or process by a person on goods
belonging to another registered taxable person. The person who is treating or processing the
goods belonging to other person is called 'job worker' and the person to whom the goods
belongs is called 'principal. Example - machining, welding, painting, electroplating, assembly,
powder coating

Manufacture - under GST, It means processing of raw material or inputs in any manner that
results in emergence of a new product having a distinct name, character and use and the term
“manufacturer” shall be construed accordingly.

Person - A 'taxable person' under GST, is a person who carries on any business at any place in
India and who is registered or required to be registered under the GST Act.
Place of business - Section 2(85): place of business includes, (a) a place from where the
business is ordinarily carried on, and includes a warehouse, godown or any other place where
a taxable person stores his goods, supplies or receives goods or services or both; or (b) a place
where a taxable person maintains his books of account.

Reverse charge - It 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.

Works contract - Works contract means a service contract involving supply of goods to
execute the contract. Hence, works contracts are a mixture of service and transfer of goods.
Examples of works contracts are the construction of a new building, erection, installation of
plant and machinery.

Non-Resident - A non-resident is a person who resides in one jurisdiction but has interests in
another. Non-resident status is often important in determining one's eligibility for taxes,
government benefits, jury duty, education, voting, and other government functions.

Location of the recipient of services – It is from where the services have been received by
the recipient. There are two cases under it:
a. Supply is received at a place where the business is registered.
b. Supply is received at a place other than the place is registered.

Location of the supplier of services - The term location of supplier of service means from
where the service has been provided. There are two cases under it: a. Supply is made from a
place where the business is registered. b. Supply is made from a place other than the place
which is registered

Registration under GST

Under GST, registration of any business entity implies obtaining a unique number (GSTIN)
from the GST authorities for the purpose of collecting GST on behalf of the Central
Government, State Government and Union Territory and to avail input tax credit on inward
supplies.

Persons liable for registration:

1. Every supplier is liable to be registered under the act in the state from where he makes a
taxable supply of goods and services.
2. The application for the registration shall be made within 30 days from the date when he
becomes liable for registration.

3. Casual taxable person or non-resident taxable person shall apply for the registration at least
5 days prior to the commencement of business.

4. A person having multiple business verticals in one state may obtain separate registration for
each business.

Persons not liable for registration:

1.Person engaged exclusively in supplying goods or services or both not liable to GST.

2.Person engaged exclusively in supplying goods or services or both exempt from GST.

3. Agriculturist engaged in supply of produce cultivated out of land.

4.Any other person as may be notified by the government.

Compulsory Registration

GST Registration is compulsory for:

 Any business involved in the supply of goods/services whose turnover in a financial
year exceeds Rs.40 lakhs for Normal Category states (Rs.20 lakhs for Special Category
states). Only goods- threshold limit is Rs. 40 lakhs for normal Category states (Rs. 20
lakhs for the Special Category States).
 Inter-State Supply.
 Every person who is registered under an earlier law (i.e., Excise, VAT, Service Tax,
etc.) needs to register under GST too.
 Casual taxable persons making taxable supply.
 The non-resident taxable person making taxable supply.
 E-Commerce operator.
 OIDAR services from a place outside India to an unregistered person in India.

Types of GST Registration

Normal Taxpayer - This category of GST registration applies to taxpayers operating a

business in India. Taxpayers registering for normal taxpayer does not require a deposit and
also provided with unlimited validity date.
Composition Taxpayer - To register as a Composition Taxpayer, the individual should enrol
under GST Composition Scheme*. Taxpayers enrolled under the Composition Scheme can
pay a flat GST rate. However, the taxpayer would not be allowed to claim the input tax credit.
Casual Taxable Person - Any taxpayer establishing a stall or seasonal shop shall register
under Casual Taxable Person. To register as a casual taxable person, the taxpayer shall pay a
deposit equal to the amount of GST liability. The liability should match the active registration
periods. The registration remains active for a period of 3 months.
Non-Resident Taxable Person - The category non-resident taxable person applies to
individuals located outside of India. The taxpayers should and supplying goods or services to
residents in India. To register as a casual taxable person, the taxpayer shall pay a deposit
equal to the amount of GST liability. The liability should match the active registration
periods. The registration remains active for a period of 3 months.

*Composition Scheme is a simple and easy scheme under GST for taxpayers. Small taxpayers
can get rid of tedious GST formalities and pay GST at a fixed rate of turnover. This scheme
can be opted by any taxpayer whose turnover is less than Rs. 1.5 crore.

Regular Dealer means a firm that owns, operates or maintains a store, warehouse, or other
establishment in which the materials or supplies required for the performance of the contract
are bought, kept in stock, and regularly sold to the public in the usual course of business.

Composition dealer is required to pay tax at a specific rate on total sales. Also, the dealer has
to pay tax under reverse charge on specified purchases, purchase from unregistered dealers and
import of services.

Procedure for Registration – The registration under GST is PAN based and State specific.
Supplier has to register in each of such state or Union Territory from where he effects supply.
In GST registration, the supplier is allotted a 15digit GST identification number called
‘GSTIN’ and a certificate of registration incorporating therein this GSTIN is made available to
the applicant on the GSTN(Goods and Services Tax Network) common portal.

1. Verification before registration- Every person shall declare his PAN, mobile number,
email address, State/Union Territory in Part A of Form GST REG-01 on the GST portal.
 On successful verification of the above, a temporary reference number shall be
generated and communicated to the applicant.
2. Registration application- Using the aforesaid reference number, the applicant shall
electronically submit an application in Part B of form GST REG-01, duly signed, along
with the documents specified in the said Form at the GST common portal. On receipt
of an application, an acknowledgement shall be issued electronically to the applicant in
Form GST REG-02. A person must apply for GST registration within 30 days of
becoming liable for GST registration.
3. Authentication of application - The option of registration through Aadhaar
authentication has been enabled for GST registrations applied from August 21,2020.
The process of Aadhaar authentication is optional. In cases where a person does not opt
for it, physical verification of the principal place of business would be mandatory.
Time-limit for grant of registration is 7 working days from the date of submission of
application for successful authentication.
4. Registration Certificate – Where the application for grant of registration has been
approved, a certificate of registration in Form GST REG-06 will be issued. The
registration certificate shows the principal place of business and additional place or
places of business and is made available to the applicant on the common portal and a
GSTIN shall be assigned.
5. Amendment of registration – Where there is any change in any of the particulars
furnished in the application for registration, the registered person shall, within a period
of 15 days of such change, submit an application electronically in Form GST REG-14,
along with the documents relating to such change.
6. Cancellation or suspension of registration – The registration can be cancelled if the
business has been discontinued, transferred fully for any reason, there is a change in the
constitution of the business, if the taxable person is no longer liable to be registered
under section 22 or section 24 etc.
7. Revocation of cancellation of registration – Any registered person, whose
registration is cancelled by the proper officer on his own motion, may apply to such
officer for revocation of cancellation of registration.

Zero-Rated Supply - As per Sec (16) means any of the following supplies of goods or services
or both, namely-
(a) Export of goods or services which means if we export the goods and services to any part of
the country, then the export is a zero rated supply.

(b) Supply of goods or services or both to a Special Economic Zone (SEZ). If we supply goods
and services to SEZ’s and also if your business unit is situated in such SEZ’s and supply the
goods or services or both from there, then it Is also a Zero-Rated Supply.