INDIRECT TAXES

Section “A”
Goods & Service Tax ( GST)

1. Introduction to GST
1.1. What is GST?
GST refers to “Goods and Services Tax” and is said to be a comprehensive indirect tax levied
on manufacture, sale and consumption of goods as well as services at the national level. GST
is a tax that one needs to pay on supply of goods & services.

GST is a value added tax that is levied on the various stages of Production. This will ensure
that there is no cascading effect on taxes (tax on tax paid) on inputs that are used in
manufacturing of goods.

In the below figure you can see that the supplier provides raw material (i.e. Cloth) to the
manufacturer who in turn converts it into a product (i.e. shirt), the shirt provided by the
manufacturer is labeled by the shop seller (i.e. Retailer) and finally sold to various customers.
So here GST will be levied on these value additions- the monetary worth added at each stage
to achieve the final sale to the end customer.

1.2. Concept of Indirect Taxes

 Indirect tax is a type of tax collected by the government from an intermediary

such as manufacturer or retailer.

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  Levied on goods and services sold by an intermediary to final consumers.
Consumers than pay the tax in the form of higher price of items.
 Indirect taxes are levied on clearance of goods and services from the origin,
instead of actual sale of the products to the customers.

1.3. System of Indirect Taxation in India prior to GST

Prior to the levy of Goods & Service Tax ( GST) in India there were multiple indirect
taxes in India. Some taxes were levied by Central Govt, some by State Govts & some
by Local Bodies.
Such taxes were as follows:

1.4. Need for GST in India

a. To prevent leakage of revenue: VAT rates and regulations differed from state to state.
And it has been observed that states often resort to slashing these rates for attracting
investors. This results in loss of revenue for both the Central as well as State
government.

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 b. Cascading effect of Taxes: “Cascading effect of taxes” is also, referred to as “taxes on
taxes”. It is simple to illustrate – say A sells goods to B after charging sales tax, and
then B re-sells those goods to C after charging sales tax. While B was computing his
sales tax liability, he also included the sales tax paid on previous purchase, which is
how it becomes a tax on tax.

c. GST brings in uniform tax laws across all the states: In GST the taxes would be
divided between the Central and State government based on a predefined and pre-
approved formula. In addition, it would become much easier to offer services and goods
uniformly across the nation, since there won’t be any additional state-levied tax.
d. To promote “Make in India” Initiative: The current indirect tax regime is a hindrance
in the growth of the domestic manufacturing sector as well as flow of foreign
investment to the sector. Introduction of GST is important as it would help alleviate the
situation. There would be reduction in cost of manufacturing both from a tax view as
well as compliance front.

1.5. GST Model in India

There are three well-known GST models in the world.

 GST at Union Government Level Only (Central GST)

 GST at State Government Level Only (State GST)
 GST at both, Union and State Government Levels (Concurrent/Dual GST

1.6. Concurrent Dual Model of GST

Under this model, both central and state Governments will levy GST concurrently.
There will be Central GST to be administered by the Central Government and there will
be State GST to be administered by State Governments. In this model, both goods and
services would be subject to concurrent taxation by the Centre and the States.

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 A compromise is made on Concurrent Dual GST where both states and center will
impose and collect tax on a single transaction of sale and service in the form of State
Goods and service tax “SGST” and Central Goods and service tax “CGST”

1.7. GST In India

a) Thus in India, in order to have a single tax applicable on both Goods & Services
and having uniform application throughout the country Goods & Service Tax was
introduced.

b) The taxes that were subsumed in GST were:

i. CENTRAL GOVT TAXES

 Central Excise under Central Excise Act 1944

 Additional Excise Duty
 Excise Duty levied under Medicinal & Toilet Preparations ( Excise
Duty) Act 1955
 Service Tax
 CVD ( Additional Custom Duty)
 Special Additional Duty of Customs
 Central Surcharge
 Central Cesses

ii. STATE GOVT TAXES

 State Value Added/ Sales Tax

 Entertainment Tax ( other than tax levied by Local Bodies)
 Octroi Duty
 Entry Tax
 Purchase Tax
 Luxury Tax
 Lottery Tax
 Betting & Gambling Tax
 State Surcharges
 State Cesses

1.8. Constitutional Amendment

 Under the old structure of Taxation Central Govt did not have power to levy tax
on sale of goods and the State Govt did not have power to levy tax on
manufacture of goods and rendering of services.
 Hence the constitution had to be amended to provide powers to both State Govt
and Central Govt to levy tax on Goods & Services.

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  The One Hundred and Twenty Second Amendment Bill of the Constitution of
India, officially known as The Constitution (One Hundred and First
Amendment) Act, 2016, introduced a national Goods and Services
Tax in India from 1 July 2017.

1.9. Statues on GST in India

a) Central Goods & Service Tax Act passed by Central Govt

b) State Goods & Service Tax Act passed by all State Govts and the Union Territories
of Delhi & Pondicherry
c) Integrated Goods & Service Tax Act passed by Central Govt
d) UT Goods and Service Tax Act passed by Central Govt

1.10. GST MODEL in India

Thus:

a) For Intra State Supplies both CGST & SGST would br charged
b) For Inter State supplies IGST would be charged.

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1.11. Concept of Value Added Tax
• Value added tax (VAT) is known as the most recent and effective
innovation in the taxation field.

• It is levied on the value added of the goods and services.

• Theoretically, the tax is broad based as it covers the value added to each
commodity by a firm during all stages of production and distribution.

• During a VAT period, Shop AS, which is registered in the VAT Register,
purchases goods for Rs 49,600 excluding VAT. The rate of VAT is 25%.
The input VAT is Rs12,400. During the same period, the business sells
goods for Rs 150,000 excl. VAT. The rate of VAT is same ie 25%
The output VAT is Rs 37,500.

In the VAT settlement, you deduct input VAT from output VAT. The
resulting amount must be reported to your regional tax office. As you can
see, you only pay tax to the state on the 'the value your enterprise has added
to the goods'. (If your purchases exceed your sales in any one period, the
difference will be negative, and the difference will naturally be refunded.)

The VAT payable in the above example would be as follows:

S.No Particulars Cost VAT Total

Rate Amount

A Purchase 49,600 25% 12,400 62000

B Sale 150000 25% 37,500 187500

VAT 25,100
Payable (B-
A)

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2. Taxable Event

2.1. The taxable Event in case of GST is Supply of Goods & Services

2.2. Inter State Supply

Under GST, supply of goods or services from one state to another would be called as
interstate supply. The GST Act defines interstate supply as when the location of the
supplier and the place of supply for the customer are in:

a) Two different States; or

b) Two different Union territories; or
c) State and a Union territory.

In addition to the above, the supply of goods imported into India, till they cross the
customs station is also classified as interstate supply. Also, supply of goods or services
to or by a Special Economic Zone developer or a Special Economic Zone unit is
classified as interstate supply.

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2.3. Intra State Supply

Under GST, supply of goods or services within the same state or Union territory is
called as intrastate supply.
However, supply of goods or services to a Special Economic Zone developer or Special
Economic Zone unit situated within the same state would not be intrastate supply. As
any supply of goods or services to a Special Economic Zone developer or Special
Economic Zone unit is classified as interstate supply

2.4. Applicability of GST

• Under GST, interstate supply attracts Integrated Goods and Services Tax or IGST.
Intrastate supply attracts both Central Goods and Services Tax (CGST) and State Goods
and Services Tax (SGST).
• In the case of intrastate supply, the GST rate for the goods or services would remain
the same. However, the GST rate and tax amount are divided equally into the two heads
namely SGST and CGST.

For example, if a Rs.1,00,000 worth laptop is sold by an electronics store in

Maharashtra to a customer in Karnataka and the applicable GST rate is 18%, then
Rs.18000 IGST would be applicable. If the laptop is sold by an electronics store in
Maharashtra to a customer in Maharashtra, then CGST or Rs.9000 and SGST or
Rs.9000 would be applicable

2.5. Scope of Supply

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 Section 7 of CGST Act contains provisions relating to Scope of Services. As per Sec 7(1)
the expression “ Supply” includes the following:

a) all forms of supply of goods or services or both such as

 sale,
 transfer,
 barter,
 exchange,
 license,
 rental,
 lease or disposal
made or agreed to be made for a consideration by a person in the course or
furtherance of business

Thus it can be seen from above that supply not only covers sale or transfer but
also covers licenses, rentals etc.

Further there are two essential conditions:

 The supply should be made for a consideration or should be agreed to made for
a consideration.
 The supply should be made in the course or furtherance of Business.

Thus if a car dealer sells a car it will be considered to be a supply for the
purpose of GST. On the other hand if a person sells his personal call it will
not be considered to be a supply for the purposes of GST as the sale has not
been done in the course of or in furtherance of business.

b) However, there are some exceptions to the above rule which is as follows:

i. Import of services for a consideration whether in the course or furtherance

of business will be considered to be supply .

Thus in case of import of services for a consideration will always be

considered to be a supply even if it is availed for personal purposes and not
in the course of or in furtherance of business.

ii. The activities contained in Schedule I to CGST Act will be considered to be

a supply even though made without consideration.

Such activities as contained in Schedule 1 are as follows:

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 SCHEDULE I
ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT
CONSIDERATION

1) Permanent transfer or disposal of business assets where input tax credit has
been availed on such assets.
2) Supply of goods or services or both between related persons or between distinct
persons as specified in section 25, when made in the course or furtherance of
business
Provided that gifts not exceeding fifty thousand rupees in value in a financial year
by an employer to an employee shall not be treated as supply of goods or services
or both.
3) Supply of goods—
(a) by a principal to his agent where the agent undertakes to supply such goods
on behalf of the principal; or
(b) by an agent to his principal where the agent undertakes to receive such goods
on behalf of the principal.

4) Import of services by a person from a related person or from any of his other
establishments outside India, in the course or furtherance of business.

5) The important point to be noted here is that Supply of goods or services or both
between related persons or between distinct persons as specified in section 25, when
made in the course or furtherance of business even if made without consideration
would be subject to GST.

In this context following needs to be noted:

• Meaning of Distinct Persons & implication on supply

Sub Section (2), (5) & (4) specifies the following persons as distinct persons:

a) A person seeking registration under this Act shall be granted a single

registration in a State or Union territory:
Provided that a person having multiple places of business in a State or Union
territory may be granted a separate registration for each such place of business,
subject to such conditions as may be prescribe (sub section 2)

b) A person who has obtained or is required to obtain more than one registration,
whether in one State or Union territory or more than one State or Union
territory shall, in respect of each such registration, be treated as distinct persons
for the purposes of this Act. (sub section 4)

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 c) Where a person who has obtained or is required to obtain registration in a State
or Union territory in respect of an establishment, has an establishment in
another State or Union territory, then such establishments shall be treated as
establishments of distinct persons for the purposes of this Act. (Sub section 5)

In view of the above the following situations would be covered under this
clause:

a) Supply to different verticals if such verticals have different registrations

b) Registered Establishments in different states

In both these cases if Goods and/or Services are supplied GST would be
applicable even though there is no supply of Goods or Services.

• Meaning of Related Persons

Though the meaning of the term Related Persons is quite Wide. Very
often the main group company may provide services to other companies
under the group without charging any consideration. As per clause 2 of
Schedule 1 such transaction would be considered as Supply & accordingly
GST would be applicable.

 Similar provisions would apply in case of Supply of Goods from a Principal

to an Agent & Vice- Versa

c) In order to remove any ambiguity Sec 7(1A) has been inserted which states that the
activities that are mentioned in Schedule II would be considered either as Supply of
Goods or Supply of Services:

SCHEDULE II

ACTIVITIES [OR TRANSACTIONS] TO BE TREATED AS SUPPLY OF

GOODS OR SUPPLY OF SERVICES

1. Transfer

a) any transfer of the title in goods is a supply of goods;

b) any transfer of right in goods or of undivided share in goods without the transfer of title
thereof, is a supply of services;

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 c) any transfer of title in goods under an agreement which stipulates that property in goods
shall pass at a future date upon payment of full consideration as agreed, is a supply of
goods.

2. Land and Building

a) any lease, tenancy, easement, licence to occupy land is a supply of services;

b) any lease or letting out of the building including a commercial, industrial or residential
complex for business or commerce, either wholly or partly, is a supply of services.

3. Treatment or process

Any treatment or process which is applied to another person’s goods is a supply of

services.

4. Transfer of business assets

a) where goods forming part of the assets of a business are transferred or disposed of by
or under the directions of the person carrying on the business so as no longer to form
part of those assets, whether or not for a consideration, such transfer or disposal is a
supply of goods by the person;
b) where, by or under the direction of a person carrying on a business, goods held or
used for the purposes of the business are put to any private use or are used, or made
available to any person for use, for any purpose other than a purpose of the business,
whether or not for a consideration, the usage or making available of such goods is a
supply of services;
c) where any person ceases to be a taxable person, any goods forming part of the assets
of any business carried on by him 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,
unless—

i. the business is transferred as a going concern to another person or

ii. the business is carried on by a personal representative who is deemed

to be a taxable person.

5. Supply of services

The following shall be treated as supply of services, namely:—

a) renting of immovable property;

b) construction of a complex, building, civil structure or a part thereof, including a
complex or building intended for sale to a buyer, wholly or partly, except where
the entire consideration has been received after issuance of completion certificate,
where required, by the competent authority or after its first occupation, whichever
is earlier.

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 6. Composite supply

The following composite supplies shall be treated as a supply of services, namely:—

a) works contract as defined in clause (119) of section 2; and

b) supply, by way of or as part of any service or in any other manner whatsoever, of
goods, being food or any other article for human consumption or any drink (other
than alcoholic liquor for human consumption), where such supply or service is for
cash, deferred payment or other valuable consideration.

7. Supply of Goods

The following shall be treated as supply of goods, namely: —

Supply of goods by any unincorporated association or body of persons to a member

thereof for cash, deferred payment or other valuable consideration.

d) Apart from the above activities contained in Schedule III of the CGST Act would
neither be considered to be supply of Goods or supply of services.

SCHEDULE III

ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A

SUPPLY OF GOODS NOR A SUPPLY OF SERVICES
1. Services by an employee to the employer in the course of or in relation to his
employment.
2. Services by any court or Tribunal established under any law for the time being in
force.
3. (a) the functions performed by the Members of Parliament, Members of State
Legislature, Members of Panchayats, Members of Municipalities and Members of
other local authorities;
(b)the duties performed by any person who holds any post in pursuance of the
provisions of the Constitution in that capacity; or
(c) the duties performed by any person as a Chairperson or a Member or a Director in
a body established by the Central Government or a State Government or local
authority and who is not deemed as an employee before the commencement of this
clause.
4. Services of funeral, burial, crematorium or mortuary including transportation of the
deceased.
5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
6. Actionable claims, other than lottery, betting and gambling.
7. [Supply of goods from a place in the non-taxable territory to another place in the non-
taxable territory without such goods entering into India.
8. (a) Supply of warehoused goods to any person before clearance for home
consumption;

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 (b) Supply of goods by the consignee to any other person, by endorsement of
documents of title to the goods, after the goods have been dispatched from the port of
origin located outside India but before clearance for home consumption

e) The Govt has also issued a Notification whereby certain Goods and Services have been
made exempt of GST. Such Notification can be accessed from the following links:

i. List of Goods Exempted under GST

https://quickbooks.intuit.com/in/resources/gst-center/gst-exempted-goods-list-of-goods-
exempt-under-gst/

II. List of Services Exempted under GST

https://cagateway.com/rate-on-services/exempt-services/

2.6. Composite Supply

• “composite supply” means a supply made by a taxable person to a recipient

consisting of two or more taxable supplies of goods or services or both, or any
combination thereof, which are naturally bundled and supplied in conjunction with
each other in the ordinary course of business, one of which is a principal supply;

Illustration.— Where goods are packed and transported with insurance, the supply of
goods, packing materials, transport and insurance is a composite supply and supply of
goods is a principal supply

• Levy of GST on Composite Supply

As per Section 8 of CGST Act a composite supply comprising two or more

supplies, one of which is a principal supply, shall be treated as a supply of such
principal supply; Thus The tax rate of the principal supply will apply on the entire
supply.

2.7. Mixed Supply

• “mixed supply” means two or more individual supplies of goods or services, or any
combination thereof, made in conjunction with each other by a taxable person for a
single price where such supply does not constitute a composite supply.

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 Illustration. — A supply of a package consisting of canned foods, sweets, chocolates,
cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a
mixed supply.
Each of these items can be supplied separately and is not dependent on any other. It
shall not be a mixed supply if these items are supplied separately

• As per Section 8 of CGST a mixed supply comprising two or more supplies shall
be treated as a supply of that supply which attracts the highest rate of tax.

• Difference between Composite Supply & Mixed Supply

3. Levy of GST

We have already understood in the preceding paras that the Levy of GST is as
follows:

a) In case of Intra State Supply of Goods & Services ( ie supplies within the same state)
CGST & SGST would be charged
b) In case of Inter State supply of Goods & Services ( ie from one state to another)
IGST would be applicable.

• However, it may be noted that it is only Alcohol for human consumption that has
been kept outside the ambit of GST.
On alcohol for human consumption State Govts charge taxes which includes:
a) VAT
b) Excise Duty

Industrial Alcohol is very much within the scope of GST. In fact, the rate of GST on
Ethyl Alcohol supplied to Oil Marketing Companies for blending with Motor Spirit (
Petrol) is 5%..

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  Since the rolling-out of GST an year and half ago, Petroleum, AFT and Natural Gases
have been the topics of debate and concern that weather these items must be kept
under GST or not and under which slab of GST. After various meetings and
discussions the GST council has not been able to reach a final conclusion to these
questions.

Petrol and diesel were kept out of the ambits of GST because these products are one
of the highly taxed items by the government. They are not only a major source of
revenue for central governments but also state governments. The center charges
excise duty on them which was Rs. 19.48 in September 2018 on petrol and Rs. 15.33
on diesel. On addition to the excise duty, VAT is also charged by different state
governments.

It may be noted that it is only the following petroleum products which are outside the
ambit of GST:
a) Petroleum Crude
b) High Speed Diesel
c) Motor Spirit (Commonly known as Petrol)
d) Natural Gas
e) Air Turbine Fuel (Aviation Fuel)

Apart from other petroleum products are within the ambit of GST. LPG and
Kerosene attract a rate of GST of 5%..

However as per the provisions of CGST Act the Govt may, by Notification ( after
consultation with GST Council) bring these petroleum products under the ambit of
GST.

3.1. Imports & Exports / SEZ Supplies

As per Sec 7(5) of IGST Act :

Supply of goods or services or both,––

a) when the supplier is located in India and the place of supply is outside India;
b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or
c) in the taxable territory, not being an intra-State supply and not covered elsewhere
in this section,

shall be treated to be a supply of goods or services or both in the course of inter-

State trade or commerce.

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 Thus Import/ Export of Goods & Services including Supplies to & from SEZ unit
or SEZ Developer would be considered as Inter State Supply and accordingly IGST
would be applicable on such transactions.

3.2. Exports – Zero Rated Supplies

As per Sec 16(1) of IGST Act Zero Rated supplies means any of the following
supplies of goods or services or both, namely: –

(a) export of goods or services or both; or

(b) supply of goods or services or both to a Special Economic Zone developer or a
Special Economic Zone unit.

Thus export of Goods and Services including Supplies to SEZ Units and SEZ
Developers are Zero Rates meaning that they do not attract any GST.

The exporters / sez suppliers are entitled to Input Tax Credit/ Refund of GST. The
basic difference between Exempt Supplies and Zero Rated Supplies is that in case
of Exempt supplies Input Tax Credit/ Refund is not allowed.

4. REGISTRATION

• “taxable person” means a person who is registered or liable to be registered under

GST

• As per Sec 22(1) of CGST Act every supplier shall be liable to be registered under
this Act in the State or Union territory, other than special category States, from where
he makes a taxable supply of goods or services or both, if his aggregate turnover in a
financial year exceeds twenty lakh rupees. In case of special category states the
threshold limit is aggregate turnover of Rs 10 lacs.

• Amendment by Budget 2019

“Provided also that the Government may, at the request of a State and on the
recommendations of the Council, enhance the aggregate turnover from twenty lakh
rupees to such amount not exceeding forty lakh rupees in case of supplier who is
engaged exclusively in the supply of goods, subject to such conditions and limitations,
as may be notified

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 • Single Registration in same state

A person seeking registration under shall be granted a single registration in a State or Union
territory:

However, a person having multiple places of business in a State or Union territory

may be granted a separate registration for each such place of business, subject to
such conditions as may be prescribe

 Separate Registration in each State

Where a person who has obtained or is required to obtain registration in a State or

Union territory in respect of an establishment, has an establishment in another State or
Union territory, then such establishments shall be treated as establishments of distinct
persons for the purposes of this Act.

 Voluntary Registration

A person, though not liable to be registered under section 22 or section 24 may get
himself registered voluntarily, and all provisions of this Act, as are applicable to a
registered person, shall apply to such person.

5. Liability to Pay GST

5.1. As the Taxable person is Supplier of Goods and Services, hence liability of pay tax
in case of GST is on the Supplier of Goods and Services.

5.2. Reverse Charge Mechanism

However in certain cases the liability to pay tax passes on from the supplier of goods
& Services to the Recipient of Goods & Services. This is called Reverse Charge
Mechanism.
As per Sec 9(3) of CGST Act The Government may, on the recommendations of the
Council, by notification, specify categories of supply of goods or services or both, the
tax on which shall be paid on reverse charge basis by the recipient of such goods or
services or both and all the provisions of this Act shall apply to such recipient as if he
is the person liable for paying the tax in relation to the supply of such goods or
services or both.

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 One of the examples of this situation is in case of Import of Services where the
importer of service is liable to pay IGST instead of Supplier of Services.

The list of Goods & Services which are under Reverse Charge Mechanism can be
accessed from the following links:

https://cagateway.com/rate-on-services/list-of-reverse-charge-services/
https://cagateway.com/goods-rate/list-of-reverse-charge-goods

5.3. Supplies to a Registered Person from an Unregistered Person

As per Section 9(4) of CGST Act:

The Government may, on the recommendations of the Council, by notification,

specify a class of registered persons who shall, in respect of supply of specified
categories of goods or services r both received from an unregistered supplier, pay the
tax on reverse charge basis as the recipient of such supply of goods or services or
both, and all the provisions of this Act shall apply to such recipient as if he is the
person liable for paying the tax in relation to such supply of goods or services or both.

However since the Govt has not issued any recommendation in this respect it can be
construed that this section is kept in abeyance.

6. Place of Supply

In GST Place of Supply is extremely important as GST would be applicable on a

transaction/activity that takes place in a taxable territory ie India.

6.1. Place of Supply - Goods

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 A) As per Sec 9(1) of IGST Act the place of supply of goods, other than supply of
goods imported into, or exported from India, shall be as under, ––

a. where the supply involves movement of goods, whether by the supplier or the
recipient or by any other person, the place of supply of such goods shall be the
location of the goods at the time at which the movement of goods terminates
for delivery to the recipient;

b. where the goods are delivered by the supplier to a recipient or any other
person on the direction of a third person, whether acting as an agent or
otherwise, before or during movement of goods, either by way of transfer of
documents of title to the goods or otherwise, it shall be deemed that the said
third person has received the goods and the place of supply of such goods shall
be the principal place of business of such person;

c. where the supply does not involve movement of goods, whether by the
supplier or the recipient, the place of supply shall be the location of such
goods at the time of the delivery to the recipient;

B) As per Sec 11 of IGST Act the place of supply of goods,––

a. imported into India shall be the location of the importer;

b. exported from India shall be the location outside India.

6.2. Place of Supply – Services ( where location of supplier and recipient is in India)

As per Sec 12(2) of IGST Act the place of supply of services, except the services specified in
sub-sections (3) to (14),

(a) made to a registered person shall be the location of such person;

(b) made to any person other than a registered person shall be,––
(i) the location of the recipient where the address on record exists; and
(ii) the location of the supplier of services in other cases.

The exception to this rule are contained in Sub Section (3) to Sub Section (14) of
Section 12 of IGST Act

6.3. Place of Supply - Services (Where Location of Supplier or Recipient is Outside

India )

As per Sec 13(2) of IGST Act The place of supply of services except the services
specified in sub-sections (3) to (13) shall be the location of the recipient of services:

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 However where the location of the recipient of services is not available in the ordinary
course of business, the place of supply shall be the location of the supplier of services.

The exception to this rule are contained in Sub Section (3) to Sub Section (13) of
Section 13 of IGST Act.

7. Value of Supply (Consideration)

The amount of GST payable on a particular transaction is determined by the applicable

rate of GST on the Value of Supply or the Consideration.

Currently, GST will be charged on the ‘transaction value’. Transaction value is the price
actually paid(or payable) for the supply of goods/services between un-related parties
(i.e., price is the sole consideration)

The value of supply under GST shall include:

1. Any taxes, duties, cess, fees, and charges levied under any act, except GST. GST
Compensation Cess will be excluded if charged separately by the supplier.
2. Any amount that the supplier is liable to pay which has been incurred by the recipient
and is not included in the price.
3. The value will include all incidental expenses in relation to sale such as packing,
commission etc.
4. Subsidies linked to supply, except Government subsidies will be included.
5. Interest/late fee/penalty for delayed payment of consideration will be included.

Example

A imports Goods from Germany and the CIF Value of the same is Rs 10,00,000.
The rate of Basic Custom Duty is 10% and the rate of GST is 18%. The amount of
GST would be determined as under:

CIF Value : 10,00,000

Add : Custom Duty @ 10% 1,00,000

11,00,000

Add: GST @ 18% 1,80,000

Landed Cost 12,80,000

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8. TAX INVOICE

 The supplier of Goods and Services has to issue a tax invoice containing prescribed
particulars within prescribed time.

 Other adjustments such as price differences, Return of Goods etc has to be done by
way of Debit Notes/ Credit Notes

9. INPUT TAX CREDIT

• Input credit means at the time of paying tax on output, you can reduce the tax you
have already paid on inputs.

Say, you are a manufacturer –

a) tax payable on output (FINAL PRODUCT) is Rs 900

b) tax paid on input (PURCHASES) is Rs 600
c) You can claim INPUT CREDIT of Rs 300 and you only need to deposit Rs
150 in taxes

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 • Input Credit Mechanism is available to you when you are covered under the GST
Act.
• Which means if you are a manufacturer, supplier, agent, e-commerce operator,
aggregator or any of the persons mentioned here, registered under GST, You are
eligible to claim INPUT CREDIT for tax paid by you on your PURCHASES.

 Input Tax Credit is available to a registered person only who has received supply of
goods or services in furtherance of his business. Thus, GST paid on goods or services
taken for personal purposes will not be eligible for Input Tax Credit.

 The recipient of goods & services has to fulfil certain conditions for availing Input
Tax Credit. These are as follows:

a) He should be a Registered Person

b) He should have actually received goods and services.
c) He should be having a Tax Invoice issued by supplier of goods & services.
d) The tax has actually been paid by the supplier to the govt
e) He has furnished his return under GST
f) He has made the payment of the invoice to the supplier of goods or services
within 180 days from the date of issue of invoice.

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 Section B
CUSTOM DUTIES

I. Custom Duties

 Definition: Customs Duty is a tax imposed on imports and exports of goods.

 Description: The rates of customs duties are either specific or on ad valorem

basis, that is, it is based on the value of goods.

Rule 3(i) of the Customs Valuation (Determination of Value of Imported Goods)

Rules, 2007 states that the value of imported goods shall be the transaction
value adjusted in accordance with the provisions of its Rule 10.

If objective and quantifiable data do not exist with regard to the valuation
factors, if the valuation conditions are not fulfilled, or if Customs authorities
have doubts concerning the truth or accuracy of the declared value in terms of
Rule 12 of the said Valuation Rules, 2007, the valuation has to be carried out
by other methods in the following hierarchical order:
(i) Comparative Value Method - Comparison with transaction
value of identical goods (Rule 4);
(ii) (Comparative Value Method - Comparison with transaction
value of similar goods (Rule 5);
(iii) ) Deductive Value Method - Based on sale price in importing
country (Rule 7);
(iv) Computed Value Method - Based on cost of materials,
fabrication and profit in country of production (Rule 8); and
(v) Fallback Method - Based on earlier methods with greater
flexibility (Rule 9).

2. Documents in case of Imports and Export of Goods

a) Bill of Entry

A declaration by an importer or exporter of the exact nature, precise quantity and value of
goods that have landed or are being shipped out. Prepared by a qualified customs clerk or
broker, it is examined by customs authorities for its accuracy and conformity with the tariff
and regulations.

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 Thus the document that is filled by the importer of goods for Clearance of Goods from
Customs is called Bill of Entry

b) Bill of Lading

A document issued by a carrier, or its agent, to the shipper as a contract of carriage of goods.
It is also a receipt for cargo accepted for transportation, and must be presented for taking
deliver at the destination.
Among other items of information, a bill of lading contains (1) consignor's and consignee's
name, (2) names of the ports of departure and destination, (3) name of the vessel, (4) dates
of departure and arrival, (5) itemized list of goods being transported with number of packages
and kind of packaging, (6) marks and numbers on the packages, (7) weight and/or volume of
the cargo, (8) freight rate and amount.

Thus Bill of Lading is a document that is issued by the Shipping Line as a receipt for
Cargo.

c) Shipping Bill

An exporter, while sending goods from one country to another has to go through
various formalities including submitting various applications, acquiring licenses,
paying duties and so on. To acquire a clearance for export, from the Customs, an
exporter will have to submit an application called the ‘shipping bill’. One cannot load
the goods unless the exporter files the shipping bill. The export may be by air, vehicle,
or vessel.

3. Harmonized System of Nomenclature ( HSN)

The Harmonized System is an international nomenclature for the classification of products.

It allows participating countries to classify traded goods on a common basis for customs
purposes. At the international level, the Harmonized System (HS) for classifying goods is
a six-digit code system.

The HS comprises approximately 5,300 article/product descriptions that appear as

headings and subheadings, arranged in 99 chapters, grouped in 21 sections. The six digits
can be broken down into three parts. The first two digits (HS-2) identify the chapter the
goods are classified in, e.g. 09 = Coffee, Tea, Maté and Spices. The next two digits (HS-
4) identify groupings within that chapter, e.g. 09.02 = Tea, whether or not flavoured. The
next two digits (HS-6) are even more specific, e.g. 09.02.10 Green tea (not fermented)...
Up to the HS-6 digit level, all countries classify products in the same way (a few exceptions
exist where some countries apply old versions of the HS).

The Harmonized System was introduced in 1988 and has been adopted by most of the
countries worldwide. It has undergone several changes in the classification of products.
These changes are called revisions and entered into force

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 in 1996, 2002, 2007, 2012 and 2017. Detailed amendments to each HS nomenclature are
available at attachment links below.

Information on Harmonized Commodity Description and Coding Systems (HS) can be

found at the World Customs Organization website

http://www.wcoomd.org/home_wco_topics_hsoverviewboxes.htm

4. INCOTERMS

Incoterms®” is an acronym standing for international commercial terms.

“Incoterms®” is a trademark of International Chamber of Commerce,
registered in several countries.
The Incoterms® rules feature abbreviations for terms, like FOB (“Free on
Board”), DAP (“Delivered at Place”) EXW (“Ex Works”), CIP (“Carriage and
Insurance Paid To”), which all have very precise meanings for the sale of
goods around the world.
These terms hold universal meaning for buyers and sellers around the world.
If you are a financial analyst in the City of London, then you might associate
the acronym “FCA” with the UK’s Financial Conduct Authority. However, for
importers and exporters around the world, FCA are the initials used for “Free
Carrier,” or the seller’s obligation to deliver the goods to the carrier nominated
by the buyer at the seller’s premises or another named place.

The most commonly used INCOTERMS are

a) FOB ( Free on Board)

b) CIF ( Cost Freight & Insurance)

5. Custom Tariff

The Custom Tariff or rates of Custom Duty in India can be accessed from the
following web site

http://www.cbic.gov.in/htdocs-cbec/customs/cst1819-010219/cst1819-0102-idx

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S

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