GST: History and fundamentals
Unit – 1
Overview of GST, Implementation of GST, Liability of the Taxpayer, GST Network GST Council, Levy of GST – Introduction, Composition Scheme, Registration Procedure, Special Persons, Amendments / Cancellation1. Overview of GST
In India, GST came into force on 1st July, 2017 (except J&K) and just one week later from 7th July it became applicable to Jammu & Kashmir as well. Thus, GST has completed three years on 30th June, 2020 and has entered in 4th year since its implementation.
GST stands for Goods and Services Tax.
It comprises three words:
(I) Goods
(II) Services
(III) Tax
Let us first understand the word ‘tax’
In simple terms, a tax is an obligatory payment by the citizens of a country to the government of that country. The government uses tax collections for the betterment of the country and citizens.
General features of tax:
(i) A tax is involuntary i.e. it is forced upon and citizens can’t refuse to pay tax to the government.
(ii) A tax is charged or levied under authority of law.
(iii) A tax is generally linked to the happening of an event or some attribute. For example: - if one enters the territory of a state,
- if something is exchanged i.e. sold or purchased
- holding of land, cattle, gold or say wealth
- upon receiving or making a gift or an inheritance
- upon providing or receiving of a service
and then there may be infinite reasons based on the fancy and imagination of state.
(iv) In modern states, tax is generally seen as a prime source of revenue for government spending on the betterment of the society.
1.1 Direct and Indirect Tax:
A direct tax is one where incidence of tax and payment of tax to the government falls on one person only i.e., he cannot shift the burden of tax by collecting the tax amount from someone else. Example: Income Tax, Wealth Tax etc.
Indirect Tax on the contrary is a tax where the financial burden of tax is shifted to the next person in the supply chain. The seller or supplier collects the tax from purchaser and deposits the same with the government or state i.e. he is paying the tax to the government not out of his own pocket but is simply paying the tax which he has collected or can recover from the purchaser. Here, the incidence of tax, collection of tax from the recipient or beneficiary of goods or service and deposit of tax collected from such person is shifted.
For example, Mr. A is a dealer of cement bags. He sells a cement bag at Rs.472/- to customers. The price per bag without GST is Rs.400/- and applicable GST rate is 18%. Thus, to a customer a bag is sold after adding Rs.72/- is 18% of Rs.400/- at Rs.472/-
i.e. Price 400/-
Add: GST @18% 72/-
Sales price (400 + 72) 472/-
Rs.72/- being GST, does not belong to seller i.e. Mr. A as he has to pay this amount to the government as tax, however, he is not paying this amount out of his own pocket as he has collected this amount from customers. So, it can be seen that Rs.72/- is collected by the government from Mr. A who has recovered this amount from customers. In fact, it is the customer who is bearing
the burden of tax. But the government will not ask customers to pay the tax and will go after the seller i.e. supplier of goods for applicable GST. That is why GST is considered an indirect tax.
Examples of Indirect taxes: Goods and Service Tax, Customs duty, Entertainment Tax etc.
1.1.1 Features of Indirect Tax:
(i) Burden of Tax is shifted to a large number of consumers.
(ii) Taxation base is large in case of indirect taxes i.e. its burden is shared by a large number of people.
(iii) Indirect tax is generally linked to consumption thus it is just and taxes more who consumes more.
(iv) It is easier to collect as the amount is small and moreover hidden in many cases. (v) It serves as a tool to discourage harmful and undesirable products and services. (vi) It carries a large taxpayer base as compared to direct taxes.
(vii) It is borne by rich and poor as well. While the rich can survive any tax, it becomes a burden for the poor.
(viii) Indirect tax supports inflationary forces.
1.2. Why GST?
Factors that led to the adoption of GST: (Also demerits of earlier taxation system)
In India, power to levy tax is granted by the constitution of India. (in the context of taxation, two words are very important i.e. charge and levy. They are interchangeably used to denote the liability or obligation of payment of tax).
The Constitution of India contains provisions empowering both center and the states to charge various taxes on the citizens of India. Here let us keep in mind that India is a federal state. It has got one Centre or union while there are various states and union territories. Article 265, Article 245 and Article 246 grant statutory force to the parliament at Centre and legislatures of states to make laws for levy and collection of various taxes. Their respective jurisdiction is clearly spelt out in seventh schedule to Article 246. It comprises Union List, State List and Concurrent lists,
which states subjects and events upon which either Centre and upon which states shall have jurisdiction.
Union List provides matters upon which Centre or union shall exclusively legislate. State List provides matters upon which states shall have jurisdiction to make laws.
Concurrent List contain subjects and matters upon which both states and Centre may legislate. If there is any disagreement, word of Centre shall prevail.
Accordingly, tax on income, tax on entry of goods and services to Indian territories, tax on production of goods and provision of services is levied exclusively by the center. While, tax on sale or purchase of goods once they are manufactured, entry i.e. movement of goods to and from the territory of a given state, sale of lotteries, tax on entertainment, octroi etc. were levied by states. This duality was maintained in view of enabling states to earn and manage their own sources of finances in order to make them responsible towards their constitutional duties as states within the overall federal structure. However, from another view i.e. economical and commercial view, this earlier setup (which continued till emergence of GST from 1st July, 2017) had its inherent limitations which ultimately hindered the free flow of goods and services through the length and breadth of country making the trade, commerce, industry and exports inefficient and uncompetitive.
Thus, before GST came into picture, there were numerous taxes levied by different states and centre as well, leading to uncertainty as to final pricing of goods and services.
There were different rates of taxes for the same goods in different states, making trade and commerce both uncompetitive and costly for business entities in different states.
Even end-consumers were at a disadvantage as goods became costlier because price was inflated by adding taxes on taxes at each stage of distribution i.e. manufacturer to wholesaler to retailer and lastly to consumer. (This is commonly referred to as cascading effect of taxes)
All this led to a fragmented taxation system, restricted and uneven flow of goods and services, uncompetitive prices causing an impediment to growth of business and economy.
Following points can be mentioned to describe the complex taxation structure before GST:
(i) Multiplicity of taxes as the Government and States applied separate taxes even for the same goods. For examples Centre levied excise duty and states levied state VAT
(ii) Multiplicity of tax rates i.e. as there were many taxes applicable throughout the supply chain, there were different rates prescribed under each taxation system.
(iii) Multiplicity of laws, rules, regulations, administrative authorities etc. resulted in multiple sets of formalities.
(iv) No free supply i.e. movement of goods throughout the territory of India. Every state employs flying squads and charging entry taxes etc. on movement of goods and services.
(v) Undue increase in prices on account of ‘cascading effect of tax’ i.e. at every stage of supply, tax was levied without setting off the credit of tax paid at the prior stages. This resulted in charging tax on tax resulting in unjustified inflation in the price of goods for the ultimate consumer.
(vi) Multiplicity of tax also resulted in high tax evasion resulting in a parallel black-money economy.
(vii) Less use of technology resulted in high volume of manual processing of activities involving delays and inefficiencies.
(viii) Absence of centralized data network and coordination between separated government departments resulted in increased government expenditure and efforts on collection of tax.
Emergence of GST led to the end of above era removing above mentioned deficiencies and brought India under " ONE NATION-ONE MARKET-ONE TAX"
GST came as a solution to all above limitations pointed in previous
section and showed a way towards efficient flow of goods and services
and equitable distribution of resources between various states and
Centre. It is aimed at increasing the pace (volume) of business, ease of
doing business, competitive pricing, equitable distribution of tax
funds between various states. Removal of the cascading effect of
earlier taxes resulting in inflated prices is one of the major
objectives of GST. This is believed to bring down the prices for
consumers and make our exports more competitive.
GST is designed to bring in following advantages:
(i) Instrumental to free trade and free movement and exchange of goods and services throughout the territory of India.
(ii) Only five rates of GST
(iii) Paperless, automated and seamless flow of all activities and relevant information through common GST Portal
(iv) Doing away with cascading effect of Tax
(v) Supports 'Make in India' initiative.
(vi)
Bring pricing of goods and services in India at par with international
goods and services thereby improving competitiveness of Indian goods.
(vii) Harmonized classification of goods and services.
(viii) Elimination of multiplicity of taxes, forms, rules, procedures etc.
Cascading
effect of taxes in earlier regime was the main culprit. Cascading
effect means tax on tax. Tax should be on value or utility created or
added in case of transaction taxes like Sales Tax or expenditure tax.
However, due to fragmented and isolated taxation setups of various
states, sellers were forced to treat the tax paid while purchasing
goods for further sales or purchasing inputs for manufacturing, as COST.
This led to charging further taxes on tax element resulting in inflated value of purchases or inputs. This resulted in double blow by enhancing
the prices on account of (I) input tax and (II) by increased output tax
consisting of tax on inputs i.e. tax on tax.
This led to mass scale problems relating to
tax evasion,
uncompetitive prices and
unnecessary administration efforts of taxation authorities.
This situation can be
visualized with the help of a comparative table below:Pricing through
Supply Chain and tax implications
ITC
Net Tax Liability
Manufacturer to Wholesaler
Case1: No tax
Case2: Tax without ITC
Case3: Tax with ITC
Input
Value 100 100 100 Profit/Value Addition 10% 10 10 10 Sale price without
tax 110 110 110 GST @12% on above 0 14 14 0 14 Sale price including tax
110 124 124
Wholesaler to Retailer
Input Value 110 124
110 Profit/Value Addition 10% 11 13 11 Sale price without tax 121 137
121 GST @12% on above 0 17 15 -14 1 Sale price including tax 121 154 136
Retailer to Consumer
Input
Value 121 154 121 Profit/Value Addition 10% 13 16 13 Sale price without
tax 134 170 134 GST @12% on above 0 21 17 -15 2 Sale price including
tax 134 191 151
Total tax to Govt. 0 52 46 -29 17 Less ITC -29 17
Tax on Value:
Value:
--Manufacturer 110
--Wholesaler 11
--Retailer 13
Total Value: 134
GST @12% on total value 17
Notes:
1.
Under ‘No Tax’ situation, Government is getting not tax, though price
to consumer is least. 2. Under No ITC situation, Government is getting
maximum tax i.e. Rs.52 and price to consumer is also highest.
3.No ITC situation leads to cascading effect of tax. The prices are high and tax evasion is also high.
4.Tax where ITC is available is most appropriate. Both Taxes and Prices are moderate, benefiting business.
6. ITC means Input Tax Credit. Under GST, ITC is available.
7.
ITC is equal to tax paid on purchases. It effectively reduces the tax
liability on sales 8. It is assumed that manufacturer is the origin of
inputs, hence no ITC.
1.4 Earlier taxes subsumed under GST:
(i) Taxes levied and collected by the Centre:
• Central Excise Duty
• Duties of Excise (Medicinal and Toilet Preparations)
• Additional Duties of Excise (Goods of Special Importance)
• Additional Duties of Excise (Textiles and Textile Products)
• Additional Duties of Customs (commonly known as CVD) and Special Additional Duty of Customs (SAD)@
• Service Tax
•
Central Surcharges and Cess as far as they relate to supply of goods
and services. Under GST, it is collected as Integrated Tax
(ii) State taxes that have been subsumed under the GST are
• State VAT
• Central Sales Tax (CST)
• Luxury Tax
• Entry Tax (including Octroi and Local Body Tax)
• Entertainment and Amusement Tax (except when levied by the local bodies) • Taxes on advertisements
• Purchase Tax
• Taxes on lotteries, betting and gambling
• State surcharges and cesses so far as they relate to supply of goods and services.
1.5 Taxes not subsumed under GST or Continuing taxes
The GST has not replaced following taxes and they continue as before:
1. Taxes currently levied and collected by the Centre:
• Taxes on income, wealth or gifts (never included in a GST kind of tax)
• Basic Customs Duty (never included in GST, being tariff barrier)
•
Duty of Excise on tobacco and tobacco products (will be levied over and
above GST) • Terminal taxes on goods or passengers, carried by railway,
sea or air; taxes on railway fares and freights
• Central Stamp Duties
• Oil Industries Development Act Cess (OIDB Cess) (as petroleum is kept outside GST)
2. State taxes that would not be subsumed under the GST are:
• Fees in respect of markets and fairs (Mandi fees)
• Taxes on lands and buildings (property tax)
• State Stamp Duties
• Taxes on mineral rights
• Electricity Duty
• Taxes on goods and passengers carried by road or on inland waterways
• Taxes on vehicles (Road Transport Authority)
• Tolls
• Taxes on professions, trades, callings and employments
• Entertainment Tax by local bodies
1.6 Journey/Evolution/Genesis of GST
1970-1999:
Various study groups and committees were formed by the government from
time to time to streamline indirect taxation structure in particular
specially to simplify the taxation with respect to manufacture and
trading of goods in the country. After 1994 service tax was also
included in the scope. The main area of concern was removal of the
cascading effect of tax, free trade of goods and services throughout
the country and ease of taxation structure for all the stakeholders.
2004: Kelkar Task force while studying existing taxation presented the idea of GST
2006:
While presenting the Finance Budget, the then finance minister for the
first time declared GST as a reality and conveyed the seriousness of
Government with respect to GST and provided April, 2010 as tentative
date of its coming into existence.
2006- april 2014: there were
various rounds of discussions and deliberations between representatives
of Centre as well as states. There were differences, disagreements and
reservations of some states on various issues as to sharing of revenue
between states and Centre and also upon taxability of certain goods
specifically that of liquor for human consumption, diesel and petrol
etc.
In fact, this was necessary considering the vast size of
the country and different situations and priorities each state has to
face.
After election of new government in 2014 things again picked speed:
19th
December 2014: Constitution (122nd Amendment) bill was introduced in
Lok Sabha 06th May 2015: The bill was approved by Lok Sabha
03rd Aug 2016: The bill was passed by Rajya Sabha as well
08th
September 2016: The president of India gave assent to the bill and the
Constitution (101st Amendment) Act 2016 came into force which formally
gave way to GST regime in India.
27-29th March 2017: The central
limb of GST legislation i.e. (I) Central Goods and Services Tax Bill,
2017 (ii) Integrated Goods and Services Tax Bill, 2017, (iii) Union
Territories Goods and Services Tax Bill, 2017 and (iv) Goods and
Services Tax (Compensation to States) Bill, 2017 were introduced and
passed in Lok Sabha.
12th April 2017: The day all the above bills were assented to by President of India and were enacted.
Immediately
after this all states passed their respective state legislation with
respect to State GST, Telangana, Rajasthan, Madhya Pradesh, Chattisgarh,
Punjab, Goa and Bihar were first states and later all states except
J&K passed their legislations. J&K passed their State GST Act on
7th July 2017.
1st July 2017 was notified as the date from
which the act came into force in India and from 7th July it became
applicable to Jammu & Kashmir as well.
1.7 Constitutional and Statutory setup of GST
Existing
provisions and delineation of subjects and matters on which Centre and
states were authorized to legislate could not open the era of one
single tax on exchange of goods and services. To achieve this,
amendment of constitution was must for adopting dual model of GST,
where both states and Centre shall equally and simultaneously
participate in levy, collection and administration of tax to make it a
unified tax both in words and spirit for the entire nation.
This
was not an easy task. It was just considered almost impossible.
However, one by one steps were taken and over a period of almost two
decades, the 101st amendment to the constitution was made and adopted
and GST saw the light of the day. The 101st amendment of the
constitution introduced certain new articles, viz. Article 246A, 269A,
279A etc. It also modified existing articles and amended List I and
List II to VIIth schedule to the constitution.
Article 246A:
Power to impose GST granted both to Centre and States. Power to
legislate on inter-state movement of goods and services given to
parliament and application of GST to be deferred on certain commodities
i.e. petroleum products till a date prescribed by GST council.
Article
366(12A): GST defined as any tax on supply of goods and services except
taxes on supply of the alcoholic liquor for human consumption.
Article 366 (26A): Services defined as anything other than goods
Article 366(12): Goods include all materials, commodities and articles
Article
269A: GST levied and collected by the Central Government shall be
apportioned between the union and the states in the manner as provided
by the parliament based on the recommendations of the GST Council
Import
of goods and services into Indian territories shall be treated as
supply of goods and services in the course of inter-state supply.
Parliament shall make rules as to place of supply and when to treat a supply as inter-state supply of goods and/or services.
Setting off and adjustment of GST in course of inter-state supply with that of intra-state supply and vice versa.
Article 279A: GST council
Note: GST Council is a novel feature included in GST regime and is separately explained.
Suitable
amendments as to various entries of List I and List II in order to
repeal various existing taxes sought to be subsumed in new GST. For
example, Entry 92C with respect to taxes on services was omitted as
service tax was subsumed in GST itself.
Enabling provisions were
also made such that parliament shall on the recommendation of the GST
Council, provide for compensation to the States for loss of revenue
arising on account of implementation of the GST for a period of five
years.
Any law relating to tax on goods or services in force in
any State before the commencement of 101st Constitutional Amendment
Act shall continue to be in force until amended or repealed by a
competent Legislature or until expiration of one year from such
commencement, whichever is earlier.
As a result of above
constitutional amendment, statutory platform for GST was prepared and
consequently following statutes were enacted:
(i) By parliament:
• The Central Goods and Services Tax Act, 2017
• The Integrated Goods and Services Tax Act, 2017
• The Union Territory Goods and Services Tax Act, 2017
• The Goods and Services Tax (Compensation to States) Act, 2017
(ii) By State legislatures of the states:
respective state Goods and Services TaxAct, 2017 for e.g. U.P. Goods and Services Tax Act, 2017
In
fact, 30 such separate legislations were made i.e. 28 for various
states and 2 for union territories with legislatures viz. Delhi and
Puducherry. Telangana was the first to legislate while Jammu Kashmir
enacted GST legislations seven days later from the date GST was
implemented in rest of India i.e. on 7th July, 2017.
As both
centre and states are supposed to administer various aspects of GST,
both parliament at centre and state legislatures of various states had
to enact respective legislations.
S.No. Name of Act Passed by Applicable to 1 CGST Act, 2017 Centre Intra-state supply of goods and services
2 SGST Act(s), 2017 States Intra-state supply of goods and services
3 UTGST Act, 2017 Union Territories without legislature
Intra-state supply of goods and services
4 IGST Act, 2017 Centre Inter-state supply of goods and services
Notes:
(i)
Intra-state means within i.e. supply of goods and/or services within
the boundaries of states. For example, where seller is selling goods
from Agra to Lucknow or to Varanasi
(ii) Inter-state means
between the states i.e. where goods originate from one state and are
supplied to some other state. For example, sellers selling goods from
Meerut to Mumbai i.e. from UP to Maharashtra.
(ii) There is a
single CGST i.e. Central Goods and Services Tax Act but there are as
many separate SGST acts as there are states and for each state (as
passed by the legislature of the state).
(iii) Respective SGST
Act(s), 2017: i.e. States Goods & Services Act(s) enacted by
respective state legislatures (also including union territories with
legislatures viz. Delhi and Puducherry) with respect to intra-state
supply of goods and services
(iv)UTGST Act, 2017: Union
Territory Goods and Services Tax Act, 2017 for union territories
without legislatures for supply of goods and services within respective
union territory.
(v) IGST Act, 2017: stands for Integrated Goods
and Services Tax Act, 2017 for supply of goods between states i.e.
inter-state supply.
1.8 Delegated/Subordinate Legislation:
India
is a federal country. There are presently 28 states and 8 Union
Territories. To have one set of rules for exchange and movement of
goods and services and that too simultaneously by Centre and states is
beyond imagination. That is why in pre-GST times, taxation on
sale/supply of goods and services was cumbersome beyond clarity and
movement of goods through the country was filled with bottlenecks and
restrictions.
GST sought to bring uniformity and clarity to the
above state of chaos by carving out statutes as mentioned above.
However, it is very difficult to amend the statutes every now and then.
To overcome this delegated/subordinate legislation is used.
As a result, GST council was formed by virtue of newly introduced Article 279A by 101st amendment of constitution of India.
The
scheme of things under GST is that, with respect to almost all
practical matters involved in the implementation and administration of
GST i.e. rates of GST, applicability of GST on a particular good or
service, and all other administrative matters… say with respect to
registration, filing of return, payment of tax, interest and penalties
etc., can be modified as per the need of the situation by empowering
GST Council to decide and recommend its decision with respect to any of
the above matters. The decision is adopted and notified by the Ministry
of Finance through one of its extensions i.e. CBIC (Central Board of
Indirect Taxes and Customs) as law of the land for all practical
purposes. Thus, GST council bypasses the otherwise long and tenuous
method of amending a statute in parliament or state legislatures.
(Please read above paragraph carefully to visualize this very important arrangement in the GST setup)
1.9 GST Council:
GST
council is a very interesting (rather a novel and bold) feature in the
arrangement of things under the GST regime. Normally any tax is
governed and spelled out by a statute. To give enforceable authority to
a statute, the process in a large country like India is very complex
and
time consuming. This was more so when GST was to be implemented and controlled both by Centre and States in Partnership.
There
are many stakeholders in GST set-up i.e. Central Government, State
Governments, Union territories with and without legislative powers,
Participants of entire trade, industry and commerce and finally the
public as the ultimate consumer. It has been observed lately that any
desirable change which is accepted by all stakeholders takes
considerable time before it becomes applicable law in the existing
setup of legislative function. To overcome this and and continuously act
as a coordinating agency and a driving force in implementing GST in a
shape with which all stakeholders are happy, a body was perceived and
thus came GST Council. In fact, the Constitution of India was amended
to give birth to this body which goes to show its important role.
CGST Act, 2017 defines council u/s 2(36) as the council established under Article 279A of the Constitution of India.
Article
279A of Constitution came into being as a result of passing of 101st
Amendment of Constitution on 08/09/2016 giving birth to GST council. It
provided for constitution of GST council by president of India within
60 days from 08/09/2016. Accordingly, it was constituted by the cabinet
on 15/09/2016 and the first meeting was held with Shri Arun Jaitley,
the then Union finance minister and finance ministers of 29 states and 2
Uts as its members.
Now the question: what is so important in
the GST Council? The answer lies in the fact that India has adopted a
federal structure with 28 states and 2 Union Territories as legislative
setup. Further to carry out state functions, both Centre and state
governments have to administer different taxes. The power to levy a tax
and collect it, emanates from Article 265 of constitution. Subjects of
taxation have been divided between Centre and states through the
seventh schedule to the constitution. Before the above constitutional
amendment tax on sale or purchase of goods was a state subject as per
State List of seventh schedule to the constitution i.e. states used to
charge Sales Tax/Trade Tax/VAT etc. While tax on manufacture i.e.
excise and on services i.e. service tax was levied by Centre by virtue
of Union List and Concurrent List i.e. List I and List III of seventh
schedule.
This arrangement led to (I) multiplicity of tax heads
(ii) diversity of tax rates, (iii) multiple compliances and
formalities (iv) multiple administrative bodies making the entire gamut
of taxation a very complex and in fact it acted as a barrier to the
free trade, commerce and industry.
Centre States
Central Sales Tax Entry Taxes/Octroi
Excise Taxes on sale of goods
Customs Taxes on Luxuries
Entertainment Tax
Taxes on sale of liquor, Opium etc.
Electricity Tax
Taxes on lotteries and betting
However,
from the point of view of states, these taxes were the major source of
revenue and giving up these taxes and replacing them with one single
tax was beyond imagination as this would mean loss of revenue and loss
of jurisdiction. However, one single tax for one nation as a whole was
the call of times for the sake of simplicity and growth of the economy.
It took almost 15 years of concerted efforts and deliberations as to
the structure, implementation and ultimately distribution of tax
revenue between centre and states of GST before all states and centre
converged on adoption of GST.
After coming of GST into existence following indirect taxes were subsumed (absorbed and merged) into GST:
Central Excise Duty State surcharges and cesses in so far as they relate to supply of goods & services
Additional Excise Duties Entertainment Tax (except those levied by local bodies)
Excise Duty under Medicinal & Toilet Preparation Act
Tax on lotteries, betting and gambling
Countervailing Duty (CVD) and Special CVD Entry Tax (All forms) & Purchase Tax Central Sales Tax Vat/Sales/Trade Tax
Central Surcharges and Cesses in so far as they relate supply of goods and services
Service Tax and Luxury Tax Taxes on advertisement
This
knowledge of centre and states relationship in administering taxes is
essential in understanding the role and importance of GST council. To
sum GST council is a vehicle and
catalyst towards smooth implementation of GST throughout India under the true spirit of ‘One Nation - One Tax – One Market’
Constitution of GST Council:
The
Goods and Services Tax Council shall consist of the following members,
namely: — a. the Union Finance
Minister................................................................
Chairperson; b. the Union Minister of State in charge of Revenue or
Finance................. Member;
c. the Minister in charge of
Finance or Taxation or any other Minister nominated by each State
Government...................................... Members.
d.
The Members of the Goods and Services Tax Council referred to in
sub-clause (c) of clause (2) shall, as soon as may be, choose one
amongst themselves to be the Vice-Chairperson of the Council for such
period as they may decide.
e. One-half of the total number of Members of the Goods and Services Tax Council shall constitute the quorum at its meetings.
f.
Every decision of the Goods and Services Tax Council shall be taken at a
meeting, by a majority of not less than three-fourths of the weighted
votes of the members present and voting, in accordance with the
following principles, namely: —
- the vote of the Central Government shall have a weightage of one third of the total votes cast, and
-
the votes of all the State Governments taken together shall have a
weightage of two-thirds of the total votes cast, in that meeting.
Functions of the council:
The Goods and Services Tax Council shall make recommendations to the Union and the States on—
a.
the taxes, cesses and surcharges levied by the Union, the States and
the local bodies which may be subsumed in the goods and services tax;
b. the goods and services that may be subjected to, or exempted from the goods and services tax;
c.
model Goods and Services Tax Laws, principles of levy, apportionment 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;
d. the threshold limit of turnover below which goods and services may be exempted from goods and services tax;
e. the rates including floor rates with bands of goods and services tax;
f. any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster;
g.
special provision with respect to the States of Arunachal Pradesh,
Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland,
Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and
h. any other matter relating to the goods and services tax, as the Council may decide.
The
Goods and Services Tax Council shall recommend the date on which the
goods and services tax be levied on petroleum crude, high speed diesel,
motor spirit (commonly known as petrol), natural gas and aviation
turbine fuel.
i. The Goods and Services Tax Council shall
recommend the date on which the goods and services tax be levied on
petroleum crude, high speed diesel, motor spirit (commonly known as
petrol), natural gas and aviation turbine fuel.
j. While
discharging the functions conferred by this article, the Goods and
Services Tax Council shall be guided by the need for a harmonized
structure of goods and services tax and for the development of a
harmonized national market for goods and services.
1.10 GSTN and Goods and Service Tax Network or Common Portal
GST
tax is a pan India tax and its implementation and administration needed
capturing and processing of voluminous data. Further it had to be fast
and accurate almost in real time serving the needs of a large number
of stakeholders. Imagine a country as big as India and multitudes of
transactions involving GST taking place every day. Their implication on
GST cannot be tackled through human efforts at least as accurately and
speedily as with the aid of technology.
To facilitate end to
end capture of data, processing of all activities from registration to
filing of various returns, assessment, refunds etc. and provision of
all statistics to central government and state governments, a service
GSTN Goods and Service Tax Portal was floated.
Accordingly vide Notification No. 4/2017 – Central Tax
G.S.R.….(E).-
exercising the powers conferred by section 146 of the Central Goods and
Services Tax Act, 2017 (12 of 2017) read with section 20 of the
Integrated Goods and Services Tax Act,
2017 (13 of
2017), the Central Government notified www.gst.gov.in as the Common
Goods and Services Tax Electronic Portal for facilitating registration,
payment of tax, furnishing of returns, computation and settlement of
integrated tax and electronic way bill.
“www.gst.gov.in” means
the website managed by the Goods and Services Tax Network, a company
incorporated under the provisions of section 8 of the Companies Act,
2013 (18 of 2013)
GSTN stands for ‘Goods and Service Tax
Network’. It is frequently referred to as ‘common portal’. For a common
taxpayer or an individual, it is as simple as a web site having
www.gst.gov.in as its address.
But this is not that simple and small in size as an ordinary website. Consider following facts:
(i)
28 states and 8 Union territories and their GST administrative
machinery responsible for SGST administration as primary stakeholders
(ii)
Integration with more than 100 systems including Model1 States, CBIC,
25 Banks for payment, 36 State Treasuries, RBI, Aadhaar, CBDT, Indirect
Tax and Customs offices entrusted with administration of CGST and IGST
etc. for data transfer, online work flow like payment, approval of
registration, audit, assessment etc.
(iii) 1.24 Crore registered taxpayers
(iv)
Total Return transactions in a day: 18 lakh average (peaking at 23.86
Lakh in a day) (v) Total payment transactions in a day: 9 lakh average
(peaking at 9.55 lakh in a day) (vi) 8 billion invoices matched every
month
(vii) Every procedure and formality prescribed under the
GST framework to be carried out in a paper-less mode through electronic
medium, that too in coordination with other stakeholders also like
RBI, Banking channels etc.
There is no denying that this is a
mammoth exercise in terms of capturing data, processing of data,
storage & retrieval of data. It is definitely one of the biggest and
most complex in the world.
There is another perspective to
have a feel of its sheer size and complexity: It is important to realize
here following canons on which GST is based:
(i) GST was intended to uphold the spirit ‘ONE NATION-ONE TAX’
(ii)
GST is a destination-based tax on consumption i.e. tax is on
consumption and not on production or sale and therefore accrues to the
place of consumer i.e. belongs to the state where ultimate consumer
resides.
(iii) GST was supposed to remove the ‘cascading effect
of tax’ i.e. repeated tax on tax upon each subsequent sale till goods
reach the final consumer. Cascading effect of tax can be nullified only
by giving correct and timely ‘input tax credit’.
(iv) Distribution of tax revenue between states was dependent on fast and correct processing of returns.
(v)
Errors and frauds in the existing tax structure were mainly dependent
on manual working without sharing and coordination of information
between departments.
Thus, the empowered committee of ministers
in 2013 agreed to float a technological backbone framework in the form
of a ‘not for profit company’ u/s 8 of Companies Act, 2013 in view of
achieving above objectives. Present shareholding of GSTN is as under:
(I) 24.5% by Central Government
(ii)
24.5 by all states and Uts (including empowered committee of finance
ministers of state) (iii) Balance 51% is held by Government companies
and institutions like HDFC, ICICI, LIC etc. The Authorized Share Capital
of the company is Rs. 10,00,00,000 (Rupees Ten Crore only).
However,
keeping in view the sensitive nature of GSTN, the GST Council in its
27th meeting held on 4th May 2018 decided that GSTN will be converted
into a 100% Government-owned entity by transferring 51% equity held by
the Non-Government institutions to the Centre and states equally. The
Union Cabinet in its meeting held on 26th September 2018 approved the
recommendation to convert GSTN into a fully-owned Government company.
More precisely following were the mandates for GSTN:
(i)
Build GST IT System to provide shared IT infrastructure and services to
Central and 36 State/UT Governments, taxpayers and other stakeholders,
(ii) To develop Common Registration, Return Filing, Payment and other back-office GST business processes
(iii) Integration of Common GST Portal with existing tax administration systems of Centre and States
(iv) Build efficient and convenient interfaces for taxpayers
(v) Put in place system for Business intelligence and Data Analytics
In
simple words, under the GST regime, what is being done, it is done on
and through GSTN. If GSTN was not there, GST could not have been
possible.
1.11 CBIC
CBIC is acronym for Central Board of Indirect Taxes and Customs
Central
Board of Indirect Taxes and Customs (earlier Central Board of Excise
& Customs) is a part of the Department of Revenue under the
Ministry of Finance, Government of India.
It deals with the tasks of formulation of policy concerning levy and collection of: (i)Customs,
(ii)Central Excise duties,
(iii)Central Goods & Services Tax and IGST,
(iv)prevention of smuggling and
(v)administration
of matters relating to Customs, Central Excise, Central Goods &
Services Tax, IGST and Narcotics to the extent under CBIC's purview.
The
Board is the administrative authority for its subordinate
organizations, including Custom Houses, Central Excise and Central GST
Commissionerates and the Central Revenues Control Laboratory.
It
is noteworthy that State GST is implemented and administered by
Commercial Tax or VAT departments functioning under respective state’s
revenue/finance ministry.
Also, CBIC is empowered to issue
orders, instructions, clarifications, press releases which are binding
on its officers and departments. They serve as a guide for taxpayers;
however, they are not binding on the taxpayers and can be challenged in
appropriate courts of law.
A broad index of topics covered in all GST acts is given below. Sections are based on CGST Act, 2017
Chapter Title Sections
I Short title, extent and commencement, Definitions
1-3, 2(1) to 2(121)
II
Administration 3-6 III Levy and Collection of Tax 7-11 IV Time and
Value of Supply 12-15 V Input Tax Credit 16-21 VI Registration 22-30
VII Tax invoice, Debit and Credit Notes
31-34
VIII Accounts and Records 35-36 IX Returns 37-48 X Payment of Tax 49-53 XI Refunds 54-58 XII Assessment 59-64 XIII Audit 65-66
XIV Inspection, Search, Seizure and Arrest
67-72
XV Demands and Recovery 73-84
XVI Liability to pay in certain cases
95-94
XVII Advance Rulings 95-106
XVIII
Appeals and Revisions 107-121 XIX Offences and Penalties 122-138 XX
Transitional Provisions 139-142 XXI Miscellaneous Provisions 143
1.12 Definition of GST
GST stands for Goods and Services Tax.
Article
366(12A) of the Constitution defines Goods and services tax as any tax
on supply of goods, or services or both except taxes on the supply of
alcoholic liquor for human consumption.
In simple terms, GST is
an indirect tax which is charged on the value of supply of goods and
services by a taxable person at prescribed rates.
Important terms in this arrangement:
(i) Indirect tax
(ii) Supply
(iii) Goods
(iv) Services
(v) prescribed rates
(vi)Taxable person
(I)
Indirect tax is used as a term in contrast to direct tax. A tax is
dependent upon (i) taxable event (ii) beneficiary of that taxable event
(iii) person liable to pay tax to the government and (iv) person
actually bearing tax burden i.e. paying tax. Where the taxable event,
the benefit of that taxable event, liability to pay tax and liability
to deposit such tax with the government converge on the same person,
the tax is known as Direct Tax. On the contrary, if the liability to pay
tax and deposit that tax with the government can be separately placed
on two different persons, it is known as Indirect Tax.
This
separation causes a shift of burden i.e. the person actually paying the
tax does not pay the tax directly to the government, instead, the
seller i.e. supplier collects the tax from him and on his behalf pays
it to the government. This ‘via’ nature of tax liability and tax
collection is the basic feature of an indirect tax.
If we look
at GST, it is a destination-based tax on consumption. The supplier
(seller) supplies some goods or services to the recipient (purchaser)
who consumes them and thus pays the tax.
This tax is not paid
by the purchaser to the government but is given to the supplier
(seller), who in turn deposits it with the government.
If one
looks at this transaction from the side of seller, he thinks that he has
to charge tax from purchaser and deposit it with the government i.e.
he is paying tax to government which he has already charged from the
purchaser and nothing is going out of his own pocket to government so
far, this indirect tax is concerned. In other words, his disposable
earnings are not reduced by the amount of tax.
If one
looks at this transaction from the point of purchaser, he thinks that he
is supposed to pay tax on goods or services to the seller as he is
consuming (enjoying the goods/services) and which seller will deposit
with the government in due course.
If one looks at this
transaction from the side of the government, it reckons that as the
seller has collected tax from purchaser, he is liable to deposit the
same with the government in due course.
In contrast, if we look
at Income tax, which is a tax on earnings all the events fall on the
same person i.e. the person who earns some income has to pay tax on it
and he cannot shift this burden to any other person. As a result, his
disposable earnings will be reduced by the amount of tax.
(II) Supply
Supply
is not explicitly defined in the act. It is rather explained under
section 7 of CGST Act 2017 to include activities or transactions
involving:
(I) sale, exchange, barter, license, lease, rental, transfer, or disposal
(II) Import of services for a consideration (whether consideration present or not) (III) Activities mentioned in Schedule I
(IV) Activities mentioned in Schedule II
Supply does not include activities or transactions
(I) which are mentioned in Schedule III
(II)
which are undertaken by Central Government, State Government, any local
authority as such and which are notified by the Government on the
recommendations of the council.
(III) Transactions which are notified by Government on the recommendations of the council.
There
are few items on which GST is suspended i.e. to be levied from such
date and rates as notified by Government on the recommendations of the
council. At present it is a non-taxable supply so far GST is concerned
but still they are taxed under pre-GST regime. These are:
Petroleum crude, diesel oil, motor spirit (petrol), ATF, Natural Gas and Liquor meant for human consumption.
III Goods:
In
common understanding, goods refer to anything which has physical
attributes i.e. which can be counted in terms of numbers, weight,
volume, size and which is capable of holding and exchange of values.
Examples may be a car, milk, mattress, mirror, brick, salt, groundnuts,
cloth and so on.
CGST Act u/s 2(52) defines goods as:
“goods”
means every kind of movable property other than money and securities
but includes actionable claim, growing crops, grass and things attached
to or forming part of the land which are agreed to be severed before
supply or under a contract of supply;
The definition is
inclusive and refers to goods as any movable property. It is clear that
the feature of movement is necessary for any property to be qualified
as ‘goods. Movability is in contrast to things which are permanently
fastened to earth and which cannot be removed or if removed will
destroy the item itself. It may refer to goods which can be transported
from one place to another.
Ω Does this mean that Land is not good and likewise what about buildings??
(iv) Services:
Service
is again not defined clearly but a negative definition is given u/s
2(102) of CGSTn Act, 2017 stating everything which is not goods is
service. This is a good indicator at least. However, an easy
explanation is by taking cues from our common life. We see people doing a
variety of work for other people like teaching, nursing, baby-sitting,
transporting, insuring, safe-guarding, counseling etc. These are all
not goods but they are considered as services. An obvious feature is
involvement of human efforts which has a value in the eyes of both
service provider and recipient of service.
Under the GST regime
“services” (102) 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.
So, without going into unnecessary
details, where consideration flows not for goods but for human efforts,
time and skill and there is no or insignificant involvement of physical
‘goods’, we think that it is the case fit to be treated as services.
For example, services provided by a:
(i) Transporter
(ii) Banker
(iii) Insurer
(iv) Actor
(v) Doctor
(vi) Lawyer
(vii) Advocate
(viii) Architect or interior designer
(ix) Event manager
(x)
Grooming services like dietician, physical trainer, barber, beautician,
hair desinger etc. (xi) Repairing services of any kind viz. Plumber,
electrician, car mechanic, mason, carpenter etc.
As you can see,
there can be innumerable examples where human efforts, time, skill etc
is involved for which the recipient of services is ready to pay a price
i.e. consideration is ‘service’ under GST.
Ω an important
consideration: what about services provided by an employee to the
employer? (v) Prescribed Rates: Under GST, five rates have been
prescribed i.e. (i) Zero or Nil
(ii) 5%
(iii) 12%
(iv) 18%
(v) 28%
Apart from above there are two special rates of 3% on gold, semi-precious stones and 0.25% on diamonds.
Which
of the rates will be attracted to a particular good or service needs
finding classification of goods or service as per HSN or SAC. HSN
stands for Harmonized System of Nomenclature while SAC stands for
Services Accounting Code.
HSN is an internationally accepted
classification of goods with more than 200 countries adopting it. More
than 5224 goods and commodities are classified under 1224 subheading,
which in turn are classified under 99 chapters. The chapters are
further classified under 21 sections. India has been a member of both
WCO (World Customs Council) and WTO for long and in order to bring
uniformity with international practices to support foreign trade, this
system of classification has been adopted for GST purposes in India.
Internationally
HSN is a six-digit code, however in India, two more digits are further
added to refine the classification making HSN code for GST of eight
digits in total.
Once HSN code for a particular
good(commodity) is ascertained, the applicable rate of GST for that
classification i.e. good/commodity is settled as any of these 5224 goods
are assigned a particular rate of tax viz. 0, 5, 12, 18 or 28 percent
of the value.
Note: while drawing an invoice or bill it is not
compulsory to mention HSN code in entirety. A person who is having a
turnover of less than Rs.1.5 crore in previous year is not required to
mention HSN code at all in the bill/invoice. Similarly, only two digits
will suffice for legal compliance if the turnover is greater than
Rs1.5 crore but lesser than or equal to Rs.5.00 crore. This limit is
minimum four initial digits in case turnover is more than Rs.5.00 crore
in previous year.
However, it is advisable to quote full HSN as it greatly facilitates compliances of formalities like filing of return etc.
Again, an exporter or importer of goods has to compulsorily mention full HSN in his invoice and bills.
SAC (Services Accounting Code): It serves the same purpose as does HSN for goods.
SAC
codes are utilized to identify various services rendered by business
organizations. It is a six digit i.e. numeric code starting with 99...
as services are classified under chapter 99 of the HSN module and is
used in identifying the different services under SAC code.
Mentioning
of SAC is necessary in case the turnover of the service provider is
more than Rs.1.5 Crores. During GSTR fillings also SAC code is required
for filling.
(vi) Taxable person
Before understanding
a taxable person, first let us see who is a person. Under GST anybody
who can enter into a transaction involving supply of goods and services
can be a person. So far definition u/s 2(84) is concerned it is again
inclusive and seems to contain everything.
“person” includes—
(a) an individual;
(b) a Hindu Undivided Family;
(c) a company;
(d) a firm;
(e) a Limited Liability Partnership;
(f) an association of persons or a body of individuals, whether incorporated or not, in India or outside India;
(g)
any corporation established by or under any Central Act, State Act or
Provincial Act or a Government company as defined in clause (45) of
section 2 of the Companies Act, 2013;
(h) anybody corporate
incorporated by or under the laws of a country outside India; (i ) a
co-operative society registered under any law relating to co-operative
societies; (j) a local authority;
(k) Central Government or a State Government;
(l) society as defined under the Societies Registration Act, 1860;
(m) trust; and
(n) every artificial juridical person, not falling within any of the above;
While,
A
Taxable person sec 2(107) is a person who is registered or liable to be
registered under sec 22 and sec 24 of the CGST Act, 2017
It is to be noted that GST is administered keeping a taxable person in mind and as its center of attraction.
2.Implementation of GST
After
GST as a statutory tax came into being throughout the territories of
India from July1, 2017, its implementation still remained a mammoth or
himalayan task. To put it straight, many feats have been achieved and
the journey is still under progress to achieve further milestones. The
implementation process took place in following manner:
(i) State
revenue departments and Trade tax/commercial tax/VAT departments were
given the responsibility of administering State GST.
(ii)
Central Excise, Customs and Service Tax Departments were given the
responsibility of implementing and administering CGST and IGST.
(iii) Same pattern was adopted for UTGST in case of UTGST
(iv) Taxpayers were divided into two streams. (i) Existing and (ii) New
Existing
tax payers i.e. having registered with either excise, service tax or
vat etc. were supposed to transit to new tax as a registered person
based on their existing registered number and PAN (permanent account
number). After initial verification they were issued a fresh PAN based
15 characters GSTIN i.e. Goods and Service Tax Identification Number.
New
tax payers were supposed to apply fresh for registration as per the
rules and provisions of GST in online mode through GSTN.
(v)
GST council and formation of Group of Ministers (GOMs) and Committees of
officers to remove immediate and ensuing hurdles. GST council has been
the primary vehicle looking after various aspects of GST
implementation from IT, Digital Payments, MSME, Revenue Mobilization,
Composition Scheme etc. In fact, till date ten such GOMs have been made
to address various issues in hand. Likewise, 19 committees have been
formed on various issues.
(vi) Mass scale programs involving
training and outreach in order to make various stakeholders aware and
trained in GST procedures were carried out. Various publicity materials
like fliers, FAQs, Study material, CBTs (computer-based training
material), short videos, user manuals etc were prepared and distributed
especially through social media channels like YouTube, Twitter,
Face-book etc.
Training of State Training Coordinators, National
Master Trainers, State/UT Tax Officials through regular programs,
webinars, web meetings were carried out. GSTN, in particular, launched
various programs like Brown Bag sessions, Help desks, newsletters and
chatbots.
(vii) GST ecosystem was developed comprising of GSTN,
GSPs i.e. GST Suvidha Providers, GST Kendras, GST practitioners etc.,
so as to open various access points and avenues for taxpayers and other
stakeholders to carry out GST formalities.
(viii) As the GST
procedures from beginning to end are designed to be carried out
electronically through use of computers and internet, it was a novel
feature and stakeholders were not aware of the new system and its
processes. In view of this, GST council in particular and government(s)
in general, waived penalties/interest on late payments and even
extended various deadlines. This was done to increase the confidence of
the business community while adapting to the new tax.
(ix) In
order to further strengthen the automation and data processing further
processes and techniques have been introduced and are still in the
process of development and implementations. Examples of such items
include E-Way Billing, E-Invoicing, New forms and process for uploading
and matching of invoices and returns.
(x) Process for refund
of excess tax paid or of excess or unutilized credit of GST has been
made ncreasingly simple and automated. Likewise, all processes from
registration, uploading of invoices, filing of return, deposit of tax,
claiming of refunds is made automated and time bound. Further, raising
of grievances, filing of appeals etc. and their settlement has also to
be done in an automated matter.
In fact, implementation
of GST is a story of leap of faith, it is about evolving and
transforming from old paper-pen days to fully automated processing and
simultaneously serving all stakeholders to achieve their respective
goals seamlessly. Given the complexity and its enormity, it is not an
exaggeration when one says “GST implementation is a miracle happening
live before our eyes”.
3.Liability of the taxpayer:
GST
is applicable on supply of goods and services for consideration in the
course of furtherance of business. In other words, GST is applicable on
any business, commercial, professional or economic activity because
the words “supply of goods and services for consideration in the course
of furtherance of business” covers every such activity.
GST is
related to business activities. This simplification is based on the
charging section of the CGST Act, 2017. Let us see how.
In
simple terms business can be thought of any activity involving supply of
goods and services for value. Main features include
(i) sale or purchase of goods and/ or
(ii) providing services
in lieu of consideration
and
In the course of furtheranc of business
If
one is engaged in any such activity he shall be covered as a
prospective taxpayer under the law of GST and shall be under obligation
to comply with all the applicable formalities. He has to get
himself
registered with GST administration and all the provisions like payment
of tax, filing of various returns, assessment and other provisions of
GST start applying on him. Non-compliance may lead to applicable
penalties and prosecution.
To understand this from another perspective, let us understand ‘supply’ and ‘supplier’: -
There are two parties to a business transaction i.e.
in case of goods: one is seller and the other is purchaser
in case of services: one is provider and the other is recipient
The seller of goods or the provider of services is known as SUPPLIER
and
the act of selling goods or providing services is known as SUPPLY
GST
is applicable on supply of goods and services and therefore, the person
who either supplies goods or services, is made to pay the applicable
GST.
(If you think in simple or worldly terms, a supplier is nothing but a businessman)
We
are also aware of a workable distinction between goods and services.
For example a computer, a printer, a printer cartridge, an electric
bulb, a shirt, wheat flour, fertilizers, cars, medicines etc are all
goods. On the contrary, banking, insurance, transport, telephony,
internet, legal advice, medical facilities are all examples of
services.
Even more simple conclusion is that if one is engaged in any economic activity, he has to deal with GST.
As
a direct consequence of above, He has to get himself registered with
GST administration and all the provisions like uploading of invoices,
filing of returns, payment of tax, assessment and other provisions of
GST start applying to him/business I.e. in the eyes of law he/business
becomes a taxpayer. Non-compliance may lead to applicable penalties and
even prosecution.
Formalities like uploading of invoices, filing
of returns, payment of tax etc. are with respect to a month or quarter
or year i.e. repetitive in nature and taxpayer is under an obligation
to comply as long as the business remains registered with GST
authorities.
4. GSTN: Refer to section 1.10
5. GST Council: Refer to section 1.9
6. Levy of GST: Refer to section 1.12
7.Composition Scheme:
GST
regime is based on the notion of “ease of doing business”. There are
numerous business establishments who do not have a sizeable turnover
and have small earnings to provide them with some occupation and a
means of livelihood. If we look around, we will find lot of small shops
like that of a small grocery shop, a provision store, or a medicine
shop, a person engaged
in selling roadside chat, dosa or
ice-cream or other refreshments. The list can be unending. Such people
are not tech savvy and are not in a position to carry out GST
formalities in an efficient manner. Moreover, there earnings are not
much to justify the costs involved in maintaining full fledged record of
transactions and other incidental costs in meeting GST formalities.
To
give relief to such traders, businessmen etc., Composition scheme is
inbuilt in GST. It is based on the notion of compromise.... some give
and take settlement between the taxpayer and government. It
contemplates very few formalities for taxpayer and lesser tax on one
side and taking away of some privileges from the taxpayer. Simply put
taxpayer is benefitted by fewer formalities and lesser tax but he loses
the privilege of Input tax credit and to pass on the tax credit to
next level in the supply chain.
Initially composition scheme was
available to supplier of goods and restaurants not serving alcohol.
However, with effect from 01st April, 2019, suppliers of services have
also been given the benefit of availing composition scheme, if they so
choose. This distinction is also necessary because the conditions of
availing this scheme are different for the two categories.
Following points are notable in this topic:
1. Applicable sections and rules: Section 10 of CGST, 2017
2. Who can apply or opt this scheme?
A
person who has already been registered under GST as a taxable person
engaged in supply of goods and whose turnover during the financial year
under question is less than or equal to Rs.1.50 Crore (75 Lac in case
of special category states).
Note: If a person has
multiple registrations then he has to opt this scheme for all
registrations. It cannot be allowed selectively.
3. Whether this scheme is available to supplier of services?
Ans:
Initially the scheme was not available to service providers but as per
the announcements under 32nd meeting of the council held on 10 January,
2019, even suppliers of services shall be covered under composition
scheme with threshold limit of turnover of Rs.50,00,000/- during the
financial year.
4. Who cannot opt this scheme?
These
are taxable persons who may have a turnover lesser than the prescribed
limit for opting composition scheme, still they are debarred to adopt
this scheme. These are:
(i) A CTP i.e. casual Taxable Person
(ii) A non-resident taxable person
(iii) A person engaged in interstate supply of goods
(iv)
A person engaged in supply non-taxable or wholly exempt goods for
example supplier of liquor for human consumption or an agriculturist
selling agriculture produce or goods or services notified by government
as nil rated u/s 11.
(v) A person engaged in supply of goods through e-commerce operator who is required to collect tax under section 52
(vi)
A person who is engaged in the manufacture of notified items (notified
by Government on the recommendations of council) i.e. ice cream,
tobacco products and pan masala.
5. How to opt?
(1)
During the year under new registration: the taxable supplier can select
the option to be registered under composition scheme. This is done by
opting this option under part B of GST – Reg -01
(2) However, if
one is registered as a normal taxable person, he can enter into the
scheme from next FY by electronically intimating his choice in form GST
-CMP -02 before the commencement of the FY for which option is
exercised.
Plus, he has to file a statement in form GST ITC -03
in accordance with subrule (4) of Rule 44 of CGST Rules, 2017 within 90
days from the commencement of the relevant FY.
6.
Effective date of applicability of scheme: (i) from the start of the
financial year in case of form GST CMP -02 case. (ii) in case of fresh
registration, the date from which the registration is effective.
7.
What are the Returns: (I) Quarterly return in form CMP-08: up to 18th
of month next to quarter (ii) Annual return in form GSTR –04: up to
30th April following the FY
8. Benefits: (i) No detailed books
of accounts (ii) No filing of frequent returns i.e. only quarterly
returns (iii) quarterly payment of taxes (v) Nominal rates of GST (iv)
Voluntary entry and exit (v) No requirement to mention HSN in 'Bill of
supply'
Disadvantages: (i) He cannot issue taxable invoices
instead he will be issuing “Bill of Supply” (ii) He has to mention
clearly on “Bill of Supply” his status of ‘composition scheme supplier’
(iii) He cannot collect any tax under GST on supply of goods or
services.
(iv) He cannot claim ITC i.e. credit of tax paid by him on his purchases.
9.
How tax payable by a person registered under composition scheme is
computed? (i) For computation of tax two inputs are needed: (a) Value of
annual turnover (ii) rates of taxes
Turnover is arrived at by
adding (a) taxable supplies (b) exempt supply (c) export of
goods/services (d) inter-state supplies and subtracting value of inward
supplies on which tax is paid by supplier under RCM (reverse charge
mechanism)- all gst related tax & cess
Rates:
Category Rate of Tax
6%
For supplier of services
Manufacturer/traders
1%
Restaurants not serving alcohol 5 %
i.e. 3% CGST and 3% SGST
Interesting
fact: Initially, Composition scheme was not available to service
providers and it was only available to supplier of goods. Later, with
effect from first April 2019 composition scheme was also made available
to service providers. The only difference was that turnover in case of
service providers was rupees 50 Lac per year instead of Rs. 1.5 Crore
per annum in case of suppliers of goods.
8.Exemptions and Remissions:
Remission
of GST: There is no concept of remission of GST as found in excise
duties. Remission of tax is allowed under excise law when excise duty
payable on goods, which are lost or destroyed, is waived off i.e.
taxpayer is given a relief from payment of duty on such lost or
destroyed goods subject to applicable conditions. Remission of GST was
proposed in draft GST laws but was excluded from the final draft.
Exemptions: There are, though, lot of instances where exemptions have been provided.
Exemptions
are cases where GST is not applicable. In other words, there are
certain goods and services on which no GST is payable. This is a big
relief for persons who are dealing i.e. supplying such goods or
services. This means no registration and no other formalities are
required for such cases, which a normal dealer of taxable goods or
services has to comply with.
Government has been empowered to grant exemptions from GST u/s 11 CGST and corresponding section 6 of IGST
Exemptions under GST can be looked upon as express and implied.
Express
exemptions are provided under section 2(47) of CGST Act, 2017 read with
section 2(78). Let us first take a look at such exemptions.
Exempt Supply: U/s 2(47), Supply of any goods or services which is
(i) subject to nil rate of tax,
(ii) which is wholly exempt from tax and which is
(iii) non-taxable supply.
Thus, there are three types of exemptions:
(1)
“subject to nil rate of tax or ...which is wholly exempt from tax”
These are those goods which are subjected to zero rate of GST. This
means they are taxable yet no tax falls due as the rate of tax
prescribed for such goods or services is nil. Such goods and services
are generally necessary goods and services. They are taxed at zero
rate; hence tax is nil. For example, ‘Table salt’ under heading 2501 is
taxed at ‘nil rate’. Same applies to ‘fresh milk’ under the heading
0401. So, under this category comes those exemptions which are notified
as such by government in the public interest and as recommended by GST
council. This power is granted to government under section 11 of CGST,
2017 and section 6 of IGST Act, 2017. The Government is empowered to
grant exemption from tax, if it is necessary in public interest so to
do, on recommendation of the GST council, by way of issuance of(I)
Notification (ii) Special Order (iii) Implication (power to exempt
retrospectively). Above exemptions may be applicable wholly or partly or
may be conditional or unconditional or with respect to special or
exceptional circumstances and with effect from a particular date.
Similar
provisions have been carved out in respective state GST Acts. Note,
that this is the main route to granting of exemptions. Further, any
exemption from tax can only be granted by statute.
For Goods,
Government has issued notification no.02/2017 Central Tax (Rates) dated
28/06/2017 enlisting various goods as exempt from GST. These are mainly
goods related to agriculture, farming and essential goods for the
sustenance of life like raw milk, sugar, salt etc. Or if promotion is
needed for a particular industry.
List of goods exempted by Government: exempted goods notified by CG (click this link to see the list)
For
services, Government has come out with a lengthy notification
no.12/2017 Central Tax (Rates) dated 28/06/2017 which has been further
modified and amended to include almost 131 services as exempt from GST.
Services enlisted are generally of public benefit/interest like
education, Medicare, and other charitable activities or activities
undertaken by government or its agencies in the general interest of the
public.
(2) Non-taxable supply: Under section 2(78), Non-taxable
supply means supply of goods and or services which is not leviable to
tax under CGST Act, or IGST Act. These are those
exemptions
which are mentioned in the statute as such and are not expressly
notified u/s 11 of CGST Act or u/s 6 of IGST Act. These are exemptions
by implication.
(a) Items exempt by constitution itself:
Explanation
to Article 246A postpones applicability of GST on articles mentioned in
Article 279A (5) viz. Petroleum crude, High Speed Diesel, Motor
Spirit, Natural Gas, and ATF to a date to be decided by Government on
the recommendation of GST Council
(b) Items not treated as goods
or services under the definition given under CGST Act, 2017. For
examples ‘money’ and ‘securities’ are not goods u/s 2(52) of CGST Act.
(c)
Similarly, section 7(2) prescribes that activities or transactions
specified in Schedule III to the CGST Act shall not be considered as
supply. Further Government has been empowered to notify activities or
transaction not to be treated as supply.
(d) Section 23(1)(b) exempts an agriculturist to the extent of supply of produce out of cultivation of land.
(e)
Even a supplier of taxable goods and services is exempt if his turnover
during the taxable period is below limits prescribed u/s 22
9.Registration:
Registration is covered by sec 22-30, chapter VI of CGST Act, 2017.
It
is a process of allotting a unique identity to supplier of goods and
services. Upon registration, a person or business is recognized in the
eyes of law and administration to carry various formalities and
obligations with respect to GST provisions.
Why to get registered?
Registration
gives a precise identity to the supplier of goods and services. It is a
compulsory routine under taxation laws for smooth administration of
all activities associated with the taxation statute.
Registration
ensures that all the transactions undertaken by a taxable person are
correctly and completely linked to it. Transactions may include deposit
of tax, submission of challans and returns and every other activity.
However, the most important functions are :
(i) After registration, taxable person is able to rightfully charge and collect applicable GST from purchaser.
(ii)
It is after registration only that he can claim Input Tax Credit (ITC)
and pass on the credit of tax through the supply chain.
Who should get registered?
Every
person who fulfills the prescribed criteria, is required to get
registration by electronically applying through GSTN portal and
providing necessary information
There are five categories of
persons who are liable to get themselves registered: (i) Those who
exceed threshold limit of aggregate turnover
(ii) Those who are already registered under a previous law
(iii) Transferee in case of transfer of business
(iv) Transferee in cases of amalgamation etc.
(v) Mandatory registration
In first case aggregate turnover is sum total of all:
(i)
taxable supplies on own account (ii) exempt supplies (iii) Inter-state
supplies (iv) Exports (v) supplies made on behalf of principal(s) (vi)
Outward supplies taxable under Reverse Charge Mechanism (RCM)
However, following shall be excluded:
(i)
CGST (ii) SGST (iii) UTGST (iv) IGST (v) Compensation cess (vi) Value
of inward supplies on which tax is payable under RCM
Presently
i.e. with effect from 01.04.2020 the threshold limit is Rs.20 Lakh in
case of special category states and Rs.40 Lakh in case of rest of India
for goods.
(Note: This limit was Rs.10 Lakh in case of special
category states and Rs.20 Lakh in case of rest of India for goods up to
31.03.2019)
Similarly, the threshold limit of turnover is Rs.10
Lakh in case of special category states and Rs.20 Lakh in rest of
India for services.
Special Category States are Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
Above position can be tabulated as under:
I. For Manipur, Mizoram, Nagaland and Tripura i.e. special category state for sec22:
S.no. Type of outward supply MTL (minimum threshold limit in Rs.) 1 Only Services 10 Lakh
2 Both Goods and Services 10 Lakh
3 Only Goods 10 Lakh
II. For Puducherry, Telangana, Arunachal Pradesh, Meghalaya, Sikkim and Uttrakhand
S.no. Type of outward supply MTL (minimum threshold limit in Rs.) 1 Only Services 20 Lakh
2 Both Goods and Services 20 Lakh
3 Only Goods 20 Lakh
III. For remaining states and union territories i.e. 19 states and 7 Union Territories:
S.no. Type of outward supply MTL (minimum threshold limit in Rs.) 1 Only Services 20 Lakh
2 Both Goods and Services 20 Lakh
3 Only Goods 40 Lakh
Category two persons i.e. persons already registered under some previous center/state indirect taxation laws:
These
are those persons who were already registered under some previous
indirect taxation laws. They were required to be registered from
appointed day i.e. 16/06/2017. They were issued a provisional ID and a
password to apply by logging in on GST common portal i.e.
www.gst.gov.in to fill and submit requisite details. After which they
were issued an ARN i.e. Application Reference Number. Next, they were
issued a provisional certificate and provisional GSTIN. Gradually
provisional GSTIN was converted into regular GSTIN with in 6 months of
the appointed day i.e. 6/06/2017
Category Three and Four cases
are similar i.e. they are transfer or reorganization cases where the
owner of the business changes on account of succession, sale of
business, amalgamation, merger/demerger on account or an order of court
etc. As the successor or new owner is different
a need for fresh registration arises.
Category
Five is a special case and very important one. These are persons who
are liable for registration mandatorily, these are:
(i) Persons making inter-state supplies
(ii) Casual Taxable Persons making taxable supply
(iii) Persons required to pay tax under RCM (reverse charge mechanism)
(iv) Non-resident taxable persons
(v) A person who supplies on behalf of other i.e. as agent of a principal
(vi) An E-commerce operator
(vii) A supplier making supplies through E-com portal
(viii)Input Service Distributor (ISD)
(ix)Persons who are required to deduct tax u/s 51
(x) OIDAR service providers (Google etc)
(xi)Persons
or classes of persons notified by the Central or State Government OIDAR
= online information data-base access and retrieval
2. Who is exempted from Registration?
As per section 23 of CGST Act, following are not required to get themselves registered under GST:
(i) a person engaged exclusively in supply of exempted goods/services
(ii) a person engaged in supply on goods on which GST does not apply.
(iii)
an agriculturist i.e. farmer to the extent of supply of produce out of
cultivation of land (iv) Persons notified by Government upon the
recommendations of GST council
⥀ Government has notified that
persons who supply wholly such goods or services on which total tax is
payable under reverse charge mechanism by the recipient of such supply
u/s 9(3) shall be exempt from obtaining registration (Notification
No.5/2017 dated 19.06.2017)
Place of Registration i.e. where to
apply? Place of registration is linked to state where taxable person is
having its 'place of business'. For every state having a 'place of
business' a separate registration is required. For example, a TP is
having a place of business in Jaipur and another place of business in
Delhi, then he is required to take two registrations, one at Rajasthan
and another at Delhi.
The formality of
registration under GST is ‘state specific’ and is based upon PAN of the
supplier. It is not taxes based i.e. no separate registration is
necessary for CGST, SGST, IGST and UTGST.
A person may choose
to have separate registration for separate places of business in the
same state or he may choose to show such separate places as ‘additional
places of business.
In case the other place of business in a
different state I.e. from the state in which the principal place of
business, he has to compulsorily apply for a separate registration for
place in other states. This boils down to the principle that there has
to be as many registrations of same person as there are places in
different states.
Time limit for application for registration
A routine taxable person is required to apply within 30 days from the date when he becomes liable to apply for registration.
While
a Casual Taxable Person (CTP) or a non-resident taxable person is
required to apply within 5 days of commencement of business.
Effective date of registration
(a)
Where application is made within the prescribed time limit for
submitting the application for registration, the registration becomes
effective from the date on which he becomes liable to registration.
(b) In any other case effective date of registration is the date of grant of registration.
Procedure of registration:
It
is important to note that registration process has to be done
electronically by visiting web site www.gst.gov.in i.e. GST portal or
common portal.
At the main page of the site, go to services tab -->select 'registration'-->select 'new registration'
The first screen commonly known as part A will open and require following fields to be fillled:
(i) Category of person:
By category of person it means that while applying for registration a person has to declare his
category
as either: (a) Tax payer (b) Tax deductor (c) Tax Collector (d) GST
practitioner (e) Non-resident taxable person (f) United Nation Body (g)
Consulate or embassy of a foreign country (h) Other notified persons
(i) Non-resident online service providers
(ii)State or Union Territory of business
(iii)District
(iv)Legal name of business
(v)PAN
(vi)Mobile No.
(vii) Email Id
note: PAN and legal name should match.
A
separate OTP is sent to provided mobile no. and email. Upon providing
the OTP and successful verification, portal provides a TRN (Temporary
Registration Number) stating that Part A is completed and Part B can be
completed within next 15 days by logging in using TRN.
To fill PART B of application the person/user has to login at GST portal using TRN and OTP sent to registered mobile.
The
opening screen shows various tabs. First tab is dashboard showing the
saved application with status as 'draft', meaning that form is saved
but not submitted. So long the form is not submitted user can fill in
information and also edit the same.
Part B of form requires some serious and detailed information. Various tabs in left to right order are:
(i) Details of business
(ii) Promoters partners
(iii) Authorized signatory
(iv) Authorized representative
47
(v) Principal place of business
(vi) Additional place of business
(vii)Goods and Service (in which business is proposed to deal)
(viii) State specific information
(ix) Verification
Under Details of business:
Legal
name and Trade name of business are mentioned along with constitution
of business. The district name is also mentioned again. State and
Centre jurisdiction is also filled.
If a person is applying as a(i) Casual Taxable Person or (ii) Composition dealer, he has to declare his choice here only.
Next, he has to provide why he is applying for registration. He has to choose from: (i) crossing the threshold limit
(ii) supply is interstate
(iii) application of RCM
(iv)
Change in constitution of business i.e. from proprietorship to
partnership etc. sale, transfer,
merger/amalgamation/demerger/death/succession of business.
(v) as authorized representative
(vi) E-commerce operator or person supplying through E-commerce operator (vii) Input Service Distributor only
(viii) SEZ unit or SEZ developer
(ix) Voluntary registration, Corporate Debtor undergoing corporate insolvency resolution process and even as others.
Further
an applicant has to provide detail as to existing registrations w.r.t.
VAT, excise, Service Tax, Central Sales Tax registration number, Shop
establishment act, LLP identification number, Corporate identity
number, Entertainment tax registration number, Importer Exporter Code
number, Entry Tax registration number etc.
Once a person is
registered under the provisions of GST, he becomes the center of all
activities providing requisite identification documents specially PAN
etc. and getting a recognition from
GST administration
as a registered supplier represented by GSTIN (Goods and Service Tax
Identification Number). Without this a supplier remains an 'Unregistered
Supplier'.
Flow of information with respect to application for registration under GST and time limits as per rule 9 of CGST Rules:
SN. GST Registration
Form Purpose Time Limit
1 GST REG 01 Application for registration
Acknowledgement of
submission of
Within 30 days of becoming liable for registration
Immediately issued by portal upon
2 GST REG 02
registration application
submission of
application and other information
Within 3 days from
3 GST REG 03 Notice for clarifications
4 GST REG 04 Submission of clarifications
Regection of
the date of submission of registration
application
Within 7 days from the date of receipt of GST REG 03
Within 7 days from
5 GST REG 05
application with reasons recorded
the date of receipt of GST REG 03
Within 3 days of submission of original application if
everything is
6 GST REG 06 Issue of registration along with GSTIN
satisfactory.
Within 7 days of submission of GST REG 04
Failure
to respond in any way on the part of proper officer with in 3 days of
submission of GST REG 01 and within 7 days of submission of GST REG 04,
will be deemed as approval of application for registration.
note:
All these forms are electronically filed at GST portal either directly
by the taxable person or at a facilitation center notified by
commissioner. Even documents and pictures are uploaded in pdf and jpeg
formats under given resolutions.
Once New Registration
Application has been verified and approved in the GST portal, a 15-
digit GSTIN (Goods and Services Tax Identification Number) along with a
temporary password is communicated through GST REG -06.
GSTIN
First thing to note is that it is not GSTN.
GSTN is Goods and Service Tax Network while GSTIN is Goods and Service Tax Identification Number.
GSTIN
is a unique identification number specific to the tax payer. Of course,
it is different for each state even for the same tax payer. Another
thing is that GSTIN is PAN based. This is for the first time that
indirect taxes have joined hands with direct taxes i.e. PAN is basic
identity tool for income tax for any assessee under income tax.
Structure of GSTIN:
It
is a 15 digit + letters i.e. alpha-numeric code. First two digits
represent number of states in which registration is sought. For
example, if the state is Uttar Pradesh then first two digits are 09 and
27 if the state is Maharashtra. Next 10 places are represented by PAN
number of the supplier. Thirteen places represent number of
registrations for the taxpayer in the state. If for example there are
two places then 13th place will be 2 similarly if there are thirteen
registration in the same state, it will be D for thirteenth place.
Fourteenth place is presently Z which may be used for any future
purpose. The last digit is a checksum digit which maintains programming
integrity of the prior 14 digits.
This GSTIN is unique
identification number which has to be boldly and clearly shown on every
PPoB and APoB. It has to be mentioned in every tax-invoice, e-way bill,
debit note or credit note.
Suo Moto registration:
A
situation may arise where a person liable to be registered under the
provisions of GST fails to do either willingly or out of ignorance.
In
such situations where proper officer is of the opinion as a result of
survey, inquiry, inspection, search or any other proceeding that a
person is liable to be registered under the provisions of the GST, the
proper officer may register such person on a temporary basis and issue a
registration under form GST REG 12 with registration effective from
the date of such grant of temporary registration.
It shall be
incumbent upon such person to file application for registration within
90 days in the same manner as a normal person would apply in Form GST
REG 01
The time limit for filing routine registration
application in Form GST REG 01 is 30 days from the issue of order by an
appellate authority turning down an an appeal against order of
temporary registration
Amendment of registration
Amendment of Registration [section 28 and rule 19]
Amendment of registration is required if there are changes in the business to which registration relates.
Changes can be of:
(A) Change in mobile number or email id
(B) Change in:
-legal name of business,
-Trade name of business,
-Constitution of business not leading to change in PAN
-Principal place of business with in the same state
-Additional place of business
-Goods or services dealt with by the business
- Authorized representative or signatory
(C) Change resulting from
- death of proprietor
- transfer or succession of business or change in constitution i.e. ownership and control resulting in change of PAN
- transfer of principal place of business to another state or union territory
In
case of (A) above, amendment can be done by logging in to GSTN portal
and using the facility provided therein. This does not require filing
of a separate application etc. and/or intervention of proper officer.
Simply by logging in using log-in-id and password and by use of OTP
such changes can be carried out.
Where a change warrants for new
PAN, amendment of existing registration is not permitted, instead,
registered person should opt for cancellation and fresh registration.
Where
change relates to any matter other than name, address and constitution
of business, the change shall be deemed to be made upon submission of
GST REG-14 on the portal. No further verification shall be required.
In case of (B) above,
Registered
person has to file an application in form GST REG-014 with in 15 days
of event causing change. Proper officer shall verify the application
and issue an order approving change in Form GST REG-15 making the
change effective from the date of event warranting such change. If
proper officer is not satisfied with the application for amendment, he
may issue a notice in form GST REG 03 within 15 days of the submission
of application. The registered person has to reply within in 7 days in
Form GST REG-04. If the proper officer is not satisfied with the reply
submitted or if no reply is submitted with in 7 days as aforementioned,
he may reject the application and pass an order in Form GST REG-05
Deemed
approval: If the proper officer does not respond with in prescribed
time to original application or to the reply submitted in Form GST
REG-04, the amendment application is deemed to have been approved and
the certificate of registration shall stand amended to the extent
applied for and the amended certificate shall be made available to the
registered person on the common portal.
Suppose a
person is a registered dealer in pharmaceutical drugs. He now
additionally wishes to trade in medical consumables and equipment. A
case of curtailment of items can also be seen.
Cancellation of registration
Cancellation of Registration: [sec 29 and 30; rule 20 to 23]
I Voluntary cancellation of registration by registered person or his heirs: (i) Death of proprietor
(ii) Amalgamation with other entity
(iii) De-merger
(iv) Disposal of business in any manner
(v) Taxable person no longer liable to be registered under section 22
Formalities:
1.Form to be submitted: GST-REG-16 directly or through a facilitation center
2.Time limit: with in 30 days of the occurrence of the event warranting cancellation of the registration.
3.
Submission of data relating to (i) inputs held as stock or in
semi-finished or finished goods and (ii) capital goods held in stock on
the date of proposed cancellation of registration. Further any
liability of GST on such inputs and capital goods, payment of such
liability and other documentary evidence has to be uploaded along with
the GST-REG-16
4. If satisfied, with the application i.e. Form
GST REG-16, the proper officer may pass an order of cancellation in GST
REG-20 mentioning any demand or liability as to GST on inputs or
capital goods or interest etc. thereon.
II Cancellation of registration by proper officer u/s 29(2) in following cases:
(i) Contravention of provisions of Act as may be prescribed
(ii) Person liable to pay GST under composition scheme failing to file returns for three consecutive periods.
(iii)
Registered person not filing return continuously for more than 6 months
(iv) Voluntary registered person not commencing business with in 6
months of registration. (iv) Registration availed on the basis of fraud
or misrepresentation.
However, registration shall be cancelled after proper opportunity of being heard is provided.
Person, Persons and Special Persons under GST:
Person
is very clearly defined in GST laws. As a matter of fact, all thinkable
forms have been enumerated. After reading the definition, it comes to
mind that every living human being and any form in which it can
manifest itself, capable of doing anything is a person. The definition
makes one think – then who is not a person? All non-living beings and
non-humans do not qualify as a person, however, formats created by
humans are persons like a partnership firm, an association of persons
or body of individuals, a cooperative society, a body corporate i.e.
company etc.
As per section 2 (84) “person” includes—
(a) an individual;
(b) a Hindu Undivided Family;
(c) a company;
(d) a firm;
(e) a Limited Liability Partnership;
(f) an association of persons or a body of individuals, whether incorporated or not, in India or outside India;
(g)
any corporation established by or under any Central Act, State Act or
Provincial Act or a Government company as defined in clause (45) of
section 2 of the Companies Act, 2013;
(h) anybody corporate incorporated by or under the laws of a country outside India;
(i) a co-operative society registered under any law relating to co-operative societies; (j) a local authority;
(k) Central Government or a State Government;
(l) society as defined under the Societies Registration Act, 1860;
(m) trust; and
(n) every artificial juridical person, not falling within any of the above;
U/s
9 of CGST Act, 2017, GST is applicable to supply of taxable goods and
services and the tax i.e. GST shall be collected from taxable person.
Now, who is a taxable person?
Section 2(107) says that taxable person is a ‘person’ registered or liable to be registered u/s 22 or section 24
Section 22 uses the word ‘supplier’ instead of ‘person’.
Section 105 defines the term ‘supplier’ as:
“supplier”
in relation to any goods or services or both, shall mean the person
supplying the said goods or services or both and shall include an agent
acting as such on behalf of such supplier in relation to the goods or
services or both supplied;
Thus, in simple terms, a taxable
person is none other than a supplier of goods and services. (or even
more simply - ‘A businessman or business enterprise or business body’
Note:
All this terminology about ‘person’ boils down to simple fact that
‘anybody’ supplying goods and services is liable to be registered as a
taxpayer and collect and pay GST on such supply. As per the context
various words like supplier, person, taxable person, registered person
is interchangeably used.
Special Persons: In order to grant
some privilege in the general interest of public or to facilitate the
compliance of a formality or to remove some practical difficulty or to
avoid evasion of tax etc., certain persons are categorized and
recognized i.e. registered as special persons. To meet these objectives
in relation to such special persons, special provisions have also been
carved out in the act. Different forms and rules are also prescribed
for such special persons.
Various special persons contemplated under GST laws can be enumerated as under: (I) Casual Taxable Person (CTP)
(ii) Composition dealer
(iii) Interstate supplier
(iv) Person liable to GST under Reverse Charge Mechanism (in short RCM) (v) Authorized representative
(vi) E-commerce operator
(vii) Input Service Distributor
(viii) SEZ or SEZ developer
(ix) Non-resident taxpayer (NRTP)
(x) OIDAR
(xi) Job worker
(xii) Goods Transport Agency (GTA)
Initially,
only CTP and NRTP are briefly explained below and other persons shall
be explained later while dealing with the relevant topic.
Casual Taxable Person:
A
Casual Taxable Person (CTP) has been defined u/s 2(20) of CGST Act as
“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;
From above it is clear that a CTP is not a
regular supplier, he undertakes supply of goods/services occasionally
i.e. without any pattern or design.
The word 'casual' means
relaxed, unconcerned, irregular, unpredictable who is not bothered
about norms etc. Here it seems to give the idea that the person doing
business or say any taxable activity is not regular and may or may not
continue with the business activity.
Say for example a
person residing Moradabad, Uttar Pradesh and dealing in metal ware of
brass, copper electroplated with nickel or silver, may participate in a
fair organized by a five-star hotel at Jaipur. He may sell artware
worth Rs.15 Lakhs during three days event. He is doing a business
activity
i.e. affecting taxable supply in state of Rajasthan but he is not
having a shop or showroom etc in Jaipur or anywhere in Rajasthan.
Further he may or may not return to Rajasthan after this event or even
if he intends to return, the time of return is uncertain. To uphold the
taxability of such persons and such transactions, this concept was
introduced in the GST Act.
A casual person may or may not be registered in the state of which he is resident. Points to remember in case of CTP:
(i)
A CTP has to take registration compulsorily, even if his turnover is
below threshold limit of Rs.40 lakh or Rs.20 Lakh (however for notified
categories of handicrafts, the limit of Rs.20 Lakh is available 10
Lakh in case of SCS)
(ii) A CTP cannot opt for composition scheme.
(iii)
The registration procedure for a CTP is exactly same as that of a
Regular Taxable person i.e. he has to use GST REG -01. Only thing is he
has to apply five days prior to the date of supply and choose his
status of a CTP in the form.
(iv) A CTP has to estimate his
expected turnover and pre-calculate the GST at applicable rate and
deposit the same along with registration application.
(v) He
gets the receipt of this deposit in form GST REG -02 and his ECL
(electronic cash ledger) is credited with the amount of tax so
deposited.
(vi) After above steps and subject to correctness and completeness of other detail/documents, he is allowed registration.
(vii) His registration is initially valid for 90 days and can be further extended by 90 days.
(ix)
In case his advance tax deposit exceeds his actual tax payable
calculated after affecting actual supply, he is eligible to receive a
refund of the excess but after all returns for the period of
registration have been submitted and their tax liability has been
adjusted accordingly. Information regarding the refund is provided in
section 14 of Form GSTR-3.
Returns to be filed by a CTP:
A
casual taxable person is required to submit the following returns
through the common portal of the official GST website, either directly
or through a Facilitation Center notified by the Commissioner:
•
Form GSTR-1: A return to provide details of sales of goods or services,
which is to be filed on or before the 10th of the following month.
•
Form GSTR-2 A return to provide details of purchases of goods or
services, which is to be filed between the 10th and 15th of the
following month.
• Form GSTR-3 A monthly return which is to be filed between the 15th and the 20th of the following month.
• Form GSTR-3B A quarterly return which is to be filed before the 20th of the following month.
Notes:
A casual taxable person is not required to file an annual return as
required by a normal registered taxpayer. As of now, only Form GSTR-1
and Form GSTR-3B have been made mandatory
Non-resident taxable person (NRTP)
A non-resident person u/s 2(77) is -
(1) any person
(2) who has no fixed place of business and no residence in India
(3) who makes a random supply of goods or services in India
All the provisions applicable to casual taxable person (CTP) are also applicable in case of non resident taxable person (NRTP).
However, following points are distinct:
(i) the form for applying for registration isREG-09 in case of a NRTP.
(ii) He shall use a valid copy of passport or Tax identification number of his country of residence instead of PAN to get TRN
(iii)
Additionally, he has to appoint a person resident in India with valid
PAN as his agent or authorized representative and who shall sign the
application of registration as such. (iv) His registration certificate
shall be issued in form Reg-11
Questions for self-evaluation
1.
Mr. A has started supply of goods in Delhi from 01.04.2020. He is
required to obtain registration if his aggregate turnover exceeds
____________ during a financial year.
(a) 10 lakhs
(b) 20 lakhs
(c) 40 lakhs
(d) 50 lakhs
2. Aggregate turnover includes:
(a) Taxable supplies
(b) Exempt supplies
(c) Exports
(d) All of the above
3. Which of the statements is correct?
(a) Person making any inter-State taxable supply of goods is required to obtain registration compulsorily.
(b) A person to whom a UIN has been granted cannot apply for cancellation of registration.
(c)
The cancellation of registration under either SGST Act/UTGST Act shall
be deemed to be a cancellation of registration under CGST Act
(d) All of the above
4. Which of the following persons are not liable for registration?
(a)
Any person engaged exclusively in supplying services wholly exempt from
tax (b) Persons making any inter-State taxable supply of goods
(c) Both (a) and (b)
(d) None of the above
5. Determine the effective date of registration in following cases:
(a)
The aggregate turnover of Dhampur Industries of Delhi has exceeded
Rs.20 lakhs on 1st September. It submits the application for
registration on 20th September. Registration certificate is granted to
it on 25th September.
(b) Mehta Teleservices is an internet
service provider in Lucknow. Its aggregate turnover exceeds ` 20 lakh
on 25th October. It submits the application for registration on 27th
November. Registration certificate is granted to it on 5th December.
6.
In order to be eligible for grant of registration, a person must have a
Permanent Account Number issued under the Income- tax Act, 1961. State
one exception to it.
7. State which of the following suppliers are liable to be registered:
(a)
Agent supplying goods on behalf of some other taxable person and its
aggregate turnover does not exceed Rs.20 lakh during the financial
year.
(b) An agriculturist who is only engaged in supply of
produce out of cultivation of land. 8. What are the advantage of taking
registration in GST?
9. Can a person without GST registration collect GST and claim ITC?
10. If a person is operating in different States, with the same PAN number, can he operate with a single registration?
11. Can a person having multiple business verticals in a State obtain separate registrations for each business vertical?
12. Is there a provision for a person to get himself voluntarily registered though he may not be liable to pay GST?
13.
Can the Department, through the proper officer, suo-moto proceed to
register a person? 14. Whether the registration granted to any person is
permanent?
15. Is it necessary for the UN bodies to get registration under GST?
16. What is the responsibility of the taxable person making supplies to UN bodies?
17.
What is the validity period of the registration certificate issued to a
casual taxable person and non- resident taxable person?
18. What happens when the registration is obtained by means of willful misstatement, fraud or suppression of facts?
19.
Is there an option to take centralized registration for services under
GST Law? 20. What could be the liabilities (in so far as registration is
concerned) on transfer of a business? 21. At the time of registration,
is it necessary for the taxpayer to declare all his places of business?
22. What will be the time limit for the decision on the on-line registration application?
23. What will be the time of response by the applicant if any query is raised in the online application?
24. Does cancellation of registration impose any tax obligations on the person whose registration is so cancelled?
Unit – 2
Unit 2 Meaning and Scope of Supply
Taxable Supply, Supply of Goods and Supply of Services, Course or Furtherance of Business, Special Transactions, Time of Supply – Goods, Time of Supply –Services, Valuation in GST, Transaction Value, Valuation Rules. Place of Supply
1.Taxable Supply
In simple words, supply is the main event which attracts applicability of GST. It triggers the switch and sets into motion the machinery of GST.
What constitutes supply or what are the essential ingredients of supply under GST? (i) Activity of supply: There has to be some sale, transfer, barter, exchange, disposal etc. (ii) Subject matter: Supply should be of goods or services or both
(iii) Supply should be by taxable person
(iv) Supply should be for consideration
(v) Supply should be in the furtherance of business.
Note that under normal circumstances if any of the above ingredients is missing, the activity will not be a taxable supply within the meaning of GST laws.
To understand the legal aspects of expression ‘taxable supply’, we have to study (I) Section 2(108) defining the expression ‘taxable supply’
(ii) Section 9 which is the charging section prescribing when GST is applicable. (iii) Section 7 which defines the word ‘supply’ itself.
Let us take a look at the expression ‘taxable supply’ in this unit in order to understand the levy or charge of GST.
1.Section 2(108) defines “taxable supply" as supply of goods or services or both which is leviable to tax under this Act i.e. CGST Act, 2017. Other GST statutes follow CGST Act for definitions to words and expressions not specifically defined therein.
Thus, any supply of goods or services to which GST is applicable is a ‘taxable supply’.
Infact, ‘SUPPLY’ is the core event on which levy of GST depends. If there is no supply, there is no GST. If there is supply there is GST. This brings us to ‘charge of GST’.
2.Charging section under CGST Act, 2017 is Section 9, which answers the fundamental question i.e. Why GST will be charged and who will be held responsible for paying the tax to government?
Section 9(1) levies the GST on intrastate supply of goods or services or both by the taxable person at such rates upon the value of goods and services and the tax shall be collected from taxable person.
Notes:
1. Section 9(2) suspends the application of GST on five petroleum products i.e. petroleum crude, diesel, motor spirit (commonly known as petrol or gasoline), natural gases and ATF (Aviation Turbine Fuel)
2. Similar provisions exist in IGST Act, 2017 for interstate supply. For SGST, various SGST Acts incorporate same words for charging SGST.
From above it boils down that for GST to be applicable there has to be an event of SUPPLY and thus the meaning and definition of ‘supply’ became the fundamental point in understanding the subject matter of GST.
3.Definition and meaning of ‘SUPPLY’ under GST
Section 7(1)(a): Supply includes all forms of supply of goods and services and include: sale,
transfer,
barter,
exchange,
lease,
rental,
license or
disposal
made (or agreed to be made) by a person for a consideration and in the course of furtherance of business.
There are eight verbs (sale, transfer, barter, exchange, lease, rental, license and disposal), two nouns (goods and services) and two adverbs/adjectives (for consideration and in the course of business).
The definition and meaning as given in the Act for supply is not different from what we commonly understand i.e. it is transfer of goods or services or both from one person (supplier) to the other (recipient). However, there are two qualification relevant to supply which have been included in the definition of expression 'supply' under GST. These qualifications are:
(I) Supply has to be for a consideration
(ii) Supply has to be made in the furtherance of business
To sum up:
(I) Supply is an act. It denotes action of sale, transfer, barter, exchange, lease, rental, license and disposal.
(ii) Subject matter of supply is either goods or services or both. This is very important to understand that supply and goods/services are inseparable. Supply cannot be contemplated in absence of either goods or services
(iii) Supply is a business activity. There has to be two parties I.e. supplier and recipient I.e. purchaser.
(iv) The motive of supply is to create value hence it should not be free and there should be flow of consideration between parties.
Subject Matter of Supply i.e. Goods or Services or Both
Look around yourselves, you will find that any person who is engaged in a business activity is either
(i) supplying goods, or
(ii) supplying services, or
(iii) supplying both
Supply of Goods:
We have already seen in unit 1 what constitute ‘goods’ and services under GST.
Let us briefly revisit. Goods carry physical attributes. They have definite shape and size. They can either be in solid, liquid or gaseous state. They can be measured in terms of weight, length, volume etc. They can be seen touched and described as light, bulky, round, square, soft, hard, rough, shining etc. They can be available naturally like minerals, wood etc. Or they can be manufactured through human skill and efforts like car, fan, table, cloth, cement etc.
Section 2(52) defines goods as “goods mean 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;
If we look above definition, we get following points:
(i) Goods are movable i.e. they can be moved from one place to another say from the place of seller to the place of buyer.
(ii) As a corollary, things which are not moveable are not goods. There are very few such things. One obvious example that comes to mind is buildings made out of brick and mortar are not movable as such, hence are not goods for the purpose of GST.
Supply of Services:
Services can be best understood with reference to and in contrast to ‘goods’ such that supply of services is supply of something which is not ‘good’. CGST Act, 2017 defines service as
Section 2(102): “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;
Accordingly, for GST, anything which is not ‘goods’ is ‘service’. This is a very risky conclusion as it doesn’t describe service as such.
However, it will be good if we keep in mind the fact that GST subsumed erstwhile service tax and proposed to charge supply of services with GST. Under Service Tax Act, the word ‘service’ was defined as “service” means any activity carried out by a person for another for consideration, and includes a declared service.
Here we get few clues like:
(I) Service is an act requiring human efforts and skill
(ii) Service is something done for another person. It involves exchange.
(iii) It is valuable and commands a price I.e. consideration.
This is a fair definition which describes the term ‘services. This also adheres to our common understanding, thus
(I) A doctor giving medical aid to patients.
(ii) A lawyer providing legal counsel to his clients.
(iii) A coach or trainer providing coaching or training to his students.
(iv) Services provided by a banking, insurance or transport company are all examples of services.
It is pertinent to note that all the above services are valuable and provider charges a fees or money in lieu of providing such services.
Course or Furtherance of Business:
Let us first visit the term “business”
Business cover all human activities for mutual satisfaction of needs, wants and desires of persons leading to creation and exchange of value. If we look around ourselves, everybody is busy in doing something to sustain his life. A provision store, an electric gadgets shop, a vegetable and fruit seller, a person running a drug store, a barber, a car mechanic, a teacher, a doctor, a news reporter, an actor, a private nursing home, a printing press, a television channel, a vendor of white goods etc. Etc.
In a way, supply is nothing but exchange of value or utility. Further, let us recapitulate basic features of a business:
(I) Business involves some action, activity, efforts, application of mind and skill.
(ii) Business is about exchange. If a farmer grows some crop which is consumed by him and his family. There is no business. If a person shaves his beard on his own, there is no business. However, if he goes to a barber shop and pays Rs.100/- for shaving his beard, business takes place.
(iii) Business is not about charity, donation, friendship, love and affection. The person supplying goods or services must recover consideration for such supply.
(iv) Business is done with profit motive. Any act done to create wealth or utility, directly or indirectly, may be classified as business.
(v) Business can be continuous but a random act or transaction involving supply of goods or services or both is also business.
(vi) Business includes profession, vocation, or occupation or calling or skill.
GST has defined business in the widest possible manner.
Business u/s 2(17) may include following activities:
(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 sub-clause (a);
(c) any activity or transaction sub-clause (a), whether there is volume, frequency, continuity, or regularity of such transaction.
(d) supply or acquisition of goods including capital goods 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.
(f) admission, for a consideration, of persons to any premises.
(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;
(h) services provided by a race club by way of totalisator or a license to book maker in such club; and
(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authority.
Furtherance of business
The phrase has not been expressively defined in the GST Act, yet there is an all-inclusive definition of business from which one can understand business and business activities. The 'phrase in the furtherance of business' connotes or covers all activities which are done to run or sustain the business. All actions, direct or indirect, implicit or explicit having business motive as the driving force can be said to be undertaken for the furtherance of the business or for running of the business. Two types of activities can be contemplated here:
(I) Core and direct activities: A car dealer purchasing cars from Maruti Suzuki and selling them to buyers of cars. A physician conducting a routine check-up of a patient. Such activities define a business or a profession. A mobile repair shop owner carrying out repairs of a mobile of his customer.
(ii) Activities which are linked to business such that they promote business. They are done for advancement or progress of the business. A law firm giving commission to an agency for procuring business. A car mechanic taking training course from the manufacturer of cars to increase his knowledge and skill in repairing such cars.
The act of supply should have business as the primary motive. Thus, any activity which is done with the motive of earning profits or create wealth or utility would fall in the definition of being done in the furtherance of business.
In contrast to it are the personal activities which are personal and done for personal consumption or purely out of personal feelings of fancy, love, affection, ego, anger, spiritual inclinations etc., are not in the furtherance of business.
examples:
1. Hrithik buys a car for his personal use and after a year sells it to a car dealer. Sale of car by Hrithik to car dealer is not a supply under CGST Act because said supply is not made by Hrithik in the course or furtherance of business.
2. Monalisa sold her old gold bangles and earrings to ‘P C Jewelers’. Sale of old gold jewelry by an individual to a jeweler will not constitute supply as the same cannot be said to be in the course or furtherance of business of the individual.
3. On the same lines, casual sale of goods by individuals prompted by their personal needs and feelings and fancies are supply without 'furtherance of business'
4.Business is about creation or addition to what one has already got. Business is not about consumption. Therefore, all personal activities like charity, donation, love and affection etc. Resulting in parting away with goods or of provision of service without price i.e. without getting something in return is not business. Hence furtherance of business and consideration aspect of business are inseparable i.e. two aspects of the same coin. If any activity has business motive then it will invariably be done keeping in mind the ‘consideration’
Consideration is like asking what I get in return if I give you this good or if I provide you this service.
Consideration refers to the price one has to pay in order to purchase the goods or services. Consideration is something given or parted in return for supply of goods or services that is quid pro quo i.e. something for something. It is usually payment in terms of money i.e. the price which recipient of goods or services pays to the supplier in return for supply of goods and/or services. Consideration is one of the necessary ingredients of a business transaction and distinguishes transfers arising out of natural love and affection, reverence, charity, donation etc.
However, consideration can flow from some other person also on behalf of recipient of goods or services. If there is no consideration there is no supply under GST (barring few exceptions) as free supplies are out of the purview of GST.
Under section 2(31): “consideration refers to any payment made or to be made in money or otherwise....
Why i.e. the purpose:
for the purpose of or for the inducement of or in the course of supply of goods or services
To whom:
to supplier
by whom:
the recipient or any other person
Special points:
(i) Subsidy provided by any government is not treated as consideration.
(ii) Deposit to procure supply of goods, if refundable, is also not treated as consideration (i.e. if deposit is adjusted or applied towards price of supply of goods or services it is treated as consideration)
Special Transactions:
In order to
(I) facilitate a particular trade or industry
(ii) remove unnecessary disputes and debates
(iii) prevent evasion of tax
GST laws have carved out certain exceptions, clarifications and explanations etc. So that certain transactions or activities are either
(i) treated as a supply even when there is no element of furtherance of business (ii) treated as a supply even when there is no consideration
(iii) treated as supply of goods only (even when both goods and services are supplied) (iv) treated as supply of services only (even when both goods and services are supplied)
Above activities can be tabulated as follows:
S.N. Section Activity Exception to rule 1 7(1)(b) Import of services for consideration Treated as supply 2 7(1)(c) Activities mentioned in Schedule I Treated as supply 3 7(1)(d) Activities mentioned in Schedule II Supply treated as supply of
goods
4 same Activities mentioned in Schedule II Supply treated as supply of services
5 7(2)(a) Activities mentioned in Schedule III Not treated as ‘supply’
6 7(2)(b) Notified activities of governments and its bodies
7 7(3) Activities notified by government on the recommendations of GST council
8 7(3) Activities notified by government on the recommendations of GST council
Not treated as ‘supply’
Not treated as supply of services but to be treated as supply of goods
Not treated as supply of goods but to be treated as supply of services
(1) Sec 7 (1)(b): Importation of services for personal use against consideration with or without in furtherance of business shall be treated as supply chargeable under GST
Example: R, a proprietor, has received the architect services for his house from an architect located in New York at an agreed consideration of $ 5,000. The import of services by R is supply under section 7(1)(b) though it is not in course or furtherance of business.
(2) Exceptions to rule 'No consideration - No supply'
As a general rule, if supply is made without consideration, it is not a supply for the purposes of GST and accordingly will not attract GST u/s 7(1)(a)
For example: Artists give their work of art to galleries where it is exhibited for supply. However, no consideration flows from the gallery to the artist when the art works are sent to the gallery for exhibition and therefore, the same is not a supply. However, the moment a buyer selects a painting and offers to buy it, event of supply for the purposes of GST arises.
Schedule I to CGST Act, 2017 contains list of activities which shall be treated as 'supply' even though there is no consideration.
These are:
(I) Transfer of business asset on permanent basis on which Input Tax Credit (ITC) has been claimed or availed.
e.g.(a). Mr. X gives old laptops being used in his business to his friend free of cost and input tax credit has been availed by Mr. X on such laptops.
(b). A dealer of air-conditioners permanently transfers the motor vehicle free of cost. ITC on said motor vehicle is blocked. The transaction will not constitute a supply as the condition of availment of ITC on the business asset transferred is not fulfilled.
(II) Supply of goods or services or both between "related persons" or between "distinct persons" if supply is made in the furtherance of business.
Q: Who is a 'related person' ?
A related person under explanation to sec 15 is under the influence of another related person and his decisions can be controlled or affected by another related person. Like decisions of son can be changed by father.
as per explanation to section 15 two persons are related if:
(a)Such persons are officers/directors of one another’s business
(b) Such persons are legally recognized partners
(c) Such persons are employer employee
(d) A third person controls/ owns/ holds(directly/indirectly) ≥ 25% voting stock/shares of both of them
(e) One of them controls (directly/indirectly) the other
(f) A third person control (directly/indirectly) both of them
(g) Such persons together control (directly/indirectly) a third person
(h) Such persons are members of the same family
(i) One of them is the sole agent/sole distributor/sole concessionaire of
the other
Examples:
(i) Ms. Priya holds 30% shares of ABC Ltd. and 35% shares of XYZ Ltd. ABC Ltd. and XYZ Ltd. are related.
(ii) Q Ltd. has a deciding role in corporate policy, operations management and quality control of R Ltd. It can be said that Q Ltd. controls R Ltd. Thus, Q Ltd. and R Ltd. are related.
Q. Who is a Distinct person?
A distinct person is explained u/s 25. If a person has separate registrations under same PAN, in more than one state or with in the same state, he is treated as distinct person for provisions of GST for each of such registration.
For example, if a person has a manufacturing unit is Moradabad and a showroom in Delhi, and further he has two separate registrations for U.P. state and Delhi state, he shall be treated as distinct person for each such registration in U.P. state and Delhi state for the provisions of GST even when in real life, he is same person running both businesses.
This is also true, if a person holds separate registrations for different places of business in same state. Also, if a person has a registration in one state with a principle place of business and he has another place of business in some other state, then also he shall be treated as 'distinct person for both the places of business.
As a corollary, if there are no separate registrations for different places of business with in the same state, any transfer of goods or service between such places of business shall not qualify as 'supply' if there is nil consideration. Such transfers are normally called as stock transfers.
(III) Goods supplied by Principal to Agent and vice-versa without consideration.
Supply of goods by a principal to his agent, without consideration, where the agent undertakes to supply such goods on behalf of the principal is considered as supply.
[It is to be remembered that this provision is restricted to supply of goods. Thus, the supply of services between the principal and the agent and vice versa would therefore require “consideration” to be considered as supply i.e. to be liable to GST.]
(IV) Import of Services
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”
Examples:
(a) P & Associates received legal consultancy services from its head office Q Inc. located in Malaysia. The head office has rendered such services free of cost to its branch office. Since P & Associates and the head office are related persons, services received by P & Associates will qualify as supply even though the head office has not charged anything from it.
(b) C, a proprietor registered in Delhi, has sought architect services from his son located in US, with respect to his newly constructed house in Delhi. Although services have been received by C without consideration from his son - a related person, yet it will not qualify as supply since the same has not been received in course of furtherance of business.
Difference between import of services under sec 7(1)(b) and 7(1)(c)
Issue Importation of services u/s 7(1) (b)
Importation of services u/s 7(1) (c)
Consideration Present Absent
Furtherance of
Business May or may not be present Present
Purpose Personal i.e. non-business Business
Relation with supplier Not related Supplier is a related person
Examples:
(a) P & Associates received legal consultancy services from its head office Q Inc. located in Malaysia. The head office has rendered such services free of cost to its branch office. Since P & Associates and the head office are related persons, services received by P & Associates will qualify as supply even though the head office has not charged anything from it.
(b) C, a proprietor registered in Delhi, has sought architect services from his son located in US, with respect to his newly constructed house in Delhi. Although services have been received by C without consideration from his son - a related person, yet it will not qualify as supply since the same has not been received in course of furtherance of business.
(3) Section 7(1A): Schedule II activities i.e. deemed supplies i.e. activities which may otherwise be as not falling with in the definition of supply, or which appears from the face of it more as a supply of goods, yet is treated as supply of services and vice-versa. Generally, these
are such types of supplies which have been a source of dispute and litigation or have the element of both goods and services leaving a scope of confusion and litigation.
These are special cases which have been declared under authority of law to constitute ‘supply’ in order to end any confusion or dispute about their status as ‘supply’. In other words, these are treated or deemed as supply. These are enumerated in Schedule II
This has been done by Section 7(1A), (introduced by CGST Amendment Act 2018, retrospectively w.e.f. 1/7/2017), which says that once activities as mentioned in Schedule II are covered under supply under the provisions of section 7(1), they shall be treated as supply of either supply of goods or supply of services as prescribed under schedule II
Various Activities as mentioned in schedule II and how they will be treated I.e. either supply of goods or supply of services is tabulated below:
S.No Type Nature of Supply
1 Any transfer of title in goods.
Shivaji sells ready-made garments to its customers. Any transfer of right in goods/ undivided share in goods without transfer of title in goods.
Genius Equipments Ltd. gives a machinery on rent to Suhaas Manufacturers.
Any transfer of title in goods under an agreement which stipulates that property shall pass at a future date upon payment of full consideration as agreed.
Supply of Goods Supply of Services
Supply of Goods
(i) Dhruva Capitals supplied goods on hire purchase basis to customers.
(ii) Optima Manufacturers supplies toys to retailers on ‘sale or return basis’.
2 Any lease, tenancy, easement, license to occupy land16.
Lease agreement for land. Any lease or letting out of building including a commercial, industrial or
residential complex for business or commerce, wholly or partly.
A shop let out in a busy market area.
3 Any treatment or process which is applied to another person’s goods
e.g. Damani Dying House dyes the clothes given by Shubham Textiles Ltd. on job work basis.
4 Goods forming part of business assets are transferred or disposed off by/under directions of person
carrying on the business so as no longer to form part of those assets, whether for consideration.
Goods held/used for business are put to private use or are made available to any person for use for any purpose other than business, by/ under directions of person carrying on the business, whether for
consideration.
Arunodhya, a sole proprietor, owns a laptop used for making office presentations. He transfers said laptop to his son for making school projects.
Goods forming part of assets of any business carried on by a person who ceases to be a taxable person, shall be deemed to be supplied by him, in the course or furtherance of his business, immediately before he ceases to be a taxable person.
Arun, a trader, is winding up his business. Any goods left in stock shall be deemed to be supplied by him.
Exceptions:
Business is transferred as a going concern to another person17.
Business is carried on by a personal representative who is deemed to be a taxable person.
5 (i) Renting of a commercial complex.
(ii) Renting of precincts of a religious place.
(iii) Renting of property to an educational institution. (iv) Permitting use of immoveable property for placing vending/ dispensing machines.
Supply of Services
Supply of Services Supply of Goods Supply of Services
Supply of goods
80
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