Professional Documents
Culture Documents
Goods and Services Tax (GST)
Goods and Services Tax (GST)
Accrual of tax
The tax would accrue to the taxing authority which has the jurisdiction over the place of
consumption which is also termed as place of supply. Hence, GST is a destination based
consumption tax.
Double Taxation :
Earlier some items are treated both as a commodity as well as a service. Eg: software.
This resulted in double taxation of a transaction as both goods and services.
Others:
a) Non inclusion of several local levies in State VAT such as luxury tax, entertainment tax
etc.
b) No CENVAT after manufacturing stage
c) Non integration of VAT and Service Tax
Existing taxes that will continue even after the introduction of GST
1. Central Excise Duty levied on manufacture / production of Tobacco, Petroleum
Crude, Diesel, Petrol, ATF and Natural Gas.
2. State Excise Duty levied on manufacture / production of Alcoholic Liquor, Opium,
Indian Hemp and Narcotics.
3. VAT levied on Intra-State sale of Petroleum Crude, Diesel, Petrol, ATF, Natural and
Alcoholic Liquor
Benefits of GST:
GST is a win – win situation for the entire country.
It brings benefits to all the stakeholders of industry, Government and the consumer.
It will lower the cost of goods and services, give a boost to the economy and make
the products and services globally competitive.
That 50% of the amount remaining unutilized in the fund at the end of the fifth year
will be transferred to the Centre and the balance 50% would be distributed amongst
the State and Union Territories in the ratio of total revenues from SGST / UTGST of
the fifth year;
GST Compensation Cess (under section 8 of the Act) will be levied on all intra-State
and inter-State supplies of goods or services or both, including import of goods;
The Cess would not be leviable on supplies made by a person who has opted for
composition levy;
Note:
Like CGST rate, there shall be equivalent rate of SGST / UTGST payable in case of
composition levy. As a result, total GST payable shall be double of the above mentioned
CGST rates. Thus, the maximum total GST rate shall be 2 % or 5 % or 1 %, as the case may
be instead of 1 % or 2.5 % or 0.5%.
Composite and Mixed Supplies (sec8)
Composite supply means a supply made by a taxable person to a recipient and:
• Comprises two or more taxable supplies of goods or services or both, or any
combination thereof.
• Are naturally bundled and supplied in conjunction with each other, in the ordinary
course of business.
This means that in a composite supply, goods or services or both are bundled owing to
natural necessities. The elements in a composite supply are dependent on the principal
supply.
How to determine the tax liability on composite supplies?
A composite supply comprising of two or more supplies, one of which is a principal supply,
shall be treated as a supply of such principal supply.
Example: Elite Manufacturers entered into a contract with XYZ Ltd. for supply of Ready
made shirts packed in designer boxes at XYZ Ltd.’s outlet. Further, Elite Manufacturers
would also get them insured during transit. In this case, packing materials, transport &
insurance is a composite supply, wherein supply of goods is principal supply.
Example: When a consumer buys a television set and he also gets warranty and a
maintenance contract with the TV, this supply is a composite supply. In this example, supply
of TV is the principal supply, warranty and maintenance services are ancillary.
What is principal supply (sec 2(90) of CGSTAct)
“Principal supply” means the supply of goods or services which constitutes the predominant
element of a composite supply and to which any other supply forming part of that composite
supply is ancillary;
The concept of ‘a principal supply’ emerges only for determining whether a supply is a
composite supply or not, and where it is a composite supply, the rate of tax applicable for the
composite supply.
Principal supply recognizes two or more supplies, and arranges them in a two – step
hierarchy – a single predominant supply and the ancillary supply(ies).
a. Supply of a laptop and a carry case – In this case, the case only adds value to the
supply of laptop and therefore, the case would be ancillary while the laptop comprises
the predominant element of the supply. Even where the brand of the case is not the
same as that of the laptop, and the supplier can establish that the case is naturally
bundled with the laptop in the ordinary course of his business, the supply can be
treated as a composite supply.
b. Supply of equipment and installation / commissioning of the same – While the
recipient actually purchases the equipment, making the equipment the principal
supply, the installation makes the equipment usable by the recipient. Even if there is a
separate charge for the installation of the equipment, since the service is naturally
bundled and Provided in the ordinary course of business, the supply would be a
composite supply.
Mixed supplies
Mixed supplies means:
Two or more individual supplies of goods or services, or any combination thereof,
made in conjunction with each other by a taxable person.
For a single price where such supply does not constitute a composite supply.
The individual supplies are independent of each other and are not naturally bundled.
How to determine the tax liability on mixed supplies?
A mixed supply comprising of two or more supplies shall be treated as supply of that
particular supply that attracts highest rate of tax.
Example: A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry
fruits, aerated drink and fruit juices when supplied for a single price is a mixed supply.
Each of these items can be supplied separately and is not dependant on any other. It shall not
be a mixed supply if these items are supplied separately.
Example: A shopkeeper selling storage water bottles along with refrigerator. Bottles and the
refrigerator can easily be priced and sold separately. So, such supplies are mixed supplies