A Practical Guide To GST - Adv. Sanjay Dwivedi (2017 Edition)

To My Parents
Mrs. Shyama Dwivedi and Mr. Ramji Dwivedi

A PRACTICAL GUIDE TO
GST
SANJAY DWIVEDI
Advocate
2017
Chamber of Small Industry Associations
Thane – 400604. Maharashtra. INDIA
Published by
Chamber of Small Industry Associations

TSSIA House,
Plot No. P-26, Road No. 16/T, Wagle Industrial Estate
Thane – 400604. Maharashtra. INDIA
Phone :+91-22-25803536
Fax : +91-22-25823303
The Brand Identity of Indian MSME
Email: cosia.cosia@gmail.com
Website : cosia.org.in
Printed at
© Copyright Sanjay Dwivedi
No part of this publication may be reproduced, stored in a retrieval system or

transmitted, in any form or by any means, electronic, mechanical, photocopying,
recording or otherwise, without prior permission of the publisher.
First Edition 2017

Version 1
FOREWORD
I had met Sanjay Dwivedi decades ago when he was an Inspector of

Central Excise, in the course of resolving one of the issues faced by our
Association’s member. At that time, the Goods & Services Tax found
mention in a report by Dr. Vijay Kelkar and had achieved nothing of the
fame it now has in popular consciousness.
Last year when I met him again, the Goods & Services Tax, was
uppermost in our minds and COSIA was determined that we would do
our best to ensure that our entrepreneurs are well-prepared and not
caught napping when the new law is introduced.
The perfect person to make forward was Mr. Sanjay Dwivedi, who not
only had vast experience while working in Excise Department but also
had established a consultancy & legal practice with his well-learned, soft
spoken meticulous & measured approach to deal with taxation issues of
entrepreneurs. His experience before Tribunals & Courts and niche to
interpret law as it is surely a plus for this noble mission.
The Relationship with him clicked from the beginning itself. Though there
were huge delays and uncertainties about the date of introduction of the
Goods & Services Tax, there was never any uncertainty that it was certain
to come and that Sanjay Dwivedi would be with us to hand-hold
entrepreneurs and familiarize them with the GST as it evolved.
Consequently, there were very few surprises when it was finally enacted
from July 1st, 2017 in the historic Central Hall of Parliament. In fact,
COSIA had the privilege of being represented by him at meetings of the
GST Consultative Committee in MSME Ministry, New Delhi where he
wonderfully articulated our demands with his understanding of both the
Government view and intimate understanding of the problems of
MSMEs.
COSIA, in association with Mr. Sanjay Dwivedi led a near blitzkrieg of 15

meetings & workshops from June. 2016 till July 2017 analyzing the GST
threadbare, even as component parts, tariffs & notifications kept coming
in.
So, when the suggestion was made that Mr. Sanjay Dwivedi should author this
book as a national service, particularly for the MSMEs all over the country,
COSIA had no hesitation in agreeing to publish the book as part of our own
contribution as one of the most active apex bodies of MSME Associations in the
country.
The Chamber of Small Industry Associations in keeping with its

progressive views and actions has welcomed the Goods and Services Tax
from inception. Rationalization and simplification of Taxation is a Mantra
which COSIA has chanted from the very beginning. Bringing together 17
different taxes and getting 29 States and 7 Union Territories to put
together the Goods & Services Tax has been a mammoth task for which
the Union Government and all the States & Union Territories deserve our
appreciation.
One can continue to criticize on the issues of the multiple rates, classification
issues, place of supply, profiteering provisions etc. however COSIA takes a
pragmatic view. COSIA believe, that with a pro-active and sympathetic
Government, which has already announced initial relaxed implementation, for
Industry and Trade players to catch-up, though there will be the occasional
hiccups, things will soon fall into place.
Sanjay Dwivedi has authored this book in simple, understandable and

practically usable style which he has virtually patented. COSIA is proud
to publish this book to assist lakhs of MSMEs in India and I am sure these
MSMEs will find it extremely useful.
Thane Dr. M.R. Khambete,
President, COSIA
Preface
To present the tax law in simple language is the basic goal.
This book is outcome of suggestions of members of COSIA in general

and Appasaheb Khambete in particular. During our several
interactions we found that the books available on tax laws are so
much couched in legal language that only tax professionals are able
to use them. The entrepreneur and his accounts & tax department
finds it difficult to comprehend and use those books. Hence, it was
suggested to write a book that would be easier to understand.
This book attempts to bring in conceptual clarity. The goal is two-

fold - firstly, to explain the GST law in a simple language; and
secondly, to equip the reader to link it to the text of law. The book is
addressed to the person who is required to pay the tax and ensure
compliance. He may not have a legal back ground, but is interested
in learning further. The book does not deal with every topic of GST.
Neither does it deal with every aspect of the topics covered. It covers
some bare essentials.
How is this book organised?
Every day we face questions such as:
• Whether GST is leviable on a particular transaction? What

kinds of transactions are taxable?
• How much tax is payable?
• Who is liable to pay the tax; when and how to pay?
• What is the documentation, record keeping; and what

procedures are to be implemented?
The book helps you understand – how to find out answer to these
questions. Of course advice of legal expert may be required for
specific situations. A book cannot be a substitute for legal advice.
Preface
Further, we will not go as much into legal fine points as into its
general understanding and practical aspects. At the end of every
chapter, I have quoted the relevant legal provisions and have very
briefly explained as to what those provisions talk about. The idea is
that the interested reader can then refer to the law.
I have tried to avoid reproducing the entire set of law verbatim. But
it is highly recommended that the text of the law be read along with
the book. References are mostly cited in the footnote so that the flow
of reading remains uninterrupted.
Thus, on one hand it aims at explaining the scheme of taxation to the

person with no legal back-ground; and on the other hand it also
provides a good map of the law. Thus, even while the text of the law
is not reproduced, the sections and the rules are sufficiently referred
and discussed.
Where to find text of the law:
This book is merely trying to explain the law in simple language. But
it is always desirable to look at the actual text of law so as to get the
authentic meaning. The text is available at link
http://www.cbec.gov.in/htdocs-cbec/gst/index.
Throughout this book:
• The Central Goods and Services Tax Act, 2017 has been
referred to simply as the “CGST Act”. Similarly name of the
other acts have also been shortened.
• Instead of using the language “sub-section (3) of section 12” I

have used the language “Section 12 (3)”.
• The word ‘supply’ has been used to refer supply of goods or

service or both.
• The rates of tax in all examples are for illustration purposes

only. Actual rate may vary from product to product and
service to service.
Preface
Many people have directly and indirectly helped me in writing this

book. Members of COSIA and TSSIA have not only encouraged me
to write it but have wholeheartedly interacted with me and have
enriched me with a barrage of questions. I wish to make particular
mention of Mr. Sandeep Parikh, Mr. Ninad Jaywant, Mr. Rohit Millns
and Mr. Eknath Sonawne in this regard.
My office staff has supported me well in this work. In fact, I have

been nearly absent from the office; and my staff headed by Advocate
Raymond George has ensured that the client’s work does not suffer.
He has ably managed the consultation work, as well the court work
simultaneously. My family has suffered my absence – but has been
very supportive in this endeavour. My relatives and friends have
repeatedly complained about my absence and un-availability. I hope
to redress everyone’s grievance soon.
I have just started working on a website which would provide

further supporting materials on GST. Please visit www.gstlaw.in.
I would be grateful if you inform me of the errors in the book, and

make suggestions for its improvement. You may write to me on:
sanjay@srdlegal.in.
Happy reading.
Sanjay Dwivedi
Advocate
July, 2017
INDEX
Dedication
Forewords
Preface
Chapters Pages
1. GST in an Evening – A broad overview of the 001 – 035
scheme of taxation
2. Scope of the Levy: Whether GST is Payable 036 - 077

on this activity?
3. The Reverse charge Mechanism 078 – 093
4. Computation of Tax: Value, Classification, 094 – 126

Rate of Tax, and Exemption
5. Time of Supply: When does the tax liability 127 – 144

arise?
6. Input Tax Credit 145 – 166
7. Nature of Supply: Is the Supply Inter-State or 167 – 186

Intra-State?
8. Place of Supply: The second criteria. 187 – 240
9. Documents & Records 241 – 263
10. Payment of Tax 264 – 275
11. GST Returns 276 – 301
12. Job-Work 302 – 312
13. Composition Scheme: Easy way out for small 313 – 326
tax payers
14. Import, Export & supply to SEZ 327 – 354
15. Transition to GST: While we cross the bridge 355 – 395
Appendices 396 – 415

CHAPTER 1
GST in an Evening
This chapter provides a broad overview of the GST Law. In a way it
describes the syllabus covered by this book. It is recommended that this
chapter be read first.
Seventeen taxes have been merged into GST. Eight of these were
imposed by the Central Government and nine by the State
Governments. The list of the 17 taxes merged into GST is available in
the Appendix. It would be worthwhile to have a look at structure
and nature of some of these taxes existing before GST came to be
implemented. We shall see what were the problems faced in the
existing tax system and what were the root causes. This will help us
in comparing GST with the old system of taxation.
Thereafter we will see the overall structure of GST, its coverage, the
reverse charge, credit scheme, time when the tax becomes payable
etc. This chapter would thus provide a very short introduction and
would act as a foundation for the discussion that follows in the book.
The Taxation System before GST: The Problems & the Solution
Out of the seventeen taxes subsumed into GST, three taxes

prominently stand out in our system of indirect taxation. These are
Central Excise, Service Tax and Value Added Tax (VAT). While the
first two are levied by the Central Government, the last one (VAT) is
levied by the state government. Apart from these three, there are
several other indirect taxes which were levied by the two
governments. Now, the GST would be replacing these 17 taxes.
Effectively, it means that once GST rolls out, those 17 taxes won‟t
apply. Consequently, now we won‟t have to pay C. Excise duty or
Service Tax or VAT or any of those 17 taxes. Instead, we will be
paying GST.
1
Chapter 1 GST in An Evening
The manufacturers, traders and service providers have always been

taxed differently. Different taxable events were defined; and the
powers between the Central Government and the State Governments
were divided on the basis of the taxable event. Thus, for instance, C.
Excise duty was payable if manufacture took place; and the power to
levy duty on manufacture of goods was with the Central
Government. The state government had no power to levy a duty on
manufacture of goods1. Thus, „manufacture‟ was the taxable event for
1The Central Government had the powers to levy excise duty vide entry 84, List I,
Schedule VII of the Constitution. The entry read as under:
84. Duties of excise on tobacco and other goods manufactured or produced in
India except—
(a) alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic drugs and narcotics,
but including medicinal and toilet preparations containing alcohol or any

substance included in sub-paragraph (b) of this entry.
Upon introduction of GST the above entry stands amended. Now the Central
government has powers to impose Central excise duty only on
- five petroleum items viz. Petroleum Crude, High Speed Diesel (HSD),
Motor Spirit (Petrol), Natural Gas and Aviation Turbine Fuel (ATF); and
- and tobacco and tobacco products
The powers to impose Excise Duty on manufacture of the alcoholic liquor, opium etc.
mentioned above, was (and continues to be) with the state government vide entry 51,
List II. Some of the entries in the list II were as under:
52. Taxes on the entry of goods into a local area for consumption, use or sale
therein. This entry has now been deleted.
53. Taxes on the consumption or sale of electricity. This entry continues
without any change.
54. Taxes on the sale or purchase of goods other than newspapers, subject to the
provisions of entry 92A of List I.
55. Taxes on advertisements other than advertisements published in the
newspapers and advertisements broadcast by radio or television. This entry has
now been deleted.
62. Taxes on luxuries, including taxes on entertainments, amusements, betting
and gambling.
Now, the entry 52 and 55 has been deleted; entry 53 continues. The entry 54 gave
power to the state governments to impose VAT. This entry has been amended, and now
2
levy of C. Excise Duty. Similarly VAT was payable on sale of goods;

and the power to levy VAT was with the State Government. In case
the transaction was inter-State, the trader had to pay Central Sales
Tax (CST) instead of VAT. A trader was not required to pay C. Excise
duty because he did not manufacture. Normally, traders did not
have to deal with the C. Excise department. Similarly, VAT was not
leviable on pure services because it did not involve sale of goods; and
such service providers did not have to deal with the Sales Tax
department. To summarise, the levies were as under:
Tax Taxable Event Government

Central Excise Manufacture of Central Government
goods
Service Tax Provision of Service Central Government
VAT Sale of goods State Government
CST Sale of goods in the Levied by the Central
course of inter-State Government and
trade or commerce collected by the State
Government
We can see that the taxing powers were divided between the Central
and State Governments on the basis of „taxable event‟. Thus, in the
same supply Central government used to levy Central Excise Duty
(event – manufacture) and the state government used to levy VAT
(event – sale). Once the goods left the factory and entered the market,
VAT was payable at each subsequent sale. The traders in the chain
were liable to pay VAT on sale. But, since they were not
manufacturing the goods, they were not required to pay C. Excise
duty. In other words there was no Central Excise duty beyond the
first point. Similarly the service tax was levied on provision of
only the five items of petroleum (mentioned above) are included in that entry. Power to
levy CST on these five items continues to be with the Center.
The entry 62 now reads:
"62. Taxes on entertainments and amusements to the extent levied and collected
by a Panchayat or a Municipality or a Regional Council or a District Council.".
3
services and the state government had no powers to impose tax on

the same. But, if in the course of provision of service some goods
were also sold then VAT was also being charged by the State
Government. It was also possible that someone manufactured but
didn't sell the goods. In such a case he would be liable to pay Central
Excise duty but not VAT. For example, if we give fabric to a tailor for
stitching a garment, the tailor would be manufacturing the garment
and giving back to us. Here the fabric did not belong to the tailor,
therefore he would not sell the garment to us. But nevertheless he
manufactured. Therefore he was liable to pay Central Excise duty2.
Thus in this transaction Central Excise duty was payable but not the
VAT.
Problems in the existing taxation system:
The division of taxing powers on the basis of „taxable events‟ created

several problems. Let‟s see some of them:
 Multiple Laws, Compliances & Authorities – We have

multiple Taxes, which forces a businessman to deal with
multiple laws and authorities. While C. Excise has its own
sets of Acts, rules, notifications etc., Service Tax has a separate
set of laws. Similar is the case with several other taxes.
Therefore one has the burden of being familiar with several
tax laws. The company has to maintain different sets of
records documents and follow different procedures for
complying with each of the tax law. For each tax there would
be separate payments, returns, scrutiny/ assessment, and
separate authorities for investigation, adjudication, appeals3.
The burden and cost of compliances goes on increasing as the
number of taxes is multiplied.
2Manufacturers were, in general, exempted up to value of clearance of Rs. 1.5 crores

(notification 8/2003-CE). Hence we don't normally see the tailors paying C. Excise duty.
3However, there were several taxes administered by the same authority. For example,
VAT, CST and Luxury Tax were handled by the state government’s Sales Tax
department. Thus, 17 taxes did not involve 17 authorities.
4
 Inter-state transactions – In the previous regime, when the

goods were sold from one state to another, the seller paid
Central Sales Tax (CST) instead of VAT. The buyer was not
allowed to take credit of CST. The reason was that while the
amount of CST was received by the government of the seller‟s
state, the credit was required to be granted by the
government of the buyer‟s state. Originally, the rate of CST
was 1%. By the year 1975 it was increased to 4%. Again in
2007 it was reduced to 3% and then to 2% in 2008. Though the
rate was in general lower than that VAT, yet this added to the
cost of the product. Further, the very fact that rate was lower
itself created another problem. The government had to ensure
that if a dealer claimed that he has sold the goods inter-state,
the goods must really go into the other state. The tax rate for
sale within the state was much higher (the general rate in
Maharashtra was 13.5%). If the goods did not go to another
state and only the documents showed it as an inter-state
transaction then the government would lose revenue of
11.5%. So governments introduced „C‟ Form, road permits
and check posts at the state borders. Getting the „C‟ form from
the buyer, proved very cumbersome and on many occasions
seller ended up paying the differential tax. To overcome this,
businesses planned branches in other states. We know that
VAT/ CST is a tax on sale of goods. If sale does not take
place, there is no levy of VAT or CST. Thus, if a person
transferred goods to his own depot in another state, neither
VAT nor CST would be payable. Hence many companies
opened branches in several states with a view of saving on
CST.
 Goods vs. Services – In the pre-GST system of taxation, the

distinction between goods and service was very important.
While VAT was payable on sale of goods, Service Tax was
payable on provision of service. In principle, there is
unanimity that a thing cannot simultaneously be goods as
well as service. But, in some cases it has proved to be very
5
difficult to determine whether a particular transaction

constituted sale of goods or provision of service. So we
grapple with the questions whether E-Books, Digital
Signatures, SIM Cards, Software are goods or service. The
illusive line of distinction between goods and service has led
to several litigations and has done considerable damage to
industry. In certain sectors there remains a perpetual dilemma
as to whether to pay VAT or Service Tax or both. Thus, for
instance in Tata Consultancy Services 4 , the question was
whether software is „goods‟ or „service‟. The matter travelled
till Supreme Court. It was argued by TCS that software is
merely a code or set of commands or instructions, that it is
intellectual property and not goods. The court did not agree
to these contentions and observed that once an intellectual
property is put onto a media, it becomes goods. The court
compared it to music or books and held that the software on
CD is goods. Even after this judgment the issue remained un-
resolved for future because the case before the court related
only to software on CDs. As time & technology progressed,
software came to be downloaded from internet and fee was
paid for user licences. Question remained as to whether it is
still goods or has become service. The confusion has
continued and to avoid litigation and future tax demands, the
companies have been paying Service Tax as well as VAT on
the same supply.
 Composite Contracts – Another situation that created

problem was the contracts involving both – goods as well as
services. For example, in a construction contract the
contractor also uses goods such as cement, steel, electrical
items, wood, glass etc. It is true that once the contract is
executed and the constructed property is handed over to the
principal, the property in the goods passes to the principal.
But it is also true that the contract was not for sale of goods. It
4 Tata Consultancy Services vs. State of Andhra Pradesh [2004 (178) E. L. T. 22 (SC)]
6
was for execution of the work. As it involves both the

elements viz. sale of goods as well provision of service, both –
VAT as well as Service tax – is payable5. However, it is very
clear that entire value of the contract cannot be treated to be
value of goods. A part of the total value would be goods, and
the other part would be service. Problems arose as to how to
determine value of the goods and the services. Complicated
mechanisms were developed to determine the value. The
complexity itself became reason for several litigations.
In fact, in some cases the authorities demanded VAT, C.

Excise as well as Service Tax on the same contract. For
example, if a manufacturer of machines also undertook to
carry out installation & commissioning the VAT & C. Excise
authorities wanted tax even on the charges for installation &
commissioning; and the Service Tax authorities insisted that
Service Tax is payable on the value of installation &
commissioning. The problem got complicated if the contract
did not segregate the two values. Where the values were
segregated, the assessee faced allegation that the value of
service element was dishonestly kept higher so as to avoid
payment of C. Excise Duty and VAT on the goods component.
Governments came up with a solution and prescribed a

presumptive value. But, since the two aspects were to be
taxed by different governments they could not agree on a fair
value. Thus for instance, in a repairing contract the
Maharashtra Government prescribed that 70% of the value of
the contract would be treated as value of the goods. So VAT
was payable on 70% of the contract value. On the other hand,
the Central Government declared that for the purpose of
paying service tax, 70% of the contract value is value of the
service. Thus, the contractor ended up paying tax on 140% of
the contract value. Since there were two taxing authorities
5 Actually, the transfer of property in goods involved in works contract was subjected to
levy of Sales Tax (VAT/ CST) by way of a constitutional amendment.
7
independently taxing different aspects of the same transaction

(one was taxing goods and the other was taxing service) they
arbitrarily fixed overreaching values.
 Whether the process amounts to manufacture? – Yet another

issue that has created problem, is – what is and what is not
manufacture? Since C. Excise duty was levied on the act of
„manufacture‟, it was essential to determine whether a process
amounted to manufacture or not. Duty would be payable
only if manufacture had taken place. Also if the process
amounted to manufacture of goods, the activity was out of
purview of Service Tax. The history abounds with the cases
taken to Tribunals and Courts for deciding this question. So,
for instance, one had to struggle with questions such as
whether the following processes amounted to manufacture:
- cutting of large pieces of wood into smaller one
- recording of audio cassette
- grinding of black pepper (making it into powder)
- de-husking of paddy into rice
- shearing & slitting of Steel Coils
- etching of Aluminium Foils
- printing on glass
 Flow of Credit – Since C. Excise and Service Tax are levied by

the Central Government and VAT by the states the credit of
C. Excise & Service Tax is not available down the trading
chain. These become cost and have a cascading effect (tax is
paid on tax). In case of inter-state supplies, CST is payable
and credit of the same is not available. Similarly, credit of
luxury tax or entry tax could not be utilised to pay VAT
(though all the three were levied by state government).
 Variation in rates across the country – It is obvious that if the

Central and State governments exercise separate powers to
8
levy tax on separate taxable events, they would impose the

tax at the rates of their choice and the rate need not be
uniform throughout the country. Thus the tax element itself
creates disparity in costs & prices across the country. A
product could bear lower tax in one state and a higher tax in
the neighboring state.
• Breeding ground for tax evasion and corruption – It is enough

to say that a complex tax system is more prone to error, as
well as to deliberate evasion. Also that, more the complexity
more is the scope for corruption.
The Ideal GST:
If we carefully examine the existing tax system and the problems

associated with it, we would see that there are two root causes:
a. Multiplicity of the taxable events i.e. levy of different taxes

based on different taxable events (C. Excise on manufacture,
VAT on sale of goods etc.)
b. Multiplicity of the taxing authorities (Central Government

levying C. Excise & Service Tax, the State Governments
levying VAT, Luxury Tax etc.)
The best way to resolve the above issues was to merge the various
taxable events into one and also to have a single taxing authority.
The central government could levy a single tax all over the country,
and the amount so collected could be distributed between the centre
and all the state governments. In other words, one person should be
allowed to hold a single registration in the country and pay a single
tax which would be collected by one government. A single law
would bring uniformity in classification, valuation & procedures. A
single unified authority handling assessment, collection,
investigation, adjudication, appeal etc. would make life easier for the
business community. The dream was to have a system where we:
i. Have a single registration for the entire country and pay the
tax against the same. (Like we pay Income Tax against a
9
single PAN without going into the question as to whether the

income was generated in Punjab, or Delhi, or Maharashtra,
etc.)
ii. Pay a single tax on all the bills issued, without going into the
questions as to whether the transaction is of goods or service,
or whether the process is manufacturing or not.
iii. Take credit of the tax charged in all the bills received. No
credits would be blocked or ineligible.
Mind well, this was the ideal goal. This was the desire. This is not
what has really happened. This is not the actual system that we have
now. In reality, we have achieved unification in some aspects, but the
fragmentation continues in other aspects. Most prominently, we
don‟t have a single all India registration. This is a huge step
backward. It will put immense burden of compliance and would be
cause of multitude of litigations. In every transaction we will have to
define the beneficiary state which will receive its share of tax (termed
as „place of supply‟). This has immensely added to the complexity.
Complexity will inevitably lead to errors and litigations; and will also
become cause of harassment providing a fertile ground for
corruption.
The GST that we actually have: Dual Levy, Dual Control
What we have achieved under the GST regime is unification of

taxable events, but not the unification of the taxing authorities. Now,
the Central Government as well as various State Governments would
levy GST on the same taxable event and on the same value. Thus, the
levy is dual – two governments taxing the same taxable event and the
same value. The new taxable event is “supply of goods or services or
both”. We have brought in uniformity in the law & procedures. The
provisions relating to classification, valuation, credits,
documentation, filing of returns are all common to both the
governments. The credit of the tax levied by the two governments
would flow across the country – in parallel. The control is also dual -
10
the two governments continue to have parallel powers of assessment,

search, seizure, investigations etc.
There was very strong opposition to unification of taxing authorities.

The states fought the very idea of losing their power to administer
the tax law. It was argued that it would hurt their autonomy; that it is
against the federal structure of our democracy etc. Later, when it was
agreed that both the governments would levy tax on supply of goods
as well as services, then another question arose as to who would
have powers to conduct audits, searches, investigations etc. There
were protracted discussions. The GST Council held several meetings
on „cross-empowerment‟ of the officers of the two governments.
Several ideas were mooted.
- One option was to divide the taxpayer‟s base horizontally,

where those with a turnover of less than Rs. 1.5 crore a year
will be assessed by the states and those with more than that
will be divided between the states and the Centre.
- Another option was a vertical division of assessees. In this

scenario, assessees could be divided into different strata – up
to Rs. 5 crore, Rs. 5-10 crore, etc. These strata will then be
randomly divided vertically according to a certain
percentage.
- Similarly an idea was floated that first let there be horizontal

division at 1.5 crore line and then the assessees above it be
assigned to the two authorities in the ratio of 60:40, and the
ratio be reversed below the horizontal line.
- It was also suggested that let all service providers be assessed

only by the Centre.
Finally, the consensus reached was that there would be a horizontal

division at the turnover of 1.5 Crores. 90% of the GST taxpayers with
turnover up to Rs 1.5 crore will be assessed by States, and 10% by the
Centre. So far as the assessees above the line are concerned, they
would be divided equally (50%: 50%). This division of power is only
in respect of audit and assessment. So far as the intelligence based
11
anti-evasion activities are concerned, both the departments would

have concurrent jurisdiction.
The Taxable Event under GST:
The taxable event under GST is “supply of goods or services or

both”. Thus, so far as the levy of GST is concerned, now it is
irrelevant whether the person is a manufacturer or a trader, whether
he carries out some process or not, whether the process is minimal or
extensive, whether the process amounts to manufacture or not,
whether he is supplying goods or service etc. Now under GST both
the governments have powers to levy tax on the same taxable event
and the event remains same for goods as well as the services. Thus
the division of revenue between the two governments is no more
based on taxable event. The common taxable event taxed by both the
governments is "supply of goods or services or both". On every
supply the Central Government would levy „Central Goods &
Services Tax‟ (CGST), and the Government of the concerned State
would levy GST of that state (State GST or SGST).6 Thus, a trader
who was paying VAT or CST to the State Government would now
also pay GST to the Central Government. Similarly a person paying
service tax to the Central government would now also pay GST to
the State Government. This will also mean that now everyone will
have to deal with the officers of both the governments. Even if the
powers for Audit are divided between the two governments, the
powers of checking on road and further entry into the offices,
factories etc. are not being divided. The powers to carry search
operations, seizures, investigations etc. will be exercised by officers
of both the governments.
The question of taxing inter-State supply has been handled in an

innovative manner. A third tax called „Integrated Goods & Services
Tax‟ (IGST) has been levied on the inter-State supplies. IGST is levied
and collected by the central government. However, it represents
6As we shall see later, for certain purposes it still remains relevant as to whether the
supply is of goods or of service. But irrespective of whether it is goods or service, the
same value of the supply will now be taxed by both the governments.
12
share of both – the central as well as the state governments. The

following chart summarises the structure of the levy.
Inter-State
(Supply from one IGST
state to another)
Supply
Intra-State
(Supply within the CGST + SGST
state)
Governing Laws:
Following are the main laws that we need to refer:
1. The Central Goods & Services Act, 2017 enacted by the

Parliament levying CGST
2. The Integrated Goods & Services Act, 2017 enacted by the

Parliament levying IGST
3. The GST Acts of each of the states levying respective State

GST
4. The Union Territory Goods & Services Tax, 2017 enacted by

the Parliament for levying Union Territory Tax (a substitute
of the SGST, applicable to Union Territories).
5. The Central Goods & Services Rules, 2017.
6. Various other rules and notifications issued by the Central &

State Governments.
With effect from 8th July, 2017 the CGST Act as well as the IGST Act
were both made applicable to Jammu & Kashmir as well7. Initially
the CGST/ IGST Acts contained a clause saying that “It extends to the
7 Two ordinances were promulgated by the President of India, extending both the Acts
to the state of Jammu & Kashmir with effect from 8th July, 2017.
13
whole of India except the State of Jammu and Kashmir”. Now, the portion
“except the State of Jammu and Kashmir” has been deleted.
Apart from the above, the Goods and Services Tax (Compensation to
States) Act, 2017 will have to be referred for the purpose of levy of
Compensation Cess on a few products. Further, there are circulars
clarifying various aspects. The circulars represent opinion of the
government 8 . Of course if the court finds that the government‟s
opinion is contrary to the law, then the law would prevail. It means
that the tax payers have right to plead before the court that the
circular does not represent correct interpretation of law. However,
the government cannot challenge its own circular. In other words,
the circulars are binding upon the department.
Tax Structure:
A typical invoice under GST would have the following structure.

These are two invoices – one in case of inter-State supply and the
other in case of intra-State supply.
Inter-State Supply Intra-State Supply

(supply from one state to (supply within the state)
another)
Value 1000 Value 1000
IGST 18%9 180 CGST 9% 90

SGST 9% 90
Total 1180 Total 1180
CGST = Central GST (also called „Central Tax‟); SGST = State GST (also called „State
Tax‟); IGST = Integrated GST (also called (Integrated Tax‟)
8We may appreciate that there is difference between Government & the Parliament.
The Central laws are enacted by the Parliament. The government and the trade can have
different opinion as to what the Parliament actually intended or meant. Thus, if a
Circular appears incorrect to the trade it can always challenge it before the court.
Obviously, the government itself cannot challenge its own circular.
9Throughout this book, the rates in all examples are for illustration purposes only.
Actual rate may vary from product to product and service to service.
14
As we may notice, when the supply is intra-State, the GST is split

into two components – the Central GST and the State GST. On the
other hand a single GST viz. Integrated GST is to be charged when
the supply is Inter-State. The structure would remain same for
manufacturer, trader or a service provider. The recipient would be
entitled to credit of all the three GSTs. The IGST & CGST being
central levies, the rate would remain uniform across the country.
Though SGST is levied by State Governments, the rates are to be
recommended by the GST Council and therefore, this rate is also
expected to be uniform across the country.
Imports & Exports have been treated as „inter-State‟ supplies.

Therefore, the GST to be charged on these supplies is the Integrated
Tax. In case of exports there is an option to either pay IGST (and
claim refund of the same) or to make a supply without charging
IGST. The tax structure on import would be as under:
Import of Goods Import of Services
Basic Customs 10% 100 IGST 18% 180

Duty
Ed. Cess + Sec & 3% 3

Higher Ed. Cess10
IGST 18% 198.54
Total 301.54 Total 1180
We may note that in case of import of goods, the Customs value and
the Basic Customs Duty are first added (1000 +100) and the IGST is
calculated on this total. If in any transaction there is any tax other
than GST, then that tax would form part of the value on which GST is
to be calculated.
10Education Cess @2% + Secondary & Higher Education Cess 1% is payable on the
Basic Customs Duty.
15
The Destination Principle:
We had seen that credit of Central Sales Tax is not available to the
buyer situated in another state, because the tax is received by the
seller‟s state government. This problem has been resolved by making
the SGST destination based. The destination is decided on the basis
of consumption. That is to say that the SGST component of the tax
would go to that state where the goods or service is consumed. In
most cases, it would be the same as the state where the buyer is
located. We have 29 states in the country and two Union Territories
(Delhi & Pondicherry) also have legislative assemblies. Obviously,
we will have 31 different SGSTs. In case of remaining 5 Union
Territories, the SGST would be substituted by Union Territory Tax.
Supply from one Union Territory to another would be inter-State
supply and IGST would be leviable. Transactions between any state
and Union Territory would also be inter-State and IGST would be
levied.
Three Prominent Characteristics:
Thus, following three are the prominent characteristics of the scheme

of GST:
• Centre as well State would simultaneously levy tax the same

transaction and the same value.
• It‟s a consumption based destination tax. The consumer state

would receive the SGST component of the tax.
• The credit of the tax would flow across the country.
GST brings uniformity in taxation for all categories of tax payers.

Now, the manufacturer, trader as well as the service provider is
taxed in the similar fashion11. All would pay CGST + SGST if their
11 There are some differences in various class of tax payers. For instance there are
provisions for services provided through E-Commerce operators. Then, there is a
composition scheme for those having turnover up to Rs. 75 lakh. The scheme is
available only to manufacturers and traders. In service sector it is available only to
‘supply of food & beverages (non-alcoholic)’, but not to other service providers.
16
supply is within their state and IGST if the supply is to another state.
The governing laws are also same throughout the country because
the laws framed by all the states are based upon the model law
recommended by the GST Council.
Coverage: Goods & Services
GST applies to supply of all Goods & Services except the following:
• Electricity
• Alcohol for human consumption
Following five petroleum products are presently out of GST levy.

However, the tax on these can be levied by the government, simply
by issuing a notification:
i. Petroleum crude,
ii. High Speed Diesel (HSD),
iii. Motor Spirit (commonly known as Petrol),
iv. Natural Gas, and
v. Aviation Turbine Fuel (ATF)12
As of now, C. Excise duty as well as VAT will continue to be levied

on the above petroleum products. Input Tax Credit is available only
of the GSTs and not of any other tax. Thus, the tax paid on Electricity
or the Petroleum Products would not become available as credit.
In case of Real Estate Service Tax and VAT was payable on units sold
by builder if any part of the payment was received prior to issuance
of Completion Certificate. This has now been replaced by GST. We
may note that Stamp Duty, Registration Fees and Property Tax are
not merged into GST.
12The government can issue the notification if the GST council recommends so. In
contrast, levying GST on electricity or liquor would require constitutional amendment.
17
In case of Tobacco & Tobacco Products, both – the Central Excise

duty as well as GST is leviable. Here, the Credit of C. Excise would
be available for paying C. Excise Duty and the Credit of GST would
be available for paying the GST.
Coverage: Persons and Activities
For levy of GST it is immaterial whether the person is a manufacturer

or a trader or a service provider. It is also immaterial as to whether
the process undertaken by him amounts to manufacture or not. Tax
is levied on „supply‟ and it is irrelevant whether the goods were
subjected to some process before the supply took place. The tax
would uniformly apply to all. Thus GST applies to:
- Manufacturer
- Trader – the entire chain till the retailer
- Service Providers
- Professionals
Thus, the invoice of manufacturer would not be any different from

that of a trader. One has to merely see whether the applicable tax
would be IGST or CGST + SGST. Be it a manufacturer or a trader or a
service provider, he needs to determine nature of the supply (i.e.
whether it is inter-State and intra-State) and pay the tax accordingly.
While, in general, the liability to pay tax to the government is on the

shoulders of the supplier, in a few cases the liability has been shifted
to the recipient. This is called Reverse Charge Mechanism. In this
case, the recipient would have to pay tax and comply with all the
related formalities.
Computation of Tax Liability: Value, HSN and SAC
The amount of tax is equal to the value multiplied by the rate. The
tax is payable on the value of supply and the rate of tax would be as
notified by the government. Thus, if value of the supply is Rs. 1000
and the rate of IGST is 18%, the amount of tax would be Rs. 180.
Similarly, if the rate of CGST and SGST both were 9%, then the CGST
18
payable would Rs. 90 and SGST would be Rs. 90. For example, the
notification no. 1/2017-Central Tax (Rate), dated 28/06/2017
prescribes rates of the Central Tax (i.e. CGST) for various goods. The
notification contains six schedules and the rates are as under:
Schedule Rate of CGST

I 2.5%
II 6%
III 9%
IV 14%
V 1.5%
VI 0.125%
Similarly, the rate of SGST would be notified by each state

government. Rate of IGST is notified vide a separate notification
issued by the Central Government.
Section 15 of the CGST Act read with Valuation Rules governs the
method to determine value in various situations. In general value
means the transaction value i.e. the price actually paid or payable
(i.e. the price value at which the transaction actually takes place).
However, the transaction value applies only if:
- the supplier and the recipient of the supply are not

related, and
- the price is the sole consideration for the supply.
In case any (one or both) of the above conditions do not meet, the
valuation rules are to be applied.
The tax is not to be calculated on MRP. Where the products are sold
on MRP, the MRP includes the tax. Hence the supplier has to work
out his value in a manner that the „value + tax‟ does not exceed MRP.
Rates of tax are provided by notifications. While reading these

notifications you would find that they refer to
1. HSN Codes of the goods and Service Accounting Codes

(SAC).
19
2. Description of the goods or the service.
Harmonised System of Nomenclature (HSN) is a system of

classifying goods and allocating various codes to them. Thus, for
example, the code 1905 31 00 refers to “Sweet Biscuits” and the code
1905 90 10 refers to “Pastries and cakes”. We can find that HSN
Codes in the Customs Tariff13.
It may happen that more than one item falls under the same HSN
Code. Therefore, while reading the rate notification one should take
note of not only the code, but also the description of the product.
Service Accounting Code (SAC) is a similar method of classifying

and codifying various services.
Registration:
Registration is necessary for payment of tax to the government. In

GST the registration is state-wise. The supplier is required to be
registered with the GST authorities in the state „from‟ where he
makes a taxable supply. Thus the location of the supplier (and not of
the recipient) is relevant.
One registration in a state is sufficient. This is a great relief to Central

Excise assessees, who were till now required to obtain separate
registration for each premises. Now even if they have more than one
factory, godown, service-location etc. in a state, all will come under
the umbrella of a single registration. Of course if he has factories in
another state, he would require separate GST registration that state.
For service providers this is a negative development because till now
they were entitled to a single centralised registration valid for the
entire country. Now, they will have to obtain registration in multiple
states („from‟ where they are supplying the service).
Option has been given to have more than one registration in a state.
If a taxpayer so desires he can obtain separate registration for each
vertical of business in the same state. This is an option and not a
13 Technically, the First Schedule to the Customs Tariff Act, 1975.
20
compulsion. The choice lies with the taxpayer. But, we may

remember that the tax liability, its discharge, Input Tax Credits, etc.
are linked to the registration. Credit available on the one registration
cannot be used to discharge tax liability of another registration.
Moreover each registrant would be treated as a distinct person.
Therefore supplies between them would also become taxable.
Turnover below Rs. 20/ 10 lakh:
The registration is mandatory if the „aggregate turnover‟ of the

person exceeds Rs. 20 lakh in a financial year. Here „aggregate
turnover‟ refers to the turnover against a Permanent Account
Number (PAN)14. Thus even if there are multiple business names
operating under one PAN, turnover of all such business names
would be clubbed.
In case of 11 states the turnover limit for registration is Rs. 10 lakh

(instead of 20). These are the States of Arunachal Pradesh, Assam,
Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland,
Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
Although it is not mandatory to obtain registration up to the

turnover limits mentioned above, the fact is that the supplies are
actually not exempted. If the turnover does not exceed the limit of Rs.
20/10 lakh, the person has a choice whether to get registered or not.
If he obtains registration, he has to start paying GST. If he does not,
then his registered buyer has to pay the tax. The only situation where
no tax would be payable on the supply is where the supplier as well
as the recipient are both not registered. To repeat, in case a supply is
made by an un-registered person (URP), to a registered person, the
tax on such supply would be payable by the recipient (i.e. the
registered person). This can be understood by the following chart.
14‘Aggregate Turnover’ is a defined term. We shall discuss the definition later in the
book.
21
Turnover
Supplier to get registered &
above 20/10
Pay Tax
lakh
Registered Tax Payable by the supplier

Supplier
Turnover up Customer to
to 20/10 lakh Customer
pay GST
registered
under RCM
Not
Registered
Customer not Tax not
registered payable
Reverse Charge
Tax is generally payable (to government) by the supplier of the

goods or the service. The supplier would of course charge the
amount of GST to the recipient (his customer)15. Thus, the burden of
the tax would reach the customer. But so far as the government is
concerned, the liability to pay is on the supplier. In case the tax is not
paid, the government would raise demand on the supplier. This is
called „normal charge‟.
Reverse charge, on the other hand, refers to the case where the
liability to pay tax to the government is placed on the shoulders of
the recipient of the supply. This method of collection of tax was
already prevalent in service tax. Now, in GST the method has been
applied to certain goods as well as services.
Tax Liability: Scope of the levy
A registered person is liable to pay GST on:
15 Since the taxable event in GST is ‘supply’, there would be a ‘supplier’ and the
‘recipient’ of the supply. In general, recipient means the person who is liable to pay for
the supply.
22
1. Outward supplies made by him. Understanding meaning of

„supply‟ is very crucial. We shall discuss this topic in detail, in
the chapter “Scope of the Levy: Whether GST is payable on this
activity?”. For now, we may just note that the „supply‟ may
include some supplies that are made even without any
consideration i.e. free; and even the supplies made by
employer to employees could be taxed.
2. All import of services
3. Inward supply of the services listed under Reverse Charge.

As of 30th June 2017 following ten services have been
notified16:
• Goods Transport Agency (GTA)
• Legal Services supplied by Advocates to a business

entity
• Services supplied by an arbitral tribunal to a business

entity.
• Sponsorship service to a body corporate or

partnership firm.
• Services supplied by the Government/ local authority

to a business entity (with some exclusions)
• Director‟s services to the company/ body corporate
• Services supplied by an insurance agent to insurance

company.
• Ocean freight paid to a person abroad (GST on freight

is payable by the importer)
• Services supplied by a recovery agent to a banking

company or a financial institution or a nonbanking
financial company
16 Notification no. 10/2017-IT (Rate) and 13/2017-CT (Rate), both dated 28/06/2017
23
• Copyright services to a publisher, music company,

producer or the like.
4. Inward supply of goods listed under Reverse Charge: Five

items have been notified as on 30th June, 201717. These are:
• Cashew nuts, not shelled or peeled
• Bidi wrapper leaves (tendu)
• Tobacco leaves
• Silk Yarn (received from one who manufactures it

from raw silk or silk worm cocoons)
• Supply of lottery.
5. Inward supplies received from un-registered persons (URP).

This covers all goods and all services received from URP. If
the supply is taxable, the tax is to be paid by such registered
recipient. An exemption has been granted18 to such supplies
if the aggregate value of such receipts (from all URPs) does
not exceed Rs. 5000/- in a day. If on any day, the total value
exceeds this amount, then the entire value of that day would
become taxable. Thus, if on any day the total receipt is Rs.
5,500/-, the tax would become payable on the entire Rs.
5,500/- (and not on mere 500/-).
6. Additionally, in case of the following services provided

through E-Commerce Operator, the operator has been made
liable to pay tax – though he happens to be neither supplier
nor recipient of the service:
• transportation of passengers by a radio-taxi, motorcab,

maxicab and motor cycle
17 Notification 4/2017-IT (Rate) and 4/2017-CT (Rate), both dated 28/06/2017

18 Notification 8/2017-CT (Rate), dated 28/06/2017
24
• providing accommodation in hotels, inns, guest

houses, clubs, campsites or other commercial places
meant for residential or lodging purposes. (However,
in this case, where the service provider himself is
liable to be registered, the E-Commerce operator is not
liable to pay tax).
Later, in the chapter “Scope of the Levy: Whether GST is payable on

this activity?”, we shall discuss, in detail, as to what is taxable and
what is not. Although „reverse charge‟ should have been part of that
chapter, it is dealt in a separate chapter so that the chapter doesn‟t
become too lengthy.
Input Tax Credit
The GST is payable 19 on the outward supply, and the credit is

available on the inward supplies. Credit is available only of the GST
and not of any other tax. One can avail credit only of IGST, CGST or
SGST/ UTT. Thus, if Central Excise Duty or VAT is paid on any
supply in the GST regime20, its credit would not be available under
GST. Although credit is available of all GSTs, the credit of Central
Tax cannot be used to pay the State tax and vice versa. „Central Tax‟
refers only to CGST; it does not refer to IGST. But credit of all other
taxes can be used to pay each o ther.
Credit of the tax Can be used to pay the tax
CGST (the Central Tax) CT and IT
SGST/ UTT (the State Tax) ST/UTT and IT
IGST (the Integrated Tax) IT, CT, ST
19Whenever we talk of paying GST, we are referring to the liability of ‘paying tax to the
government’. We are not talking about the amount of tax payable to our supplier. We
are saying that the GST is payable to the ‘government’ on the outward supply.
20For instance, certain petroleum products are out of coverage of GST and Central
Excise duty as well as VAT would be payable on the same. Credit of this would not be
available for payment of GST on outward supplies.
25
We can think of the CT and the ST as two parallel rail tracks, which
never meet. One cannot use credit of CT to discharge tax liability of
ST and vice versa. However, IT is a common basket which can be
used to pay all the three taxes. Similarly, all the three taxes can be
used to pay IT.
Credit is available on almost all inward supplies, if they are used in

the course of or furtherance of the business of the outward supply.
However, credit on certain supplies are „blocked‟ i.e. the recipient is
not entitled to avail credit on such supplies. A list of such supplies
provided in the appendix and a detailed discussion can be found in
the chapter on Input Tax Credit.
Credit is available only if the inward supply is used for the business
purposes. Credit is not available if it is used for a non-business
purpose or for personal consumption. It will of course be debatable
as to what is meant by business purpose and what is not; and what is
the extent of the „business purpose‟.
There is a basic principle that if there is no tax on the output side, one
cannot get credit on the input side. Therefore, if the outward supplies
are exempted/not taxable, then there is no credit available on the
inward supplies. Zero rated supplies are an exception to this rule.
Even though no tax is payable on exports and supplies to special
economic zones full credit remains available on the inward supplies.
The rules provide mechanism to determine and payback (i.e. reverse)
the credits taken on exempted supplies.
Exemptions
Several supplies are exempted by way of notifications. For example

the notification no. 2/2017-IT (Rate) exempts supply of several goods
from IGST and the notification 2/2017-CT (Rate) exempts the same
goods from CGST. We must be very careful to note that an
exemption from the Central Tax (CGST) does not automatically mean
exemption from the Integrated Tax (IGST). It even does not mean
26
exemption from SGST or UTT. Notifications would be required

under each of the laws so as to give exemption from that tax21.
The exemption can be conditional or unconditional. It is our burden

to prove that we are eligible to the exemption and that we fulfil the
conditions. Question of exemption can arise only if there is levy of
the tax in the first instance.
Zero Rated Supplies:
Two supplies are referred to as „zero rated supply‟. These are:
(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.
Such supplies can be made without payment of tax (under bond or

letter of undertaking). Alternatively, these supplies can be made on
payment of IGST and refund of the same would be available.
If a supply is exempted, then correspondingly, the supplier is not

entitled to Input Tax Credit. However, zero rated supplies are a
different category. Although effectively no tax is paid on zero rated
supplies, the supplier remains entitled to avail credit of the Input
Tax. In fact, even if a particular goods or service is wholly exempted,
the credit would remain available if it is exported or supplied to SEZ.
Above two supplies will be called „zero rated‟ even if they are made
on payment of IGST. Further, the tax payable on such supplies would
always be IGST even if the supplier and the SEZ are within the same
state.
Non-Taxable & Nil Rated Supplies:
If a supply is not at all covered by GST law, it is non-taxable. For

example there is no levy of GST on petrol. Therefore supply of petrol
21One can ordinarily expect that if there exists a notification exempting a supply from
levy of CGST, there would also exist parallel notifications exempting it from SGST and
IGST.
27
is a non-taxable supply. Section 9 of the CGST Act says that Tax

would be levied at a rate notified by the government. Therefore, if a
notification issued under section 9 prescribes the rate as „Nil‟, the
supply is nil-rated. Exemptions are granted by notifications issued
under Section 11 of CGST Act. This is the basic difference between
„nil-rated‟ and „exempted‟. Nil rated means the rate prescribed vide a
notification issued under section 9 is nil. Exempted means the supply
is exempted vide a notification issued under section 11.22 Thus, even
if a positive rate is prescribed under section 9, the supply may be
exempted by a notification under section 11.
Place of Supply: Is it inter-State or intra-State supply?
Determining the nature of supply is somewhat complex matter. The

apparent simplicity vanishes as soon as we start thinking about
specific situations. Let us take two examples:
1. How do we determine the nature of supplies made by IRCTC

in trains moving across several states? Is it an inter-State
supply leading to payment of IGST or an intra-State supply
leading to payment of CGST plus SGST?
2. A person situated, say, in Maharashtra places order on a

Trader situated in Maharashtra itself and instructs him
deliver the goods to a manufacturer in Rajasthan. What
would be the nature of the supply? Whether the Trader
should charge IGST or CGST plus SGST?
In order to determine this, the GST law has developed a whole new
concept of "Place of Supply". The concept is that, if the location of the
supplier and the place of supply fall within the same state, the
supply is intra-State and the CGST and SGST would be leviable on
the same. On the other hand if the location of the supplier and the
place of supply fall within different states, the supply is inter-State
and IGST would be leviable on the same. Thus the nature of supply is
to be determined from two parameters viz.
22 Parallel sections under IGST Act are the sections 5 and 6
28
• location of the supplier, and
• the place of supply
We may note that while the first parameter is the location of the
supplier the second parameter is not the location of the recipient. It is
the place of supply and „place of supply‟ is an artificial, defined, legal
concept. Its meaning may not coincide with the common English
meaning of the term. There are separate provisions under GST law
for determining place of supply of goods and the place of supply of
services. The law considers various situations and declares – what
would be the place of supply in those situations. The two examples
given above are two such situations covered by the law. In case of
supply of goods there are five situations considered under section 10.
The complexity increases when we move from goods to services.
Sections 12 and 13 of IGST Act together consider 27 situations where
any place of supply of service has been specified by the law.
Error in determining the place of supply would prove costly. Where

a person has paid IGST and later it is held that the transaction was an
intra-state supply, then the person will have to first pay CGST and
SGST and then claim refund of IGST. His customer would already
have availed credit of the IGST paid in the first instance. Therefore he
would be granted refund only if he obtains reversal of the credit from
the customer. We may imagine a situation where 3-4 years after
payment of IGST the Department makes such allegation and the case
is decided in appeals after further 5 years, would it really be feasible
for him to obtain reversal of the credit of IGST.
Time of Supply
Time of supply is another concept created by the GST law which we

need to understand and implement. The GST is required to be paid
by 20th the day of the month after the month in which time of supply
occurs. For example if the time of supply occurs in September, the
GST is required to be paid maximum by 20th October. However time
of supply is not always the same as the month in which the goods or
the service were supplied. Instead, the time of supply is based on
29
several factors and those factors too vary according the situation. The
provisions for time of supply of goods are different from that in case
of services. The provisions are different in case of normal charge and
reverse charge. Separate criterion is to be applied when the supply is
a „continuous supply‟.
Thus, for instance, the time of supply of goods is the earliest of the
following:
- the date of issue of invoice
- the legal last date for issue invoice (the date of removal)
- the date of receipt of payment
We may thus see that tax is payable even on amounts received in

advance. Although similar provision existed in service tax law, there
was no provision requiring payment of either excise duty or VAT on
advances. Now we will have to pay GST on payment is received in
advance. We may however note that the GST law distinguishes
between advances and deposits. We shall discuss this later in detail,
in the book.
The „time of supply‟ is defined differently in different situations viz.
- Time of supply of goods – normal charge
- Time of supply of goods – reverse charge
- Time of supply of services – normal charge
- Time of supply of services – reverse charge
- Time of supply in case the supply is received from an

„Associated Enterprise‟ (the Indian business entity and its
foreign arm).
Documents and records:
Tax Invoice is the most prominent document required to be issued by

us for the outward taxable supplies and for zero rated supplies. The
Tax Invoice contains the necessary details for determining the
30
amount of tax payable for the supply. The contents of Tax Invoice
have been prescribed by rules. We can design format of the invoice to
suit our convenience. But it must contain all the details prescribed by
the rule. Of course it can contain any other additional detail.
However tax invoice should not be issued for an exempted supply. A

composition dealer23 is also not allowed issue a tax invoice. Instead a
„Bill of Supply‟ is required to be issued for exempted supplies and
also for supplies by a composition dealer.
We can issue a Tax Invoice any time before removal of the goods or
before providing the service. But the invoice must be issued latest by
the time of removal of the goods. They are not permitted to first
remove the goods and then to issue the invoice later. In case of
services the Tax Invoice must be issued maximum within 30 days of
the supply.
We are also required to issue tax invoice in respect of supply

received from unregistered person. The GST law has developed
mechanisms to track certain payments and receipts. Following is a
list of some of the documents:
Document Applies to
Tax Invoice • Outward Taxable Supplies
• Outward zero rated supplies (exports and

SEZ supplies)
• Inward supplies from Un-registered Persons

(URP)
23Composition scheme is a simplified tax payment scheme available only to those

manufacturer and traders whose turnover is within Rs. 75 lakh. In service sector it is
available only to ‘supply of food & beverages (non-alcoholic)’, but not to other service
providers. A person opting for this scheme is required to pay tax at very low rate of 1%,
2% etc. but neither he is entitled to avail credit on his inward supplies nor his
customers are eligible to avail credit of the tax paid by him. In fact he does not show the
tax element in his document (Bill of Supply).
31
Bill of Supply • Outward exempted supplies
• Outward Composition Supplies
• Input Tax Credit is not available against „Bill

of Supply‟
(Exports & SEZ supplies are not exempted. They are zero
rated. )
Receipt Voucher Receipt of Advance
Payment Voucher Payment made for

• Inward supplies under notified RCM (both -
registered and unregistered)
• Inward supplies from URPs
Refund Voucher • Where payment received in advance, Receipt

Voucher issued, BUT
• supply not made and Tax Invoice not issued
RCM = Reverse Charge Mechanism, URP = Un-registered Person
Payment of Tax and Filing of Returns:
Returns are statements/information filed with the government so

that the government comes to know about our tax liability and also
whether we have correctly discharged the same or not.
Filing of return in GST is an online process undertaken in stages. For

most of the tax payers, there are three returns to be filed every month
and one return to be filed annually. The three returns are actually
three stages of an ongoing process.
The common GST electronic portal (www.gst.gov.in) 24 would

maintain three ledgers or registers:
24 It is common between the state and the central government.
32
i. A liability register, which will show our liabilities towards

tax, interest, penalty etc.
ii. A credit ledger (electronic credit Ledger) wherein the input

tax credits availed and utilised by us would be recorded; and
iii. A cash ledger wherein the payments made by us directly in

the government‟s bank account would be recorded.
Suppose I supply certain goods to you on which GST is payable. I

would issue a Tax Invoice showing the value and the amount of tax
and mentioning your GST identification number (GSTIN). Now the
process of filing returns is in following steps:
a. I would log in to the common portal and upload the data

contained in this invoice (data such as invoice number, date,
value, tax amount etc.). This is my GSTR-1. I'm supposed to
file it latest by 10th of the next month.
b. Now you would log in to the website and you can see the
data uploaded by me. (You would actually see a statement of
all the invoices uploaded by everyone against your GSTIN).
You are required to verify and approve it. If you approve it,
the amount of tax paid by me gets posted into your „electronic
credit Ledger‟. Thus you get the ITC. In case you find that the
data uploaded by me is incorrect, you are required to make
suitable amendments online. The modified data gets posted
to your Credit Ledger. When you submit this statement of the
approved/modified data, you have filed your GSTR-2. You
are required to file it between the 11th to 15th days of every
month.
c. In case you have made any changes in the data uploaded by

me, the information would come back to me for verification.
If I accept the changes made by you, this would change my
liability and would also reflect my confirmation for your ITC.
d. In a similar manner you would also file your GSTR-1 and I

would file my GSTR-2.
33
e. I would now discharge my tax liability. I can use the ITC

available in my credit Ledger or the amount available in my
cash Ledger to pay the taxes. I would have to pass suitable
entries in these two ledgers.
f. Finally I would generate the consolidated return viz. GSTR-3.

The return is generated by the portal itself. This return is a
summary of our liabilities, the credits availed, and the
manner of discharge of the liabilities through ITC or the cash
Ledger. We just need to verify whether the summary is
correct, and submit it. In case we find that the summaries
incorrect, we will have to go back to previous stages to locate
the error.
You can see that the method of availing credit is through approval of
the Tax Invoice data by the recipient. The record of credits
maintained by the tax payer would be useful only for the comparison
purpose. The actual credit would be available online. If a credit is not
on the website, we have not availed it.
Apart from this, there is an annual return to be filed after end of the
financial year. It is to be filed latest by December. In case the
turnover of the registered person exceeds Rs. 2 Cores in a financial
year, then he has to get his accounts audited and is required to file
the annual return along with a copy of the audited annual accounts
and a reconciliation statement duly certified. Essentially, the annual
return is reconciliation of the value of supplies declared in the GST
return with the audited annual financial statement.
The returns discussed above are those which are applicable to most
tax payers. But there are certain specific returns applicable only to
some tax payers. For instance there is separate return for e-commerce
operator, composition tax payer etc. Job-workers are also required to
file a quarterly statement showing the details of the goods sent to the
job-worker and those received back.
This is a summary and overview of the scheme of taxation in GST.

Now, in the book we shall go into details of each of these topics and
34
some more topics. There is a deliberate attempt to keep this book

short. I would also come out with separate books treating each
individual topic (for example Input Tax Credit, Investigation & the
Litigation Process, etc.) in much detail.
I promise to use simple language. The goal is that you understand

the basics and get equipped to read the text of the law.
Happy learning!
Note: Refer to website www.gstlaw.org for further updates on law.

You will also find useful formats, check-lists, notes etc. on it.
35
CHAPTER 2
Scope of the Levy

Whether GST is payable on this activity?
What is taxable and what is not? Which transactions are taxable? Does the
law impose GST on this activity? How to answer these questions?
This is what we are going to learn in this chapter. We will see the extent to
which GST has spread itself. We will see what is covered within its net, and
what is not?
Topics Discussed
 Highlights
 Meaning of Levy and Taxable Event
 The Charging Provisions for GST
 Compensation Cess
 A basic reading of section 9 of CGST Act, 2017
 Supply of Goods and Services or Both
- Items excluded from the Levy
- Five Aspects of the Levy of GST
 Meaning of Supply
 Characteristics of supply
 Summary of section 7 of CGST Act
 Analysis of Section 7
1. All Forms of Supply:
 Meaning
 Consideration
Chapter 2 Scope of the Levy
 In the course or furtherance of the business
 Business
2. Import of Service:
- Comparison between clause (b) of the definition of

supply and Entry 4 of Schedule I
- Meaning of Import of Service
3. Activities specified in Schedule I
4. Activities specified in Schedule II
 Composite supply and mixed supply
 Neither Supply of Goods nor Supply of Services:
- Activities covered by the schedule III
- Panchayat Functions
 Legal Provisions
37
Highlights
1. There are three taxes under GST scheme that would regularly
be referred:
(i) Integrated Goods and Services Tax (IGST) - also called

the ‗Integrated Tax‘;
(ii) Central Goods and Services Tax (CGST) – also called

the ‗Central Tax‘;
(iii) State Goods and Services Tax (SGST) – also called the
‗State Tax‘.1
2. Supply is the taxable event under GST. The tax has been levied
on all supplies of goods or services or both. But:
- It is not levied on the supply of alcoholic liquor for human

consumption; and
- In case of following five petroleum products it would be

imposed on a later date. The date will be notified by the
government:
Petroleum Crude, High Speed Diesel, Motor Spirit

(commonly known as Petrol), Natural Gas, and Aviation
Turbine Fuel
3. Central GST as well as State GST both are payable on Intra-

State supplies. IGST is not payable on these supplies. (Intra-
State means within the state).
4. IGST is payable on Inter-State supplies. CGST and SGST are

not payable on these supplies. (Inter-State means from one
state to another).
5. In case of Union Territories, the components of tax are –

Central GST and Union Territory Tax (UTT). Here we may say
that UTT is a substitute for SGST.
1Actually each state has separate SGST. Thus, we have Maharashtra GST, Gujarat GST,
etc. In case of Union Territories, there is Union Territory Tax (UTT) instead of SGST.
38
6. Apart from the above, there is a ‗Compensation Cess‘ imposed

on certain supplies.
7. Ordinarily GST is payable only on the supplies made for a

consideration in the course of business or furtherance of
business. In other words, if the supply is free, or if it is not a
business supply, then generally GST is not payable.
8. However, there are certain supplies specifically listed in

Schedule I of the CGST Act where GST has been levied even if
the supply is made without any consideration.
9. A significantly notable item in the Schedule-I, is the supplies

made by employer to the employee. While there is no levy of
GST on gifts up to Rs. 50,000/- given to the employee, the tax
would be applicable beyond that limit.
10. Every registration of the same person is treated as a ‗distinct

person‘. Therefore, stock transfers by a company from one state
to another would be taxable.
11. In general, the tax is payable to government by the supplier.

This system of collecting tax from the supplier is called ‗normal
charge‘ or ‗forward charge‘.
12. But, in case of the following supplies the tax is payable to the
government by the recipient and not by the supplier. This
system of collecting tax from the recipient (instead of supplier)
is called ‗reverse charge‘:
(a) All services received from abroad.
(b) Specific services notified by the government

(irrespective of whether the supplier is registered or
not). Apart from import of services, 10 other services
have been notified (Notification no. 10/2017-ITR).
(c) All supplies received by a registered person from an

unregistered person. In other words, if a registered
person obtains any goods or service or both from an
Un-Registered Person (URP), the tax on such supply
39
would be payable to government by the registered

person.
13. Further, where services are supplied through e-commerce

operator, the law empowers the government to issue
notification specifying that in case of those services GST is
payable by the e-commerce operator (instead of the actual
service provider). Wherever the services are so notified, the
service providers have no liability to either get registered or to
follow various provisions of the GST law. The tax liability shifts
on to the e-commerce operator.
Meaning of Levy and Taxable Event:
Levy refers to imposition of tax. Tax is imposed upon happening of

the taxable event. Thus, the levy arises when the taxable event
occurs. If the taxable event has not occurred, then there is no levy.
Thus, for example, manufacture is the taxable event which gives rise
to liability of Central Excise duty. Sale is the taxable event for levy of
VAT. Similarly, provision of service is the taxable event for levy of
service tax. We can say that the charge of tax is fixed upon happening
of the taxable event. So long as the taxable event does not occur, the
levy of tax does not arise. Unless manufacture takes place, there can
be no liability to pay C. Excise Duty. Unless sale of goods occurs,
there can be no liability to pay VAT. Unless an activity amounts to
‗provision of service‘ there can be no liability to pay service tax.
The provision in the law which says that tax would be levied, is
called the ―charging section‖ or the ―levy provision‖. Thus, section 3
of the C. Excise Act, 1944 is the charging section. It creates the charge
of the C. Excise Duty. It says that there shall be levied a duty of excise
on all excisable goods that are produced or manufactured in India.
Similar charging sections would be found in every tax law.
Levy provisions are very important. They are at the core of

taxability 2 . Not only do they define the taxable event, but also
2Article 265 of the constitution says “no tax shall be levied or collected except by
authority of law”. The charging section creates the basic authority. The GST cannot be
collected by the government without authority of the various Acts dealing with GST.
40
provide a guide leading to the answers – who shall pay, how much
and how. Before we apply any other provision of the law, we should
examine the levy provision. We should first answer the question
whether there is a levy? In other words - Does the law impose tax on
this transaction? The answer is found in the charging sections. It is
highly desirable that we read and re-read the charging sections
carefully paying attention to each and every word.
The Charging Provisions for GST:
GST is levied differently in case of intra-State and inter-State

supplies3. While in case of intra-State supplies two taxes are levied –
one by the Central Government and the other by the State
Government, in case of inter-State supplies only one tax viz. IGST has
been levied and it is levied by the Central Government.
Section 9 of the CGST Act is the charging section levying Central

Goods and Services Tax (CGST). It imposes CGST on ‗intra-State‘
supplies. Similarly the section 9 of GST Act of each state also imposes
tax on ‗intra-state‘ supplies. Thus, for instance, the Telangana Goods
and Services Tax Act, 2017 imposes ―Telangana Goods & Services
Tax‖. The Maharashtra Goods and Services Tax Act, 2017 imposes
―Maharashtra Goods & Service Tax‖, ….and so on4. When we use the
term State Goods & Services Tax (SGST), we should appreciate that it
actually refers to separate tax under law framed by each of the state
government.
Thus, in case of ‗intra-State supplies‘ in any state two taxes have been
levied
- The CGST under CGST Act; and
- The SGST under the GST Act of that state
3Inter-State literally means – between two states; and intra-State means within the
same state. However, as we shall see later, these terms have special meaning in GST law.
Refer to the chapter “Place of Supply: Is the supply inter-State or intra-State”.
4 In case of intra-State supply within a Union Territory, the “Union Territory Tax” is
levied under Section 7 of the Union Territory Goods and Services Act, 2017. Although
the section 7 uses the expression “Union Territory Tax” it is common to call it UT GST.
41
In the case of ‗intra-State supply‘ within a Union Territory, the two

taxes are:
- The CGST under CGST Act; and
- The UTT under the UT GST Act
Section 5 of the IGST Act is the charging section levying IGST. It

imposes IGST on ‗inter-State supplies‘. There is no state Act levying
GST on ‗inter-State supplies‘. Thus, in case of inter-State supplies
only one tax is payable viz. IGST.
Thus, the tax structure is as under:

(Supply from one state to (Supply within the state)
another)
IGST 18% 180 CGST 9% 90
SGST* 9% 90
(*In case of ‗intra-State‘ supply within a Union Territory, the taxes would
be CGST and UTT)
Language of the charging sections in all the 4 laws (CGST, IGST,

SGST and UT GST Acts) is almost identical. We shall discuss the
provisions of section 9 of the CGST Act. It is recommended that the
parallel provisions of other acts may also be seen and compared.
Compensation Cess:
Apart from the levy under the above Acts, there is one more levy viz.
the Compensation Cess imposed under the Goods and Services Tax
(Compensation to States) Act, 2017. This tax is limited to certain
specified supplies. The GST Council has recommended Cess at
different rates on 55 items. For example a cess of 3% has been
recommended on ―Motorcycles (engine > 350 cc)‖. Highest rate of
cess (290%) has been imposed on ―Smoking mixtures for pipes and
cigarettes‖. The cess is in addition to the CGST, SGST or IGST levied
42
on the supply. The states had expressed apprehension that upon

implementation of GST, they would lose revenue. The Central
Government has promised to compensate them and the
Compensation Cess has been levied to create a fund for the purposes
of providing compensation to the States.
A basic reading of section 9 of CGST Act, 20175
I highly recommend that you read the full text of sections 9 and 7 of
the CGST Act. Text of section 9 is reproduced below in italics.
(1) Subject to the provisions of sub-section (2), there shall be

levied a tax called the central goods and services tax on all intra-
State supplies of goods or services or both, except on the supply of
alcoholic liquor for human consumption, on the value determined
under section 15 and at such rates, not exceeding twenty per
cent., as may be notified by the Government on the
recommendations of the Council and collected in such manner as
may be prescribed and shall be paid by the taxable person.
Comments: ―Subject to sub-section (2)‖ means, the sub-section (2)

stated below would take precedence. It should be applied first.
Following words are defined:
 Intra-State: Section 7 to 13 of IGST Act
 Supply: Section 7 of CGST Act. As we shall see below, supply

includes several things and the schedules I, II and III would
be relevant to understand its scope.
 Goods: Section 2 (52) of CGST Act
 Services: Section 2 (102) of CGST Act
 ‗Prescribed‘ means prescribed by rules made under this act on

the recommendations of the Council. [Sec 2 (87)]. CGST Rules,
2017 is the most prominent body of rules.
5Section 5 of the IGST Act levies tax on inter-State supplies and reads almost similar to
sec 9 of CGST/ SGST Act.
43
 Taxable Person: Section 2 (107)
Discussion on this sub-section would be covered in the following

manner:
 ‗Supply‘ is discussed in this chapter.
 Nature of the supply (as to whether it is ‗inter-State‘ or ‗intra-

State‘) is discussed in the chapter “Place of Supply”
 The discussion on value and rate is contained in the chapter

“Computation of Tax: Value, Classification and Rate”.
 Taxable person is the person who is registered or liable to be

registered. A short note on this is provided in the appendix.
(2) The central tax on the supply of petroleum crude, high speed
diesel, motor spirit (commonly known as petrol), natural gas and
aviation turbine fuel shall be levied with effect from such date as
may be notified by the Government on the recommendations of the
Council.
Comments: Thus, whenever the council recommends, the

government can issue a notification and bring the levy into force.
This will not require any amendment to the Act. Until then, Central
Excise duty and VAT would continue to be levied on these products.
In contrast, alcoholic liquor or sale of electricity cannot be brought
into fold of GST by simple notifications.
Keeping the products out of GST makes them costly. The petroleum
refineries would not be able to avail credit of the tax paid on their
various purchases and expenses. At the same time, the user
industries (of these petroleum products) would also not get credit of
the C. Excise and VAT paid on them.
44
(3) 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.
Comments: Tax on these supplies is required to be paid by the

recipient (irrespective of whether the supplier is registered or not).
The government has issued following two notifications specifying
the supplies.
 Notification 4/2017-ITR, dated 28/06/2017 – specifying five

goods6.
 Notification no. 10/2017-ITR, dated 28/06/2017 – specifying

eleven services.
Tax on these supplies is required to be paid by the recipient

(irrespective of whether the supplier is registered or not). In case of
one service viz. the services provided by Goods Transport Agency
(GTA) for transport of goods by road, the GTA has an option as
whether to pay tax under normal charge or to make the recipient
liable to pay it under reverse charge.
(4) The central tax in respect of the supply of taxable goods or

services or both by a supplier, who is not registered, to a
registered person shall be paid by such person on reverse charge
basis as the recipient 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.
Comments: Thus, wherever the supply is made by an ‗un-registered

person‘ to a ‗registered person‘, the tax leviable on the same is
6For sake of convenience, we are generally referring to the notifications issued under
only one Act. However, notifications on similar lines have been issued under other acts
as well.
45
payable by the ‗registered person‘. In case of these supplies the

recipient has been granted an exemption on those days on which the
value total procurements does not exceed Rs. 5000/- 7 . This
exemption does not apply to the cases discussed under previous
clause.
The supplies covered by the above sub-sections (3) and (4) are
discussed in detail in the chapter “The Reverse Charge Mechanism”
(5) The Government may, on the recommendations of the

Council, by notification, specify categories of services the tax on
intra-State supplies of which shall be paid by the electronic
commerce operator if such services are supplied through it, and all
the provisions of this Act shall apply to such electronic commerce
operator as if he is the supplier liable for paying the tax in relation
to the supply of such services:
Provided that where an electronic commerce operator does not

have a physical presence in the taxable territory, any person
representing such electronic commerce operator for any purpose
in the taxable territory shall be liable to pay tax:
Provided further that where an electronic commerce operator does

not have a physical presence in the taxable territory and also he
does not have a representative in the said territory, such electronic
commerce operator shall appoint a person in the taxable territory
for the purpose of paying tax and such person shall be liable to
pay tax.
Comments: Here the tax is payable by the E-Commerce operator,

although he is neither provider nor recipient of the service.
Following two services provided through an E-Commerce operator

have been notified vide notification 17/2017-CTR
 Transportation of passengers by a radio-taxi, motorcab,

maxicab and motor cycle
7 Notification no. 8/2017-CTR
46
 Providing accommodation in hotels, inns, guest houses, clubs,

campsites or other commercial places meant for residential or
lodging purposes. (However, where the service provider
himself is liable to be registered, the E-Commerce operator is
not liable to pay tax).
Supply of Goods and Services or Both

We need to dig a little deeper into the
Sec 9 stipulates:
sub-section (1) of the section 9. This is
the actual provision imposing the tax.  Which transactions
Sub-sections (3) to (5) merely shift the are taxable?
tax liability to some persons other than  How to determine
the supplier. But the question – whether amount of tax (value
or not there is a tax liability – would be & rate)?
answered by the sub-section (1). So let‘s  Who is liable to pay
shift our focus to section 9 (1). the tax?
Items excluded from the Levy:
If we analyse the sub-sections (1) and (2) of section 9, we will observe

that following two items are kept out of the purview of GST.
1. GST has not been levied on ―supply of alcoholic liquor for

human consumption‖.
2. In case of five petroleum products viz. petroleum crude, high

speed diesel, motor spirit (commonly known as petrol),
natural gas and aviation turbine fuel it would be imposed on
a later date, which will be notified by the government.
The ―Alcoholic Liquor for human consumption‖ is taxed by the state

governments. In case of Petroleum Products the Central Excise Duty
would continue to be levied by the Central Government and VAT by
the State Government.
The levy is on ‗supply‘. We shall shortly look into meaning of supply

and we shall find that there is a schedule III to the CGST Act, 2017
which contains list of ―activities or transactions which shall be
47
treated neither as a supply of goods nor a supply of services‖. Thus,

these items are also excluded from levy of GST.
Five Aspects of the Levy of GST:
The section 9 (1) of the CGST Act provides the following five aspects
of the levy of CGST8, viz.
a. It is levied on all intra-State supplies of goods or services or

both.
b. The tax is on the value determined under section 15.
c. It is to be calculated at such rates, as may be notified by the

Government; but in any case the rate of CGST shall not
exceed 20%.
d. It shall be collected in a prescribed manner (prescribed means

prescribed by rules).
e. It shall be paid by the taxable person i.e. a person who is

registered or liable to be registered. While in general, the
supplier is the taxable person, there are cases where the tax is
payable by the recipient (reverse charge) and in case of
notified services, by the e-commerce operator.
When we look at the parallel provisions under IGST Act, we would

find that
a. The levy of IGST is on ‗inter-State‘ supplies.
b. The tax is levied on value determined under section 15 of the

CGST Act (and not of IGST Act)
c. The maximum permissible rate of IGST is 40%
We may note that although, the maximum permissible rate under

CGST & SGST is 20% and that under IGST is 40%, the actual tax
imposed under these acts does not exceed 28%. Thus, the maximum
8 Section 9 (1) of the State GST Act of all the states are similarly worded. Similar is the
language of section 7 of UT GST Act, 2017.
48
rate of CGST and SGST is 14% each. For IGST the maximum rate
actually announced is 28%. Off course there is Compensation Cess
over and above this, but that applies to only a few things.
Meaning of Supply:
The taxable event for levy of GST is ―supply of goods or services or

both‖. A transaction could be:
 Supply of Goods alone; or
 Supply of Service alone; or
 Supply of both – the goods as well as service
Supply is the keyword in GST law. Unless ‗supply‘ takes place, the
levy of GST does not arise. We may note that the word used is
‗supply‘ and not ‗sale‘. Supply is a much broader term. In general,
supply means to provide, to furnish, to make available, to deliver,
etc. We wished that the term were comprehensively defined. But the
GST law does not really define it. Section 7 says ‗supply‘ includes…..
and then it provides a list. Thus, all it does is provide a list of
transactions that are included in the meaning of ‗supply‘. But, it
doesn‘t mean that any other kind of transaction is not included.
7. (1) For the purposes of this Act, the expression "supply" includes—
(a) all forms of supply of goods or services or both such as sale, transfer,
barter, exchange, licence, rental, lease or disposal made or agreed to
be made for a consideration by a person in the course or furtherance
of business;
(b) import of services for a consideration whether or not in the course or
furtherance of business;
(c) the activities specified in Schedule I, made or agreed to be made
without a consideration; and
(d) the activities to be treated as supply of goods or supply of services as
referred to in Schedule II.
(2) Notwithstanding anything contained in sub-section (1),--
(a) activities or transactions specified in Schedule III; or
49
(b) such activities or transactions undertaken by the Central

Government, a State Government or any local authority in which
they are engaged as public authorities, as may be notified by the
Government on the recommendations of the Council,
shall be treated neither as a supply of goods nor a supply of services.
(3) Subject to the provisions of sub-sections (1) and (2), the Government
may, on the recommendations of the Council, specify, by notification, the
transactions that are to be treated as-
(a) a supply of goods and not as a supply of services; or
(b) a supply of services and not as a supply of goods.
We need to appreciate significance of using the word ‗includes‘ in the
above definition and of not using the word ‗means‘. Section 7 does
not say – ―supply means.….‖ It says ―supply includes…..‖ This
makes lots of difference. Those familiar with the C. Excise law would
appreciate that similar to this, the word manufacture was not defined
in Central excise law. The section 2 (f) also said – ‗manufacture‘
includes ..… and for over half a century the meaning of the word was
discussed and debated before various tribunals and courts. Same
appears to be the fate of the world ‗supply‘.
Both the words have similar significance. While ‗manufacture‘ was

the taxable event under Central Excise law, ‗supply‘ is the taxable
event under GST law. On the next page there is an example in the
box. That would throw some light on the role of the word ‗includes‘.
Characteristics of supply
Since ‗supply‘ has not been defined, therefore its meaning is wide
open to the subjective understanding of people and the government
authorities. While on the one hand it would lead to uncertainty,
disputes and litigations, on the other hand it also gives the widest
possible meaning to the word ‗supply‘.
50
Significance of using ‘includes’ in a definition: An Example
Suppose the government wants that every vehicle must be registered

with RTO. If the law did not give any definition of ‗vehicle‘, then its
meaning is left to the general understanding of people. The vehicle
will mean whatever is commonly understood as vehicle.
What if, the law says – ‗vehicle‘ includes a toy vehicle. No one would
have thought of the toy as a vehicle. The general understanding is
that a vehicle is the means of transportation. On the other hand toys
are for the purpose of amusement and play. Transportation of goods
or passengers is not the purpose of a toy. Yet, since in this example
the definition of vehicle includes toy vehicle, one has to obtain
registration of the toy as well. Thus the word ‗includes‘ has been
used to expand the meaning of ‗vehicle‘ beyond its ordinary
meaning.
Now suppose, the definition says – ‗vehicle‘ includes a bicycle. Here

the inclusion removes the ambiguity. Bicycle is definitely a means of
transport. But there could still be a doubt whether the registration
law really wanted to cover bicycle. While some may say it is a
vehicle, others may have a notion that it does not have any motor in
it and hence may not need registration. Here the word ‗includes‘
clarifies the ambiguity. Now the conclusion is not left to the
discretion or judgement of either public or the government officers.
The doubt has been removed, ambiguity has been clarified and
thereby litigation has been avoided.
Thus, ‗includes‘ serves two purposes – to expand the scope; and to

clear ambiguity.
However, in my view, supply would have the following

characteristics:
i. Supply need not always transfer the title. If one provides an

office on rent, there is no transfer of title, but a service is
being supplied.
ii. If there is a supply there would be a supplier and a

recipient. Obviously, these have to be two different persons.
51
The GST law does provide for certain exceptions. Thus, for
example, association and its members have been treated as
different persons. Branch of a person in another state is also
treated as branch of a distinct person.
iii. Supply would involve delivery of the goods or the service

by the supplier to the recipient. The delivery could be actual
or constructive.
iv. A single transaction may comprise of more than one supply.

These could be supply of goods, or supply of service, or
supply of both. However in a transaction whether really
there are multiple supplies or whether one supply is merely
component of the other one, will have to be determined. We
shall discuss this separately under the head ―composite and
mixed supplies‖.
v. Supply refers to supply of goods or services. Payment of

money is not a supply. Thus if a person purchases a laptop
from a shop and pays for it, the shop-keeper has supplied
‗laptop‘ on which GST would be leviable. But it cannot be
said that the buyer has made a supply of money. There
cannot be GST on mere payment of consideration.
vi. The situation would be different if in return of the laptop the

buyer provides a television. Here there would be two
supplies – supply of laptop by the shopkeeper and the
supply of television by the customer. GST would be payable
on both the supplies. Further the above exchange could be
of goods or services or any combination.
To repeat, GST has been levied on supply. The law does not define
the word ‗supply‘ but it provides for certain inclusions. Let us now
see what are the inclusions made in the meaning of supply.
Summary of section 7 of CGST Act
1. Firstly there are four kinds of inclusions made in the definition of

Supply. These are:
52
(a) all forms of supply made for a consideration by a person in

the course or furtherance of business;
(b) import of services for a consideration whether or not in the

course or furtherance of business;
(c) activities specified in Schedule I, made without a

consideration; and
(d) the activities specified in Schedule II. This schedule provides

list of certain activities and clarifies as to whether such
activity would be treated as supply of goods or supply of
services.
2. Secondly, it says that the following activities or transactions shall

be treated neither as a supply of goods nor a supply of services.
The result is that there is no levy of GST on these. This is similar to
the negative list under Service Tax:
(a) activities or transactions specified in Schedule III; or
(b) activities or transactions Government or notified authorities
3. Thirdly, it empowers the government to specify that a particular

transaction is to be treated as supply of goods and not as a supply
of service, or the other way round. The government is required to
do so by issuing notifications. While the schedule II of the act
already contains list of certain activities which have been declared
as supply of goods or service, this power has been granted to the
government so that if any new situation arises, the government
itself can make the relevant provision without going through
Parliament.
Let us have a closer look at section 7.
1. All Forms of Supply:
The clause (a) of section 7 (1) reads as under:
7. (1) For the purposes of this Act, the expression ―supply‖ includes––
a. all forms of supply of goods or services or both such as sale,

transfer, barter, exchange, licence, rental, lease or disposal
53
made or agreed to be made for a consideration by a person in

the course or furtherance of business
This clause restricts to supplies made for consideration and made in

course or furtherance of business. Various forms of supplies are
given as illustrations. The supply could be in any other form. The
forms sale, transfer, barter sale, transfer, barter, …etc. are merely
examples. If it is supply, it is taxable.
We may note that the illustrations of supply do not always transfer

title to the property. While ‗sale‘ would involve transfer of title, there
would be no such transfer in the case of licence, rental or lease.
Consideration: Consideration refers to - whatever is payable for a

supply. If a shopkeeper supplies a laptop and the buyer pays Rs.
35,000 for it, then Rs. 35,000 is the consideration of the laptop. If
instead the buyer pays Rs. 25,000 plus an old laptop then value of the
old laptop is also a consideration. Section 2 (31) of CGST Act defines
some aspects of consideration (again it says ‗consideration
includes……‘). Accordingly,
a. Consideration includes payment - in money or in any other

form. The payment could come from the recipient or from
any other person.
b. Consideration also includes money value of any act or

forbearance. Forbearance means to desist from, to tolerate, to
refrain from, etc. Thus for example if a person agrees to ‗not
file a law-suit‘ in return of a supply then this forbearance
would be a consideration.
c. Any subsidy given by the Central Government or a State

Government is not part of the consideration.
d. Deposit given in respect of supply would not be considered

as payment made for the supply unless the supplier applies
the deposit as consideration for the supply. We may note here
that there is a provision which says that GST would be
payable on advances. On the other hand the deposits are not
54
considered as payment made. In other words deposits are

different from advances.
In the course or furtherance of the business:
As per the clause (a) supply includes the supplies made in the course
or furtherance of business9.
Off course it refers to business of the supplier. It is immaterial as to

whether the supply is in the course/furtherance of business of the
recipient, or not. A shopkeeper selling goods to consumers is making
a ‗supply‘ because it is in the course/furtherance of business of the
shopkeeper. There is no requirement that it should also be in the
course or furtherance of business of the consumer.
‗In the course of‘ means in the process of, during, in the path of. ‗In
furtherance of‘ is for the purposes of development, betterment,
advancement, improvement, promotion.
‗Business‘ is defined vide section 2 (17) of the CGST Act. Certain

activities which may not seem to be business, are included in the
definition. Thus for example where a club, association, society, etc.
provides facilities or benefits to its members, such activities are to be
treated as business. Activities of the Central and State governments
acting as ‗public authority‘ are also treated as business. Following is
the definition of business.
(17) "business" includes—
a. any trade, commerce, manufacture, profession, vocation,

adventure, wager or any other similar activity, whether or
not it is for a pecuniary benefit;
b. any activity or transaction in connection with or

incidental or ancillary to sub-clause (a);
c. any activity or transaction in the nature of sub-clause (a),

whether or not there is volume, frequency, continuity or
regularity of such transaction;
9
‘Business’ is defined vide section 2(17) of the CGST Act.
55
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

licence 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 authorities;
2. Import of Service:
The clause (b) of section 7 (1) reads as under:
b. import of services for a consideration whether or not in the

course or furtherance of business;
For sake of comparison, we may also consider the entry 4 in the first
schedule of the CGST Act. The activities specified in the Schedule I
are to be treated as supply even if made without consideration. The
entry 4 reads as under:
Import of services by a taxable person from a related person or

from any of his other establishments outside India, in the
course or furtherance of business.
Both of the above entries are supplies under GST. While in the
former one the ‗consideration‘ is present, in the latter one the
essential feature is that the import of service is in the course of
furtherance of business. When consideration is present then it is not
56
necessary that the supply be in the course/ furtherance of business. It

is also not relevant as to whether the parties are related person or
not.
The differences can be summarised as under:
Clause (b) of the Entry 4 of Schedule I

definition of supply
Transaction Import of service Import of service
Importer Any person A taxable person
Supplier Any person ‗related person‘ of the
importer; or
Importer‘s other
establishment outside
India
Nature It is ‗supply‘ In the course or
irrespective of furtherance or business
whether it is in the (of the importer)
course or furtherance
of business.
Consideration Necessary Not necessary.
Transaction would be a
‗supply‘ even if it is
without consideration.
Here we may need to understand meaning of ‗import of service‘. It

means supply of service, where10:
(i) the supplier of service is located outside India
(ii) the recipient of service is located in India; and
(iii) the place of supply of service is in India;
10 This is the definition of ‘import of service’ as per section 2 (11) of the IGST Act.
57
The concept of ‗place of supply‘ shall be discussed in detail in a

separate chapter. We may note here that in case of certain services,
the place of supply may not be in India even if the recipient is located
in India. For instance in case of ‗intermediary services‘ the place of
supply is defined to be the place of ‗supplier‘ of the service 11 .
Consider the case of a ‗commission agent‘,
- The supplier of the service is the ‗commission agent‘.

Suppose he is located outside India.
- Recipient of the service is the person who has engaged the

‗commission agent‘. Suppose he is located in India.
Here, the first two conditions are fulfilled. The supplier is located
outside India and the recipient is in India; but the ‗place of supply‘
being defined as the location of the ‗supplier of the service‘ i.e. out of
India. Hence, this is not ‗import of service‘. No GST is payable on the
commission paid to the agent located abroad.
3. Activities specified in Schedule I
The next clause of section 7 (1) reads as under:
c. the activities specified in Schedule I, made or agreed to be made

without a consideration;
There are 4 activities specified in the schedule I of the CGST Act.

These activities would be treated as ‗supply‘ even if they are made
without consideration; and therefore GST is leviable on them. The
activities are as under:
1. Permanent transfer or disposal of business assets where input tax

credit has been availed on such assets.
ITC availed: Suppose a company decides to donate some of its

furniture, computers, and printers to a school. If the company had
availed ITC on these goods then the donation would be treated as a
11 Refer Section 13 (8) of the IGST Act.
58
supply taxable under GST. However, if the company had not availed
ITC, then tax would not be payable on donation of such goods.
Permanent transfer: The words used here are ‗permanent transfer‘.

Thus this clause would not cover the goods just sent out for repairing
or for warehousing. There has to be ‗transfer‘ and it has to be
‗permanent‘. Where the assets are supplied temporarily or are
returnable, the activity will not be covered by this entry.
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.
‗Related Persons‘ as well as the ‗Distinct Persons‘ are both defined

terms. The related person is defined vide the explanation to section
15 (which deals with valuation). Both of these concepts would be
discussed further detail in the chapter ―Computation of Tax: Value,
Classification, Rate of Tax, and Exemption‖. Here it is of our special
interest to note that -
 An employer and employee have been treated as ―related

persons‖
 The services by an ―employee to the employer in the

course of or in relation to his employment‖ are not a
supply under GST12.
The result is that there is no levy of GST on the remuneration, salary,

wages received; but the goods or services supplied by an employer to
employee would be subjected to GST. Since the supply between
related person is covered by the schedule-I, the tax is leviable even if
the supply is without any consideration. However, gifts not
exceeding Rs. 50,000/- per employee per financial year are not
12 Entry 1 in the Schedule-III to the CGST Act.
59
covered by the levy. If the gifts exceed the amount of Rs. 50,000/- the
entire supply becomes subject to levy.
So long as the employee receives the remuneration in money terms, it

would remain ‗salary/ wages‘. However, the moment he receives
something in kind, that thing would become a supply by employer to
the employee, on which GST would become payable.
Therefore a question will arise as to whether the amount of the

benefit received by the employee is in consideration of the services
provided by him in the course of employment or not.
- Rent free accommodation
- Travel benefits
- Medical Facilities
- Food
- Telephone
- Scholarship to children
- Free Cable TV Subscription
- Free Broadband, Wi-fi
The provision is likely to create litigation because it would not

always be easy to determine whether provision of a facility is
- a supply or
- a benefit arising out of employment contract.
The term gift has not been defined in the GST bills. If one adopts
common English meaning, a gift is something voluntary supplied
without any consideration. Obviously, there cannot be a contractual
obligation to give gift.
If we pay money and account it as part of remuneration of the

employee, there is no question of paying GST on such payment.
However, if the company provides any goods or service, GST would
be payable.
60
For instance, if the salary itself is paid in terms of goods, this will
constitute a supply of goods by the company to the employee and
GST would be payable on this.
Illustration: Hotel raises a bill on the company. GST is payable on

this (by hotel, if registered; and by the company if the hotel is un-
registered). If the hotel is used by the employee for stay
a. Where the employee is on a business trip, the hotel stay is

for benefit of the company. The hotel has supplied the
service to the company and GST is payable on the inward
supplies received by the company. The company has not
made any outward supply to the employee here.
b. Where the employee is on leave and the hotel stay is for

his benefit. The supply has two limbs – supply by the
Hotel to the company and the supply made by the
company to the employee.
Distinct Person: Ordinarily self-supply is not taxable. However the

GST law has created an artificial situation where supply between two
branches of the same company would also be taxed.
Each registration is to be treated as a distinct person. Therefore

where a company has registrations in, say, Haryana and West Bengal
then they would be distinct person. Similarly, even if a company
obtains separate registrations within a state, each registration would
be treated as a separate person.
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.
Here, the liability would arise only if the agent is undertaking to

make supply (or receive the supply) on behalf of the principal. Where
the principal himself takes registration and discharges tax under his
Tax Invoices, there is no question of the agent paying tax on such
61
supplies. Off course the agent would be liable to pay tax on his
commission.
4. Import of services by a taxable person from a related person or

from any of his other establishments outside India, in the course or
furtherance of business.
We have already discussed meaning of import of service and have

also compared this entry with the clause (b) of section 7.
4. Activities specified in Schedule II
All the activities specified in schedule II are to be treated as supply.

Apart from this, the schedule II also makes it clear as to which
supply would be treated as supply of goods and which one as supply
of service. In past, there were several disputes as to whether a
particular activity is service or not; or whether the supply is of goods
or services. For example, disputes had arisen as to whether renting of
immovable property and construction of buildings is service.
To resolve these issues under service tax law, the government had
declared certain activities to be services. These are called ‗declared
services‘. On similar lines now the schedule II, declares certain
activities to be supply of goods, and certain activities to be supply of
services. The entries in schedule II are as under:
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;
(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.
Transfer of title means transfer of ownership. When ownership of the

goods changes it would be treated as supply of goods. But if merely
right to use the goods is transferred, that would be a service. For
example, if I sell a laptop, it would be supply of goods but if I've
62
merely handover the possession and allow the recipient to use it, it is
a service transaction.
It is possible that the laptop was owned by me and my friend

together. In other words, both of us have share in the ownership. If I
allow any person to use my share, this would be treated as supply of
service.
Property passing in future: Now suppose I enter into an agreement to

deliver the laptop today, allowing the recipient to use it and transfer
the ownership after six months if the recipient pays me the agreed
price. Even such type of transfer would be treated as 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.
These are the cases of job work. Here it is immaterial as to whether

the process undertaken by the job worker does or does not amount to
manufacture. In both the cases, the activity would be treated as
supply of service.
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
63
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.
Explanation.-For the purposes of this clause-
(1) the expression "competent authority" means the

Government or any authority authorised to issue
completion certificate under any law for the time being in
force and in case of non-requirement of such certificate
from such authority, from any of the following, namely:-
i. an architect registered with the Council of

Architecture constituted under the Architects Act,
1972; or
ii. a chartered engineer registered with the Institution of

Engineers (India); or
64
iii. a licensed surveyor of the respective local body of the

city or town or village or development or planning
authority;
(2) the expression "construction" includes additions,

alterations, replacements or remodelling of any existing
civil structure;
Thus, GST would be applicable if under construction property is

purchased. However, if full consideration is paid after issuance of
completion certificate or after its first occupation (whichever is
earlier), then GST would not apply.
(c) temporary transfer or permitting the use or enjoyment of any

intellectual property right;
Intellectual property covers the following:
- Trademarks
- Patents granted by the patent authorities
- Copyright
- Design
- Other similar rights (technical know-how, trade secrets, etc.)
We may note that only temporary transfer of IPR would be service. If

the transfer is permanent, it would be a supply of goods. For
example, if a person sells his brand name to another person that
would be supply of goods. If he merely allows him to use it for
certain period, it would be supply of service.
(d) development, design, programming, customisation, adaptation,

upgradation, enhancement, implementation of information
technology software;
(e) agreeing to the obligation to refrain from an act, or to tolerate

an act or a situation, or to do an act; and (f) transfer of the
right to use any goods for any purpose (whether or not for a
specified period) for cash, deferred payment or other valuable
consideration.
To refrain means to desist, to hold back from doing something.
65
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.
Works contract has been defined vide section 2 (119) of CGST Act as
under
(119) "works contract" means a contract for building, construction,

fabrication, completion, erection, installation, fitting out,
improvement, modification, repair, maintenance, renovation,
alteration or commissioning of any immovable property wherein
transfer of property in goods (whether as goods or in some other
form) is involved in the execution of such contract;
We may note that the words starting from ‗building‘….till

‗commissioning‘ refers to the activities to be undertaken. ‗Building‘
has to be understood as an activity viz. ‗to build‘ and not as a
physical structure of walls and roofs. All these activities would be a
‗works contract‘ only when undertaken in respect of an immovable
property. This is a major departure from the definition of works
contract that has held field till prior to GST. Now contracts relating to
movable property would not be treated as works contract although
they may involve aspects of goods as well as services. All such
composite contracts will have to be classified either as goods or as
service depending upon whether the principal supply is of goods or
of service. The dominant intention of the contract would be a
determining factor.
However the works contract as defined above, has to necessarily

involve transfer of property in goods. In other words if no goods are
involved in the activity then supply is not works contract. A contract
which is purely for services would not be works contract.
66
In this backdrop we may note that under GST law the composite
‗works contract‘ (which necessarily involves transfer of property in
goods as well as rendering of service) is to be treated as supply of
service.
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.
Composite supply and mixed supply
The supplies under GST are taxed either as supply of goods or of

service. The rates are prescribed separately for goods and services.
When we supply individual goods or service we can find the rates
from the respective notifications. But there can be situations where
various goods or services are supplied in combination. In some cases,
the schedule II itself has declared that certain supplies would be
treated as supply of goods or services. For example, supply of food
and beverages has been declared to be service. Therefore, if a
restaurant supplies food items along with cold drink, it does not
have to charge tax separately on each of the items. It is irrelevant that
the cold drink is taxable at higher rate and the food at lower rate. The
total supply is considered to be a single supply and the tax is payable
@12% or 18% (depending upon whether the Restaurant has AC or
not or services liquor or not). Similar is the case with Works Contract.
The whole works contract is considered to be service and taxed at
18% irrespective of the rate applicable to the individual goods or
services involved in the contract. Thus, the problem in taxing works
contract and restaurant services has been resolved by the schedule II.
But, what to do for other supplies? For all other cases, the supplier is
required to determine
- Whether the supply is a single supply or just multiple

supplies are made together?
- Whether the supply is of service or of goods?
- What if the multiple supplies are made but the values are not
segregated?
67
Section 8 of the CGST Act provides the solution. Let‘s take the
following example to understand this.
Suppose a person supplies Computers for Rs. 1 lakh. Additionally,

an amount of Rs. 5,000/- is charged for transportation. Let‘s say the
rate of tax on computers is 18% and on transport service it is 5%.
How would he compute the tax?
Description Amount Rate of Tax Classification
Computers Rs. 1,00,000 18% HSN 8471
Transport Rs. 5,000 5% SAC 9965

through GTA
The law says that, here,
- Supply of the product ‗A‘ is the ‗principal supply‘.
- Transport is naturally bundled with the supply of goods. It is

supplied in conjunction with the supply of goods in the
ordinary course of business.
Such supplies are called ‗composite supply‘. For computation of tax

liability, the whole supply would be treated as supply of the
principal supply. In other words, value of supply of the product ‗A‘
would be sum total of price of ‗A‘ and the transport charges. The tax
would be computed as under:
Computers Rs. 1,00,000

Transport Charges Rs. 5,000
Taxable Value of the supply Rs. 1,05,000
Tax @18% Rs. 18,900
Here the tax @18% should be calculated on the entire amount of Rs.
1,05,000/-. We would say that
- Supply of the Computers and the service of transportation is

a composite supply;
- Supply of the Computers is the principal supply.
68
- The whole supply would be treated as supply of computer

under HSN Code 8471.
- Value of the composite supply is Rs. 1,05,000/-
It would be worthwhile to look at the definition of composite supply:
(30) "composite supply"13 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;
See, what the ingredients are:
 The supply consists of two or more taxable supplies of goods

or services or both, or any combination thereof.
 Various taxable supplies should be naturally bundled and

supplied in conjunction with each other in the ordinary
course of business.
 One of the supplies should be the principal supply.
‗In conjunction with‘ means together, jointly, conjointly, in

collaboration, in combination, as one, in unison, in
concert, concertedly, with one accord, in league, in alliance, side by
side. We may note that it is not enough that the supplies are made in
conjunction with each other. The requirement is that they should be
so supplied in the ordinary course of business and the supplies
should be ‗naturally bundled‘ with each other.
What is the consequence? What happens if a supply is ‗composite

supply‘? The consequence is that the entire composite supply shall be
treated as a supply of the principal. The rate applicable to the
13 Section 2 (30) of the CGST Act, 2017
69
principal would apply to the entire value. This is prescribed by

section 8 (a) which reads as under:
8. The tax liability on a composite or a mixed supply shall be

determined in the following manner, namely:—
(a) 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;
Now, let‘s assume that a person supplies two products – Computers

and Mobile Phones. Let‘s further assume that the rate of tax on
Computer is 18% and that on Mobile Phone is 12%. (In order to avoid
complication, let‘s keep the transportation portion out of our
example).
Here two situations are possible (a) Price of Computer and Mobile
Phones is separately indicated in the invoice, or (b) A combined
single price of both the products is mentioned. The law says that in
the first case, we shall charge tax separately for Computer and for
Mobile Phone at the rates applicable to each of them. But, in the
second case where separate prices are not provided, the tax would be
paid at the highest rate amongst the two.
Description Amount Rate of Tax Classification
Computers Rs. 1,00,000 18% HSN 8471
Mobile Phones Rs. 75,000 12% HSN 8517
When a combined single price is given for the two supplies, such
supply is called ‗mixed supply‘. Here, both the supplies are principal
supply but separate prices are not declared. The term is defined as
under14:
(74) "mixed supply" means two or more individual supplies of

goods or services, or any combination thereof, made in conjunction
with each other by a taxable person for a single price where such
supply does not constitute a composite supply.
14 Section 2 (74) of the CGST Act, 2017 refers.
70
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;
The phrase ‗in conjunction with‘ is

Composite Supply: A
occurring here as well. But, the phrase Principal Supply +
‗naturally bundled‘ and ‗ordinary something bundled with it.
course of business‘ is missing. The
Mixed Supply: Product ‗A‘
supply would be treated as a mixed and ‗B‘ for a combined
supply only if: single price
1. the supplies are made for a Multiple Supplies: Product

single price; and ‗A‘ and ‗B‘ for separate
Prices.
2. the supply does not
constitute a composite supply
What is the consequence? What happens if a supply is a ‗mixed

supply‘? The consequence is that the entire supply is treated as a
supply of that supply which attracts the highest rate of tax. Thus, the
entire value of Rs. 1.75 lakh would be taxed at 18%, even while one of
the item (mobile phones) was chargeable only at 12%. This is
prescribed by section 8 (b) which reads as under:
8. The tax liability on a composite or a mixed supply shall be

determined in the following manner, namely:—
(b) a mixed supply comprising two or more supplies shall be treated

as a supply of that particular supply which attracts the highest rate
of tax.
The third and the last situation is that the computer and mobile
phones are supplied together but their prices are separately declared.
These are two supplies – both are principal supplies. The tax on
computer would be calculated at 18% and on the mobile phone at
12%. There is no phrase given in the law to identify such supplies.
Let‘s call them ‗multiple supplies‘.
To summarise, we have three kinds of supplies:
71
i. Composite Supply: in the above example, computer for Rs. 1

lakh, together with transport Rs. 5,000/-constituted a
composite supply. Tax on entire value is payable and the rate
applicable to the computer.
ii. Mixed Supply: Supply of computer and laptop for a single

price of Rs. 1.75 lakh is a mixed supply. Tax on the entire
value is payable and the rate applicable to the computer
because that is the highest amongst the two supplies.
iii. Multiple Supply: Supply of computer and laptop together, but

for separate prices is ‗multiple supply‘. The tax on computer
is payable at the rates applicable to computer; and on mobile
phone, and the rate applicable to mobile phones.
Neither Supply of Goods nor Supply of Services:
It has been declared that the following activities or transactions shall

be treated neither as a supply of goods nor a supply of services15.
1. Those specified in Schedule III; or
2. Certain activities or transactions undertaken by the

Government. (The government is required to issue
notification specifying the activities/transactions).
Now we know that GST is levied only on ‗supply‘. If the law declares
that certain activity or transaction will not be treated as supply, the
result is that there is no levy of GST on such supplies. Eight activities
have been listed in the schedule III and the notification number
11/2017-IT (Rate) has been issued under the clause (b) above. There
are six entries in the schedule III; and the notification covers
panchayat functions. Let‘s see each of them.
Activities covered by the schedule III: These are to be treated

neither as a supply of goods nor a supply of services
1. Services by an employee to the employer:
15 This is as per section 7 (2) of the CGST Act, 2017.
72
 Services by an employee to the employer would not be

treated as supply only if it is in the course of or in relation
to his employment. For example, if an employee engaged
as accountant in the company also has a shop providing
photocopies to the company, the photocopying service
would remain a supply. The copying service is not in
relation to his employment.
 This clause does not cover services by employer to the

employee. Thus services (or goods) provided by employer
to the employee would constitute a supply
 Services provided on contract basis would not be covered

here. The contractor is not an employee. His services are
‗supply‘.
 A casual worker is also an employee. Therefore services

provided by him are not ‗supply‘.
2. Services by any court or Tribunal: Since the services will not be

treated as supply, there would be no tax on the fees charged
by any court or Tribunal. Court includes District Court, High
Court and Supreme Court
3. (a) Functions performed by the Members of Parliament, Members of

State Legislature, Members of Panchayats, Members of
Municipalities and Members of other local authorities;
(b) Duties Performed by Constitutional Authorities: There are

several authorities created under the Constitution. For
example, Election Commission, National Human Rights
Commission, Law Commission of India, Central Vigilance
Commission, etc. are all constituted under the Constitution
of India. The duties performed by these authorities would
not be treated as supply. However, if they provide some
service which is not provided in the capacity of
constitutional authority then that service would be treated
as a supply. In other words, so long as election commission
performs duties in the capacity of ‗election commission‘
the activity would not be a supply.
73
(c) Duties performed by any person as a Chairperson or a Member

or a Director in a body established by the government:
 Many a times, governments establish authorities for

performing various functions. For example
Maharashtra Tourism Development Corporation
(MTDC), or Maharashtra Industrial Development
Corporation (MIDC) have been established by
Maharashtra government.
 These authorities are not covered under the

previous clause because they are not created by
Constitution.
 So long as the chairperson/member/director is

considered as an employee the clause (a) itself
would apply and his activity would not be treated
as ‗supply‘.
 However, it may happen that the government

engages experts from outside. Those experts may
not be employee of the government. Yet the duties
performed by them would not amount to ‗supply‘.
 the aforesaid body could be established by Central

Government or a State Government or local
authority.
4. Services of funeral, burial, crematorium or mortuary including

transportation of the deceased.
5. Sale of land and building:
 In general, sale of building would not be treated as

supply.
 But, GST would be applicable if under construction

property is purchased [where a part or full
consideration is paid before issuance of completion
74
certificate or before its first occupation (whichever

is earlier)]16.
6. Actionable claims, other than lottery, betting and gambling.
Panchayat Functions: The notification 11/2017-IT (Rate) covers:
―Services by way of any activity in relation to a function entrusted

to a Panchayat under article 243G of the Constitution.‖
 These activities/ transactions shall be treated neither as a

supply of goods nor a supply of service.
 This would be so only if the activities/ transactions are

undertaken by the Central Government or State Government
or any local Authority (engaged as public authority)
The Article 243G of the constitution provides for such powers

and authority to Panchayats as may be necessary to enable them
to function as institutions of self-government. These powers/
authority may be with respect to—
(a) the preparation of plans for economic development

and social justice;
(b) the implementation of schemes for economic

development and social justice entrusted to them
In sum the activity would not be treated as supply of goods or of

service:
- if the activity is undertaken by the Central Government or

State Government or any local Authority (engaged as public
authority)
- If it is in relation to a function of Panchayat
- Whether it is a function of Panchayat or not, would be

decided from Article 243G of the Constitution.
16 This is in terms of paragraph 5 (b) of Schedule II.
75
Legal Provisions:
 The GST is levied vide Section 9 of CGST/ SGST Act17 and

Section 5 of IGST Act. The levy under Composition Scheme is
provided under section 10 of CGST/ SGST Act.
 Section 9 of CGST Act imposes CGST; and Section 9 of SGST

Act imposes SGST. Both are imposed only on intra-state
supplies. Thus, the CGST & SGST is not imposed on inter-
State supplies.
 On the other hand Section 5 of the IGST Act imposes IGST on

inter-State supplies.
 Language of all the above three sections is almost similar.
 These sections say that the tax is levied on the value

determined under Section 15. This is discussed in detail in the
chapter on Valuation.
 These sections also say that the tax would be payable at a rate
notified by the government. The rate under CGST & IGST has
to be notified by the Central Government and that under
SGST by the respective State Government.
 These sections further say that the tax shall be paid by the
‗taxable person‘.
 Taxable person is defined vide section 2 (107) as a person who

is registered or liable to be registered under section 22 or
section 24.
 Section 7 says ‗supply‘ includes certain transactions.
- The first inclusion is a supply for consideration by a

person in the course or furtherance of business.
17UTT is levied under Section 7 of UT GST Act, 2017. Section 21 of the Act imports
several provisions of the CGST Act.
76
- Four activities (listed in schedule I) are to be treated as

supply even if they are carried out without
consideration.
- Schedule II: contains a declaration that certain (listed)

activities would be treated as supply of goods (and not
service), and certain other (listed) activities would be
treated as supply of service (and not goods). Supply
includes all these activities.
- Schedule III: contains a list of certain transactions

which are to be treated neither as supply of goods nor
of service.
 Section 8 provides the method of determining tax liability in

case of composite and mixed supplies.
 ‗Composite supply‘ is defined vide section 2 (30); and the

‗mixed supply‘ is defined vide section 2 (74).
 ‗Business‘ is defined vide section 2 (17) and the section 2 (31)

defines ‗consideration‘.
 Nature of the supply (i.e. whether a supply is inter-State or

intra-State), has to be determined by applying sections 7 to 13
of the IGST Act. Section 2 (64) and 2 (65) of CGST Act say that
‗intra-State‘ supply shall have same meaning as under section
8 of the IGST Act. We shall discuss these in the chapter ―Place
of Supply: Is the supply inter-State or intra-State‖.
 Compensation Cess is imposed vide section 8 of the GST

(Compensation to States) Act 2017.
77
CHAPTER 3
The Reverse Charge Mechanism

GST is normally payable by the supplier of the goods or the service. But,
there are certain cases where the liability has been shifted to the recipient of
the supply or even on some other person. This is Reverse Charge.
Topics Discussed
 Introduction
- Normal Charge
- Reverse Charge
 Two kinds of Reverse Charge under GST
- Notified Supplies
- URP Supplies
 Legal framework
 List of supplies notified under reverse charge
- Goods notified under Reverse Charge
- Services notified under Reverse Charge
 Salient Features of Reverse Charge Mechanism
 Time of Supply of Services under Reverse Charge
 Time of Supply of Goods under Reverse Charge
 Rate of Tax when the amount is charged as outward supply

Chapter 3 The Reverse Charge Mechanism
Introduction
Ordinarily tax is payable to government by the supplier. However in

several categories of supply, it is easier to collect tax from the
recipient than from the supplier. This mechanism of collecting tax
from the recipient (instead of supplier) is called reverse charge. This
method has existed since long under Service Tax. In some cases the
number of service recipient is very small when compared to the
number of service providers. For example, the number of recovery
agents might be very large as compared to the number of banks. It is
easier to collect tax from banks rather than from the recovery agents.
Similarly, there might not be more than 40 insurance companies in
India 1 , but the number of insurance agents might run in several
lakhs2. It is easier to collect tax from 40 companies rather than from
several lakh agents. In the same way the only practical method to
collect tax on services provided by persons located outside India, is
to collect it from the Indian recipient. Thus, there are two ways in
which the government collects the tax on a transaction.
Normal Charge: Under this system the charge of the tax is on the
supplier of the goods or services or both. The supplier is liable to pay
the tax to the government. Off course he is entitled to recover the
same from his customer/ client. But in case the tax is not paid, the
government would recover it from the supplier and not from the
customer/ client. This system of collecting tax from the supplier is
called „normal charge‟ or „forward charge‟.
Reverse Charge: In case of certain supplies, the liability to pay tax has
been cast on the recipient (instead of the supplier)3. This is called
reverse charge. If the tax has not been paid for any reason, the
government would raise demand on the recipient of the supply and
not on the supplier. The charge is on the recipient and not on the
1 Wikipedia has listed 14 life insurance and 23 general insurance companies

https://en.wikipedia.org/wiki/List_of_insurance_companies_in_India
2 As per annual report of IRDAI for 2015 – 16, there were 20.17 lakh individual agents of
life insurers as on 31st of March 2016 (see https://www.irdai.gov.in, page 73.)
3 Reverse Charge is defined vide section 2 (98) of the CGST Act, 2017
79
supplier. Reverse charge merely shifts the tax liability on the

recipient. It does not alter the amount of tax payable. It is only that
instead of routing the tax money through the supplier, now the
recipient pays it directly to the government. Similarly, it does not
alter the recipient‟s eligibility to avail credit. The ITC does not
depend upon whether the tax has been paid by the supplier or the
recipient. Thus, for example suppose the recipient is entitled to avail
credit of the tax paid on services of a GTA. Then he will remain
eligible even if the tax were paid by himself under reverse charge.
The following two diagrams explain the two kind of charges.
Normal Charge
Recipient Value + Tax Supplier Tax Government
Input Tax Credit
Tax
Reverse Charge
Recipient Value Supplier Government
Input Tax Credit
80
We may understand this with help of a transaction. Suppose, an

Advocate situated in Mumbai, raises bill to a client situated in
Kolkata. Let‟s say his bill is as under:
Fees for drafting, filing and 1,00,000

arguing your case before High
Court
IGST @18% 18,000
Total 1,18,000
What would be the impact, if the tax were payable under normal
charge and under reverse charge? Following would explain:
Normal Charge:
In both the cases:
The client pays Rs. 1,18,000 to
the Advocate.  The Client spends Rs.
1,18,000/-
Advocate pays GST of Rs.
18,000/- to the government.  The Advocate gets Rs.
1,00,000/-
Reverse Charge:
 The Government receives
Client pays Rs. 1,00,000/- to the Rs. 18,000/-
Advocate;
 The client gets ITC Rs.
and GST of Rs. 18,000/- to the 18,000/-
government.
Thus, irrespective of whether the tax is payable under normal charge

or under reverse charge, the amount of tax remains the same4, total
expenditure of the recipient remains the same and the amount of ITC
also remains the same. However, in the process, the Advocate has
4As we shall see later, there is an exemption from payment of tax under RCM for the
days on which the total value of supplies received from un-registered persons does not
exceed Rs. 5000/-
81
lost his ITC. Since he is not required to pay tax, he is not entitled to
avail ITC. Thus, the tax paid on his inward supplies becomes a cost
to the Advocate.
Two kinds of Reverse Charge under GST:
There are two kinds of supplies under reverse charge. These are:
 Notified supplies: Certain supplies have been notified by the

government under reverse charge (goods as well as services).
These supplies could be made by registered persons or un-
registered persons. If the supply is notified, the tax would be
payable by the recipient even if the supplier were registered.
 URP Supplies (Non-notified): Apart from the „notified

supplies‟ mentioned above, RCM also applies to all other
supplies received by a registered person from un-registered
persons (goods as well as services). Thus, while the notified
supplies are under reverse charge irrespective of whether the
supplier is registered or not, all other goods or services
supplied by any un-registered person are taxed in the hands
of the recipient.
Charge Categorisation Supplier
Registered
Person
Notified
Supplies
Un-Registered
Reverse Person (URP)
Charge
Non-notified Un-Registered
URP Supplies Person (URP)
We may note that the reverse charge has been brought in, not only
for services but also for goods. While the list of notified goods is very
82
small (only 5 entries), all the purchases made from un-registered

persons would be under reverse charge.
Although, the liability to pay tax is shifted to the recipient,

nevertheless the supply remains an inward supply for him. And
therefore he will remain entitled to ITC in the same manner in which
he would have been entitled if the tax was paid by the supplier.
Legal framework:
We may recall that CGST has been levied vide section 5 of the CGST
Act. The sub-section (3) empowers the government to notify supplies
under reverse charge; sub-section (4) says that the tax on supplies
received from un-registered persons shall be paid by the registered
recipient. There are parallel provisions under the CGST Act and the
CGST Act of various states. The provisions can be summarised as
under:
IGST CGST Effect

Act Act
Sec 5 (1) Sec 9 (1) Imposes tax on all supplies
Sec 5 (3) Sec 9 (3) Says, government may issue notifications

specifying category of supplies under
Reverse Charge.
Notification 4/2017-IT (Rate) has been

issued specifying supply of goods under
reverse charge.
Notification 10/2017-IT (Rate) has been

issued specifying supply of services under
reverse charge.
There are parallel notifications under the

CGST Act as well as other Acts.
Sec 5 (4) Sec 9 (4) Says that tax on all supplies received by a
registered person from an un-registered
person (URP) shall be paid by the
83
registered recipient under reverse charge.
The notification 8/2017-CT (Rate) exempts

supplies if they do not exceed Rs. 5000/-
in a day. There is no such exemption
under IGST Act, because an un-registered
person cannot make inter-State supply.
List of supplies notified under reverse charge
(A) Goods notified under Reverse Charge: Following are the

supply of goods notified by the government under reverse
charge.
i. Cashew nuts, not shelled or peeled
ii. Bidi wrapper leaves (tendu)
iii. Tobacco leaves
iv. Silk yarn
v. Supply of lottery
A table specifying the HSN code, the supplier of the goods and the
recipient of the goods as mentioned in the notification is given in the
appendix.
Tax liability: The tax is payable under reverse charge only if the
supplier and the recipient are as mentioned in the notification. In the
first four cases the recipient is mentioned as “any registered person”.
Therefore, the tax under reverse charge is payable only if the
recipient is a registered person. If the recipient is not registered, there
is no tax liability on him. There is no liability on the recipient to get
registered merely for paying tax on these goods.
In case of supply of lottery, the liability to pay tax is on the Lottery

distributor or selling agent. Therefore, the distributor of the agent
will have to compulsorily get registered and pay tax.
84
(B) Services notified under Reverse Charge: Services supplied by

the following have been notified under the reverse charge (For
sake of convenience, I have shortened the description. A table
specifying description of the service, the supplier and the
recipient, etc. is given in the appendix).
i. Any person located in non-taxable territory
ii. Goods Transport Agency (GTA)
iii. Advocates (Legal services) to a business entity.
iv. Arbitral tribunal to a business entity.
v. Services provided by way of sponsorship to any „body

corporate‟ or partnership firm.
vi. Government or local authority to a business entity.
vii. Director of a company or body corporate to the company/

body corporate
viii. Insurance agent (to the insurance company).
ix. Recovery agent (to a banking company or a FI, NBFC)
x. A person located in non-taxable territory by way of

transportation of goods in vessel
xi. Copyright services by an author, music composer,

photographer, artist etc.
We may refer to the notification 4/2017-IT (Rate) and 10/2017-IT

(Rate), which specifies in goods and services under reverse charge.
These notifications are issued under IGST Act. Similar notifications
have been issued under other acts as well.
A table specifying the description of the service, the supplier of the

goods and the recipient of the goods as mentioned in the notification
is given at the end of this chapter.
85
Salient Features of Reverse Charge Mechanism
 There is no partial reverse charge under GST. We may recall

that under service tax law 75% of the tax liability (on
manpower supply) was required to be discharged by the
recipient of service under reverse charge and 25% of the
liability was to be discharged by the service provider. As of
now, such system is not there under GST.
 The recipient of the notified services covered under reverse

charge will have to compulsorily get registered and pay tax.
He may not have any taxable outward supply, or may be that
his turnover is below the threshold limit of Rs. 20 lakh. Yet he
will have to get registered for paying tax under RCM. Once
he gets a registered, he becomes „registered person‟.
Consequently, he we will have to pay tax on all supplies
received from unregistered persons. The government should
see whether this is the real intention.
 To repeat, even if the turnover of the recipient is within the

limit of Rs. 20 lakh, he will have to get registered if he
receives a taxable service notified under reverse charge.
Before rushing for registration, he should find out whether
any tax is payable on the service, or not. For instance
Advocates service provided to a business entity having
turnover up to Rs. 20 lakh is exempted (sr. 45 to the
notification 12/2017-IT (Rate)).
 In case of supplies received from an un-registered person (i.e.

other than the notified supplies), tax is payable only if the
recipient is registered. The recipient is not required to obtain
registration merely for paying tax on the supplies received
from an un-registered person.
 The tax will have to be paid at the rates applicable to the

supply in question. For example if a registered person
purchases computer hard disk from an unregistered person,
will have to determine the HSN code, the value and the rate
86
of tax applicable to the hard disk. If the next day purchases

notebooks, he will have to find out the rate applicable to
notebooks.
 If the goods or the service is exempted, the exemption would

apply to RCM as well. For example, transport of goods by an
aircraft from a place outside India (up to the customs station
of clearance in India) is exempted vide serial 20 of the
notification 9/2017-IT (Rate). Therefore, even if the service
provider is the person located in non-taxable territory, tax
would not be payable by the recipient in India.
 Even the persons availing composition scheme will have to

pay tax at the rate applicable to respective goods and services.
The composition rate of 1%, 2%, 5%, etc. will not apply to
RCM.
 So far as availment of input tax credit is concerned, it is

immaterial as to whether the tax is paid by the supplier or by
the recipient. If credit was available when the tax is paid by
the supplier, it would remain available even if the tax is paid
by the recipient under RCM.
 For instance, credit is not available on material used for

construction of building. The credit will not be available
irrespective of whether the tax is paid by the supplier or the
recipient. On the other hand, credit is available on material
used for laying foundation of a machine. The credit would
remain available irrespective of whether the tax is paid by the
supplier or the recipient.
 The recipient is required to issue „payment voucher‟ when he

makes payment for the RCM supplies received by him.
 In case the supplier is unregistered person, the recipient is

also required to issue a Tax Invoice.
87
The daily exemption of Rs. 5000/- [notification 8/2017-CT (Rate)]
It does not apply to notified supplies: We have seen that there are two
kinds of RCM – the notified supplies and the URP supplies which are
not notified. The notified supplies are covered by section 9 (3) and
the non-notified URP supplies by section 9 (4) of the CGST Act. The
exemption of 5000/- per day is available only to the second category
i.e. the non-notified supplies received by a registered person from an
unregistered person.
Computation of Rs. 5000: The amount is sum total of all supplies

received from un-registered person – excluding the notified supplies.
It will cover even those supplies which are exempted vide some
other notification. However, it will not include value of
 alcoholic liquor for human consumption; and
 the five Petroleum Products which are presently out of

purview of GST.
The reason is simple. There can be no tax on a supply which is not

covered by the levy provision. The notification being discussed here
is an exemption notification. It can exempt if there is a levy. But an
exemption notification cannot create charge of tax.
Tax payable on whole amount on non-exempted days: The manner of

grant of exemption is worth noting. At the outset the notification
exempts all the intra-State supplies received from any un-registered
supplier. Then it goes on to carve an exception. It says, the exemption
would not be applicable where the aggregate value of such supplies
received from any or all the un-registered suppliers exceeds Rs.
5000/- in a day.
Thus, the days on which it exceeds Rs. 5000/-, the tax becomes
payable on the whole amount (and not merely on the excess
amount). In other words certain days are exempted and certain days
are taxable. All the transactions on exempted days are exempted. All
the transactions on taxable days are taxable. We cannot deduct Rs.
5000/- from the value of supplies on the taxable days. If the value on
88
taxable days is Rs. 6000/-, the tax is payable on entire 6000/- and not
on mere Rs. 1000/-.
Following table would illustrate the point.
Date Total value of Taxability

supplies received
from Un-registered
persons*
14/07/2017 4500 The entire amount is

exempted
15/072017 5000 The entire amount is

exempted
16/07/2017 6000 The entire amount is taxable

i.e. tax is payable on full Rs.
6000/- (and not on Rs.
1,000/-)
17/07/2017 5010 The entire amount is taxable

i.e. tax is payable on full Rs.
5010/- (and not on Rs.10/-)
*other than imports and notified services/ goods.
What about inter-State supplies?
You might have noted that the above notification exempts only intra-
State supplies. So what about inter-State supplies? Well, legally an
un-registered person cannot make inter-State supply. Section 24
makes it mandatory for him to get registered. This provision is
creating lots of trouble because inter-State supply could happen even
by a small shop-keeper. Suppose for instance a person ordinarily
residing in Chhattisgarh visits Kolkata and while coming back buys
some sweets. Suppose he asks for a bill bearing his address of
Chhattisgarh. Has the shopkeeper just made an inter-State supply? Is
he now required to be compulsorily registered? Imagine the level of
89
harassment that a shopkeeper can face if government doesn‟t take

care of this.
Time of Supply of Services under Reverse Charge:
The tax liability is to be discharged with reference to time of supply.

In case of services, the time of supply would be earlier of the
following two:
- the date of payment; and
- 60 days from the date of invoice of the supplier.
Thus, if a computer hard disk is purchased from an unregistered

person under a document dated 10th July, 2017 and payment is made
on that day itself, then the „time of supply‟ is July 2017; the tax would
be payable by 20th of August. If in the same case, the payment was
made on 15th of November, the 60 days period elapsed in September
itself. Hence, the time of supply would be September and the tax
would become payable by 20th of October.
Time of Supply of Goods under Reverse Charge
In case of goods, the time of supply would be earliest of the

following three:
- The date of receipt of goods
- The date of payment; and
- 30 days from the date of invoice of the supplier.
Computation of Tax Liability – Some practical tips:
Entire data of inward supplies (all purchases and expenses) has to be

taken into account and the following aspects have to be identified:
 Supplier is registered or un-registered?
 Supply is notified under RCM or not?
 What is the HSN Code or SAC of the supply?
 What is rate of tax? Is any exemption available?
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 Whether ITC is available or not.
 The data has to be organised date-wise so that the daily limit

of Rs. 5000/- can be determined.
 Do not include the following supplies while computing the

eligibility limit of Rs. 5000/- a day:
- The notified supplies under RCM (Thus the bills raised by

GTA, or an Advocate etc. are not to be considered here).
- The supplies received from registered persons.
- Liquor and the 5 petroleum products viz. petroleum

crude, high speed diesel, motor spirit (petrol), natural gas
and aviation turbine fuel.
This is easier said than done. One has to go into too much minute
detail. For example, if an employee submits expense statement for his
tour the accounts section has to break down his expenses into each
item of goods and service, determine its HSN/ SAC, rate of tax, see
whether there is any exemption. Did he eat in AC restaurant or non-
AC? Or he simply purchased soft drinks from a general store? Each
of these would be subject to scrutiny and challenge. It would be
better if the government imposes tax on entire reverse charge at a
single rate without any requirement to determine HSN/ SAC.
Documents to be issued by the Recipient of RCM supplies:
We are required to issue Payment Voucher if we make payment to

any supplier for the supplies covered under RCM. Additionally, if
the supplier is un-registered, we also have to issue a Tax Invoice.
Lastly, in case of exempted supplies we have to issue „Bill of Supply‟
instead of Tax Invoice.
Type of Supplier Documents

supply
Notified Registered Payment Voucher

Supplies
Un-registered Payment Voucher + Tax Invoice
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URP Supplies Un-registered Payment Voucher + Tax Invoice
Consolidated monthly Invoice

can be issued5.
Bill of supply required for days

on which value does not exceed
Rs. 5000/-
Rate of Tax when the same amount is later charged as outward

supply:
Consider a case where a manufacturer situated at Mumbai receives

order from a customer situated at Kolkata for supply of goods. Say,
the rate of GST applicable on the goods is 18%. Further, suppose their
contract requires the manufacturer to deliver the goods at Kolkata.
He engages a Goods Transport Agency (GTA) to deliver the goods.
GTA is under reverse charge. Consider taxability of the two
transactions:
Services supplied by GTA Transport Charges: Rs. 10,000/-

to the manufacturer of
GST payable by the manufacturer
Mumbai
under reverse charge @5% Rs. 500/-
The manufacturer avails ITC of this

tax.
Goods supplied by the Value of goods 3,00,000

manufacturer to customer
in Kolkata Transport Charges 10,000
Total value of supply 3,10,000
GST @18% 55,800
Total 3,65,800
5 Proviso to rule 46 of CGST Rules, 2017
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Note that the manufacturer will have to pay tax on the transport
charges twice. First he pays it as his inward supply. Tax so paid
would become available to him as credit.
Later, he includes the transport charges into value of the goods

supplied by him. Here supply of goods is the principal supply.
Hence the tax on entire value would be payable at the rate applicable
to the principal supply.
Will it really make any difference if the GTA were not in reverse
charge? The effect would have been the same. The tax of Rs. 500/-
would then have been paid by the GTA and charged to the
manufacturer. The manufacture would have taken ITC. The tax on
outward supply would still remain the same.
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CHAPTER 4
Computation of Tax
Value, Classification, Rate of Tax, and Exemption
How much tax is actually payable? This chapter discusses the method to
answer this question. The method would remain same irrespective of
whether the tax is to be paid under normal charge or under reverse charge.
Topics Discussed
 Introduction
 Classification: HSN Code & SAC
 HSN Code
- Ground Rules for determining HSN Code
- An example of HSN Code
- Meaning of the digits in the HS Code
- Meaning of the dashes
 Service Accounting Code
 Rate of Tax
- The rate depends upon the Code as well as the description
- Items not mentioned anywhere in the rate notification
- Items covered by more than one entry
- How many digits of code are required?
- Steps for determining tax liability
 Exemption
 Value of Supply
Chapter 4 Computation of Tax
Introduction
Before we take steps to determine the amount of tax, we must first

determine whether the transaction is at all covered by levy of GST.
Thus, we must ask the question - is it a supply? We have already
discussed the meaning of supply. We ought to remember that „goods‟
as well as „service‟ both the words are defined. If the thing does not
fit into these definitions then it would not be taxable. Anything
mentioned in schedule III is neither a supply of goods nor of service.
Similarly, if something is notified under section 7(2) it would be
neither supply of goods nor of service.
Next, recall the levy provisions. It

was said that the GST shall be levied Tax = Value x Rate of Tax
on supplies of goods or services or
both:
 on the value determined under section 15, and
 at such rates as may be notified by the Government
Thus, the amount of tax depends upon the value of supply and the
rate of tax. Both will always be under scrutiny of the GST authorities.
Any error in application of correct rate or correct value would lead to
demand of tax. The rate of tax itself is dependent upon HSN Code/
SAC and description of the goods or the service supplied. Moreover
there could be an exemption granted to the supply. In such cases, the
effective rate of tax would be arrived after giving effect to the
exemption.
Classification: HSN Code & SAC
Classification of goods means determination of its HSN Code; and

classification of services means determination of its Service
Accounting Code (SAC). These classification codes are referred by
the rate notifications.
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HSN Code: The HSN Code is to be determined as per the Customs

Tariff 1 . HSN is an acronym for
Harmonised System of Steps to determine Rate of Tax
Nomenclature. The World
Customs Organisation has  Determine Classification
developed this system. It is also (HSN/ SAC)
called „Harmonised Commodity
 Understand the description
Description and Coding System‟ of the goods/ Service
or simply HS. The system is used
by more than 200 countries. Over  Apply the notified rate of
98% of the goods in international tax
trade are classified in terms of this
Harmonised System2. Purpose of  Apply exemption, if any
the coding system is to enlist,
arrange and classify various products. This helps in monitoring &
regulating trade, getting statistical data, formulating policies, price
monitoring, quota control, economic research and analysis etc.
The HS Code provides classification only up to six digits. Various

countries have made further sub-classifications. The following
classification codes in India are based on the HS Code:
 C. Excise Tariff – Eight Digit Level
 Customs Tariff – Eight Digit Level
 Import Trade Control (Harmonised System) – Ten Digit Level
Determining right HSN Code is a specialised function. One needs an

in-depth knowledge of the coding system as well as detailed
information about the nature of the product in question, its material
constituents, use, the chemical characteristics, ISI specifications, etc.
etc. The classification depends upon multiple factors.
1Actually it is the first schedule to the Customs Tariff Act, 1975. For convenience sake
we refer to it simply as ‘Customs Tariff’.
2http://www.wcoomd.org/en/topics/nomenclature/overview/what-is-the-
harmonized-system.aspx
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It is important to determine the right classification because the rate of

tax depends upon it. We are required to determine the code by
referring to the first schedule of the Customs Tariff. However, the
rate mentioned in the Customs Tariff would be the rate of Customs
Duty. Those are not rate of GST. For rate of GST we should refer to
the rate notifications issued under GST law.
Ground Rules for determining HSN Code: For determining the

classification we need to take note of the following:
 There are a few rules called

„General Rules for the  Determine the
Interpretation of Import classification first, without
Tariff‟. These rules provide getting influenced by the
the principles governing the rate of tax.
classification3.
 Notification prescribing
 The Customs Tariff is rate or granting
divided into twenty one exemption, is not the legal
sections. Each Section is basis to determine
divided into many chapters. classification.
In all there are 98 chapters.
 There are certain „notes‟ given at the beginning of the sections

and chapters. These „notes‟ are law for classifying a product,
and cannot be overlooked.
 Generally, meaning of an item should be understood in the

manner in which it is understood by the trade and the people
dealing in it. Thus, scientifically tomato may be a fruit, but in
trade parlance it is a vegetable. Hence if there are separate
codes for fruit and vegetables, then tomato has to be classified
as vegetable and not as fruit.
 However, if a word is defined in the tariff then the definition

would prevail. The common meaning has to be discarded.
3 http://www.cbec.gov.in/resources//htdocs-cbec/customs/cst1617-
300616/cst-act16-17.pdf (see page 27)
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 WCO also publishes „Explanatory Notes‟ to the HS Code.

These notes are helpful in ascertaining the correct
classification.
 Although the Tariff is based on the system developed by

WCO, there might be some differences between the two.
Therefore for all legal purposes we should refer to the
Customs Tariff of India and the explanatory notes of WCO
should be used only as a support.
An example of HSN Code: Chapter 84 of the Tariff enlists various

machineries and mechanical appliances. Text of the heading 8467, its
sub-headings and tariff items is reproduced below.
Tools for working in the hand, pneumatic, hydraulic

8467 or with self-contained electric or non-electric motor
- Pneumatic:
- - Rotary type (including combined rotary
8467 11 percussion) :
8467 11 10 - - - Drills
8467 11 20 - - - Hammers
8467 11 90 - - - Other
8467 19 00 - - Other
- With self-contained electric motor:
8467 21 00 - - Drills of all kinds
8467 22 00 - - Saws
8467 29 00 - - Other
- Other tools:
8467 81 00 - - Chain ways
8467 89 - - Other :
8467 89 10
- - - Compressed air grease guns, lubricators
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and similar appliances

8467 89 20 - - - Vibrators
8467 89 90 - - - Other
- Parts :
8467 91 00 - - Of chain saws
8467 92 00 - - Of pneumatic tools
8467 99 00 - - Other
Meaning of the digits in the HS Code
Digits Refer to Explanation
First two Chapter In all there are 98 chapters

digits
First four Chapter heading Chapters are divided into

digits headings
First six digits Chapter sub- Headings are further

heading divided into „sub-headings‟
Eight Digits Tariff Items Sub-headings are further

divided into „tariff items‟
Meaning of the dashes: The dashes used before the terms of the
heading, sub-heading etc. have meaning. A double dash „- -„ is a sub-
group of a single dash „-„. A triple dash „- - -„ is a sub-group of a
double dash „- -„ etc.
Thus, 8467 is a chapter heading, 8467 11 is a sub-heading. 8467 19 is

another sub-heading. Both of these sub-headings are preceded by
double dashes and fall under the single dash entry ‗- Pneumatic‘.
Most of the time exemption notifications too refer to classification of

products. It should however be remembered that an exemption
notification is not a legal basis to determine classification.
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Service Accounting Code: Similar to goods, there is a system for

classification of services. The grouping is into Chapter, Section,
Heading, group and Service Code. All the services fall under chapter
99. These have been divided into five sections as under:
 Construction Services
 Distributive Trade Services; Accommodation, Food &
Beverage Service; Transport Services; Gas & Electricity
Distribution Services
 Financial and related services; real estate services; and
rental and leasing services
 Business and Production Services
 Community, Social & Personal Services and other
miscellaneous services
The classification of services is at six digit level. Meaning of the digits
is as under:
Digits Refer to Explanation
First two digit Chapter There is only one chapter viz.

Chapter 99 covering all services
The third digit Section In all there are 5 Sections viz.

from Section 5 to 9
First four digits Heading Sections are divided into

headings. In all there are 31
headings
First five digits Group Headings are further divided into

Groups
Six Digits SAC Finally, the Groups are divided

into „Service Codes‟
For instance, the code 998843 refers to "Pharmaceutical product

manufacturing services". The breakup of the code is as under:
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- Chapter 99
- Section 8
- Heading 9988
- Group 99884
- Service code 998843
The notifications prescribing rate of Tax for services refer to SAC
only up to 4 digits i.e. till the headings. Therefore, for all practical
purposes determining the SAC up to 4 digits is sufficient.
There are totally 568 entries grouped into the above 5 sections. The
highest number of entries (241) fall under the section 8 which is
“Business and Production Services”. This section is divided into
following 9 headings which are further divided into 48 groups.
Within each heading there are multiple groups and within each of
the groups that are multiple service codes.
Heading Description
9981 Research and development services
9982 Legal and accounting services
9983 Other professional, technical and business services
9984 Telecommunications, broadcasting and information

supply services
9985 Support services
9986 Support services to agriculture, hunting, forestry,

fishing, mining and utilities.
9987 Maintenance, repair and installation (except

construction) services
9988 Manufacturing services on physical inputs (goods)

owned by others
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9989 Other manufacturing services; publishing, printing

and reproduction services; materials recovery services
Rate of Tax
If the value of supply and the rate of tax are known, the amount of
tax will simply be equal to the value multiplied by the rate. The rates
of tax have been prescribed vide various notifications. Separate
notifications have been issued to prescribe the rates under IGST Act,
CGST Act, the GST Act of various states and the Compensation Cess
Act. Following are some of the notifications issued by the Central
government prescribed rate of tax:
Notification No. Prescribes
1/2017-Integrated Tax (Rate) Rate of Integrated GST

applicable to inter-State
supplies of goods.
8/2017-Integrated Tax (Rate) Rate of Integrated GST

applicable to inter-State
supplies of services.
1/2017-Compensation Cess Rate of Compensation Cess

(Rate) applicable to inter-State
supplies as well as intra-State
supplies.
1/2017-Central Tax (Rate) Rate of Central GST applicable

to intra-State supplies of goods.
11/2017-Central Tax (Rate) Rate of Central GST applicable

to intra-State supplies of
services.
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Let‟s have a look at the notification no. 1/2017-ITR4. The opening

paragraph says:
―In exercise of the powers conferred by sub-section (1) of section 5 of

the Integrated Goods and Services Tax Act, 2017 (13 of 2017), the
Central Government, on the recommendations of the Council,
hereby notifies the rate of the integrated tax….‖
Whenever the government issues a notification it is expected that in

the opening sentence it should state the source of its power. In other
words the governments should say whether it has power to issue
such a notification and if yes, then under which law. This also helps
us to link the notification to the particular provision of the law. Thus,
the notification 1/2017-IT (Rate) has been issued by the government
deriving powers from section 5 (1) of the IGST Act; and we know
that section 5 (1) says that IGST would be levied at a rate notified by
the government.
The said notification contains six schedules (six tables). The rate of
tax is divided table-wise. Thus, the rate of tax on all the items listed
in the schedule I, is 5%. Similarly, the rate for items listed in schedule
II is 12%, schedule III is 18% and so on. The numbers mentioned in
column 2, are HSN code. As discussed earlier, the HSN code is to be
determined from the Customs Tariff.
The rate is dependent upon the HSN Code as well as the description:
Rate of tax for the product cannot be determined solely on the basis
of HSN code or solely from its description. Both have to be taken into
account. It is possible that the same heading appears in more than
one schedule with different description.
For example, heading 8504 appears at sr. 375 of the schedule III
where the rate of tax is 18%. At the same time the heading also
appears at sr. 137 of schedule IV where the rate of tax is 28%.
4IT refers to Integrated Tax i.e. IGST and ‘R’ refers to Rate. The notifications regarding
rate of tax have been given a separate series and the word “(Rate)” is used after their
number.
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However, the description under the two entries is different.

Therefore, one cannot merely read the HS Code and decide the rate
of tax. He has to also take into account the description.
If you look at the schedules of any one of the notifications (IT, CT or

any State GST), you would find that all the entries in the schedules
mention the HSN code and the description of the goods. In some
entries, eight digits of the HSN code are mentioned, in some cases
only two digits are mentioned, but in majority cases, the
classification is given at four digit level.
Here are few entries in notification 1/2017-IT (Rate):
S. Chapter / Description of Goods

No. Heading /
Sub-heading /
Tariff item
Schedule I – 5%
173 30 Insulin
184. 3202 Enzymatic preparations for pre-tanning
190. 4011, 4013 Pneumatic tyres or inner tubes, of

rubber, of a kind used on / in bicycles,
cycle -rickshaws and three wheeled
powered cycle rickshaws
Schedule III – 18%
41 30 Nicotine polacrilex gum
47 3202 Synthetic organic tanning substances;

inorganic tanning substances; tanning
preparations, whether or not
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containing natural tanning substances

(other than Enzymatic preparations for
pre-tanning)
121 4011 Rear Tractor tyres and rear tractor tyre

tubes
453 Any Chapter Goods which are not specified in Schedule

I, II, IV, V or VI
Schedule IV – 28%
46 4011 New pneumatic tyres, of rubber [other

than of a kind used on/in bicycles,
cycle-rickshaws and three wheeled
powered cycle rickshaws; and Rear
Tractor tyres]
Please refer the entry 173 in schedule I. the HSN code is 30 which
refers to chapter 30, but the description is merely „Insulin‟. Since it is
in schedule I, the applicable rate is 5%. The entry does not cover the
whole chapter 30. It covers only „Insulin‟. “Nicotine polacrilex gum”
also falls under chapter 30 but that is covered by schedule III and
hence chargeable to tax @18%.
Heading 4011 falls under three schedules viz. the schedules I, III and
IV. All covers „tyre‟ but there is difference in the description and the
rates would apply accordingly. If someone just reads the entry 190 in
schedule I and concludes that the rate of tax for entire heading 4011
is 5%, he would be wrong.
Similarly, we can see that the chapter heading 3202 is covered by

entry sr. no. 184 of schedule I as well as the entry sr. no. 47 of the
schedule III. Therefore the rate will be decided by considering the
description as well. The point being emphasised here is that the entry
184 does not cover all the items that may fall under heading 3202. We
must take into account, the description mentioned in the entry.
105
In some entries “Any Chapter” is mentioned. In these cases, the rate

will apply on the basis of description of the product, irrespective of
its classification within the chapter.
Items not mentioned anywhere, are covered by schedule III: We may also
note the entry 453 of schedule III which reads “Goods which are not
specified in Schedule I, II, IV, V or VI”. The item could be falling
under any chapter. Thus, if an item is not covered by any other
schedule and is not specifically mentioned in any other entry of
schedule III as well then it is covered by the entry 453 and the
applicable rate would be 18%.
Items covered by more than one entry: If the same item falls under two
or more entries, then the choice lies with the taxpayer. The
Department cannot force him to pay tax at the highest rate. But
before taking such a stand, be sure that the product really falls into
the heading of your choice. In general, this will not happen.
How many digits of code are required?
The customs tariff defines HSN code at eight digit level. However, so
far as the Tax Invoice is concerned, the government has announced
some relaxation. In the Tax Invoice, the necessity of mentioning the
HSN code is to the following extent we are required:
Annual Turnover in the Number of Digits of HSN

preceding Financial Year Code
Up to Rs. 1.5 Crores Nil. (i.e. it‘s OK if the HSN code

is not mentioned at all in the Tax
Invoice).
Above Rs. 1.5 Crore and up to 2

Rs. 5 Crores
Above 5 Crores 4
This relaxation does not mean much to the trade. In most cases they
will need to determine the classification for the purpose of
determining the rate of tax. For the purpose of filing shipping bills or
106
bills of entry, the classification at eight digit level is essential.

Moreover, in many cases the rate notification itself refers to
classification at six or eight digit level. Therefore, practically, it
would be useful to determine classification of each product at eight
digit level. The relaxation is only for the purposes of mentioning in
the Tax Invoice.
107
Exemption:
While section 9 of CGST Act says that GST would be payable at the
rates notified by the government, the section 11 empowers
government to grant exemption 5 . A few notifications have been
issued under section 11 granting exemption. Exemption is always a
stage subsequent to the levy. It may be that a notification under
section 9 declares a particular rate (i.e. it levies tax) but another
notification under section 11 may exempt the supply. In such a
situation, the exemption would be available.
For example, recall that entry 453 in schedule III (notification 1/2017-
ITR) covers every item that is not specified elsewhere and the rate of
tax against this entry is 18%. Thus, there is no supply of goods which
is not covered by the notification. But after having read this
notification, we are still entitled to apply an exemption notification.
Following are some of the exemption notifications.
Notification Contents
02/2017-IT (Rate) Mega Exemption Notification for Goods
09/2017-IT (Rate) Mega Exemption Notification for Services.
15/2017-IT (Rate) Exempts imports by SEZ Unit/ Developer
Value of the supply
Amount of tax payable is equal to the value multiplied by the rate.

We have discussed in detail as to how to determine the rate of tax.
Let‟s now see what does the GST law say about value of the supply.
Scheme of the law: The Section 15 contains the scheme for valuation. It has
five sub-sections.
 Section 15 (1) says that the value shall be the „transaction

value‟ if
5
Parallel
108
- The supplier and the recipient are not related; and
- The price is the sole consideration for the supply.
 The explanation appended to the section 15 explains

meaning of „related person‟.
 Consideration is defined vide sec 2 (31). The definition is

inclusive. Thus, the definition under section 2(d) of Indian
Contract Act, 1872 would also be relevant.
 Section 15 (2) says the value shall include certain elements

(five listed items).
 Section 15 (3) says the value shall not include discount. But
it prescribes some conditions. If the conditions are not
fulfilled, the discount amount cannot be deducted (for the
purpose of computing GST).
 Thus, the Section 15 (1) to (3) contains the default mode of

valuation. This default mode applies only if the two
conditions mentioned earlier are satisfied.
 Section 15 (4) says that if the above default mode cannot be

adopted (when the conditions are not satisfied) then the
value shall be determined as prescribed under rules. In such
a situation, we have to apply the rules viz. rules 27 to 35 of
the CGST Rules, 2017.
 Lastly, the Section 15 (5) empowers the government to

prescribe any other method of valuation as well. Thus, for
example, if the government wants, it can bring in the MRP
system of valuation for certain supplies decided by it.
Transaction value:
Sub-section (1) of section 15 reads as under:
The value of a supply of goods or services or both shall be the

transaction value, which is the price actually paid or payable for the
said supply of goods or services or both where the supplier and the
109
recipient of the supply are not related and the price is the sole
consideration for the supply.
Thus, the value of a supply would be the transaction value if the

following two conditions are satisfied, viz.:
 The supplier and the recipient are not related; and
 The price is the sole consideration for the supply.
Where any of these conditions is not satisfied, one has to refer to the
rules.
The „Transaction Value‟ is the basic method of valuation. In the first

instance value shall always be the „Transaction Value‟. The rules
would apply only where the transaction value cannot be adopted;
and the only reason for not adopting transaction value would be that
either there is no transaction value at all or any one or both of the
conditions mentioned above are not fulfilled. The transaction value
cannot be rejected on any other ground.
We need to understand meaning of transaction value; when would

the supplier and the recipient be considered as related; and what is
meant by the price being the sole consideration.
Value of Transaction
Supply Value
5 Inclusions
Discount
s
Five items to be included in the value:
110
Transaction value is price actually paid or payable for the supply.

Amounts that do not relate to the supply are not part of the
transaction value. But, apart from transaction value, the value of
supply would also include the five specified items. One item viz.
“discount” offered would be deductible only in certain
circumstances. Let us consider them one by one.
1. Taxes other than GST
Value does not include GST i.e. CGST, SGST, Transaction value
UTGST and the GST Compensation Cess. means the price
However all other taxes, duties, cesses, fees actually paid or
and charges levied under any law would be payable for the
part of the value if they are charged supply.
separately by the supplier. For example,
Central Excise duty as well as GST is payable on tobacco and tobacco
products. On such products the excise duty will first added to the
basic value and then only the GST will be calculated. If any other tax
were payable, that would also be included in the value for
calculating GST.
2. Amount paid by the recipient on behalf of the supplier
The second inclusion in the value has been mentioned in the section
15 (2) (b) in the following words
(b) any amount that the supplier is liable to pay in relation to such
supply but which has been incurred by the recipient of the supply
and not included in the price actually paid or payable for the goods
or services or both;
This can be understood by way of an example. Let's say the supplier

is a manufacturer and during certain stages of manufacturing he
draws samples and sends to a laboratory for testing. Now paying the
testing charges to the laboratory is an obligation of the supplier. If
these charges are instead paid by the recipient to the laboratory, the
charges would form part of the value at which the supplier should
pay GST. Here the liability to pay to the laboratory was of the
supplier and the recipient paid to it on behalf of the supplier.
111
Of course this would apply only if the supplier was in the first
instance liable to pay to the laboratory. Whether the latter was
indeed liable to make the payments or not is a question of fact. We
may ask a simple question to ourselves – against whom can the
laboratory make a legal claim for payment? What if the supplier fails
to pay to the laboratory? Can it file a legal claim against the supplier
or against the recipient? If the legal claim lies against supplier, it is
obvious that the liability to pay was of the supplier.
3. Incidental expenses
The third inclusion in value is
(c) incidental expenses, including commission and packing, charged

by the supplier to the recipient of a supply and any amount charged
for anything done by the supplier in respect of the supply of goods
or services or both at the time of, or before delivery of goods or
supply of services;
Thus expenses such as loading, packing, weighment would form part

of the value. For example if a shopkeeper recovers separate charge
for gift wrapping of a product, it would be added to the transaction
value for computation of GST.
The transport charges, and insurance for the supply is also includible
in the value. Thus, for instance if certain goods are supplied for Rs. 1
lakh and certain other charges are also levied, then the tax would be
payable on the entire amount. Following would illustrate this:
Price 1,00,000
Packing Charges 500
Transportation 1000
Insurance 100
Total 1,01,600
IGST @18% 18288
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Here we may note that the rate of tax would not be separate for the
goods and for transportation, or insurance etc. These charges form
part of the „value of supply of the goods‟. These are not separate
supplies. The entire supply is a composite supply and the rate
applicable to the main supply would be charged. Thus, it is
immaterial that the rate of GST on services of GTA is only 5% and the
rate on the goods supplied above is 18%. The tax would be payable at
18% on the total value.
4. Interest and penalty
The fourth inclusion reads as:
(d) interest or late fee or penalty for delayed payment of any

consideration for any supply; and
Usually the supplier and the recipient agree to a definite term of

payment; and the supplier may charge interest if the recipient delays
the payment. Such interest is includable in the value. For example
suppose in the terms of purchase order the recipient is liable to make
payment within 45 days and he actually pays on the 60th day. Now if
the supplier recovers an amount by way of interest or late fees or
penalty then this interest/late fees/penalty would become part of the
value of the supply.
5. Subsidy linked to the price
The last inclusion in the value is
(e) subsidies directly linked to the price excluding subsidies

provided by the Central Government and State Governments.
Explanation.––For the purposes of this sub-section, the amount of

subsidy shall be included in the value of supply of the supplier who
receives the subsidy.
Is clear that a subsidy which is not linked to the price is not

includible the value. The link has to be a direct one and not remote or
indirect link. Secondly, the subsidies provided by government are
not to be included in the value. And thirdly, the subsidy can be
113
added to the value of only that supplier who actually receives it.
Subsidy received by one supplier cannot be added to the value of
another supplier.
Treatment of Discount
The section 15 (3) of the CGST Act, 2017 reads as
(3) The value of the supply shall not include any discount which is
given––
(a) before or at the time of the supply if such discount has been duly
recorded in the invoice issued in respect of such supply; and
(b) after the supply has been effected, if—
(i) such discount is established in terms of an agreement

entered into at or before the time of such supply and
specifically linked to relevant invoices; and
(ii) input tax credit as is attributable to the discount on the

basis of document issued by the supplier has been
reversed by the recipient of the supply.
Discounts are common feature in the trade. A discount could be

given at the time of supply itself or at a later date. In many cases
conditional discounts are offered. From the perspective of the above
section, the discounts would be treated as under:
a. If the amount of discount is known at the time of supply and

is recorded in the invoice itself, then such discount would not
form part of the value. In other words GST would be payable
after deducting such discount. For example if price of the
goods is Rs. 1000 and the supplier offers a discount of Rs. 100,
GST would be payable only on his 900; and the invoice
should record this fact.
b. There could be a situation where it is known to the parties

that a discount would crystallise, but the actual amount of the
114
discount not known at the time of supply. For example there

could be targeted based discounts - say a discount of 10%
would be given is the buyer purchases goods worth rupees
one crore in a quarter. In this case although there is an
agreement between the parties to pass on discount, yet at the
time of supply it is not known whether the discount would
really crystallise or not. The amount of is also not known. If
the buyer purchases goods worth Rs. 90 lakh he doesn't get
any discount. On the other hand if he purchases goods worth
Rs. 1.25 crores he gets a discount of 12.5 lakhs.
Such discount which is given

Discounts deductible from
after the supply would be Value
deductible from the value only
if the following conditions are  given in the Invoice
(amount deducted)
fulfilled:
(i) There is an agreement  offered in the Invoice

as per terms of
entered before making
contract (but amount
the supply which
not determined).
provides for such
discount.
(ii) The agreement is mentioned in the invoice; and
(iii) the recipient reverses the ITC availed by its (being the
GST amount on the discount)
Suppose, a supplier circulates a policy declaring that anyone

who makes a purchase of more than Rs. 25 lakh within a
quarter, would be given a discount of 10%. Secondly, in the
Purchase order he makes a mention of this policy6. [It is not
essential to circulate a policy in every case. The clause about
discount can be stipulated in the purchase order itself]. Now,
6
It is not essential to circulate a policy in every case. The discount can be simply
mentioned in the purchase order. What is important here is that there has to be an
agreement before the supply is made; and that agreement is referred in the
invoice.
115
whether a buyer has actually become eligible to the discount

or not would be known only after end of the quarter.
However, the supplier needs to put a reference about this
discount in the Tax Invoices issued to the buyer. For instance
he may mention in the invoice:
―Discount shall be allowed as per our Trade Policy dated _____‖
c. The third situation could be where there was no advance

agreement for the discount and therefore at the time of
making supply it was not known that a discount would be
given in future. Such types of discounts cannot be deducted
from the value.
Where the supplier and the recipient are related:
Transaction value is not acceptable as the „value of supply‟ if the two

parties are related. We will shortly see the meaning of the „related
person‟, but before that let‟s see – what would be the impact on
valuation if the supply is made to a related person?
Value of any supply made to any related person will have to be

determined as per rule 28 of the CGST Rules. The method given
under the said rule applies to supply between „related person‟ as well
as between „distinct person‟ (i.e. our own branch7). But it would not
apply to the supplies through an agent. The method of rule 28 is as
under:
(a) Firstly, the value would be the „open market value‟ of such
supply;
(b) If the open market value is not available, then it would be the
value of supply of goods or services of like kind and quality;
(c) if the value is not determinable under clause (a) or (b), then
we should apply rule 30. If value cannot be determined even
7Tax is payable when we make a supply to our own branch (registered or an un-
registered fixed establishment) in another state. It would also be payable if we are
making supply to a separately registered vertical within the same state.
116
by application of rule 30, then we should apply rule 31. In

case of supply of services, the supplier may opt for rule 31,
ignoring rule 30.
At this stage, we should also take note of the following two proviso:
Provided that where the goods are intended for further supply as
such by the recipient, the value shall, at the option of the supplier, be
an amount equivalent to ninety per cent of the price charged for the
supply of goods of like kind and quality by the recipient to his
customer not being a related person:
Provided further that where the recipient is eligible for full input tax
credit, the value declared in the invoice shall be deemed to be the
open market value of the goods or services.
The second proviso solves most of the problems. If the recipient is

eligible to full ITC then the value would not be questioned. Of course
we should invoice the product at a fair value. If the declared value is
exorbitantly different and unpalatable, then it could be disputed.
However, we are not required to produce any costing data or arrive
at exact valuation in such cases.
We may recall that even free supplies made to „related persons‟ is

taxable. The above provision would apply to such supplies as well.
Meaning of related person: The term „related‟ has a special meaning

and is defined. The explanation below section 15 reads as under:
(a) persons shall be deemed to be ―related persons‖ if––
(i) such persons are officers or directors of one another‘s

businesses;
(ii) such persons are legally recognised partners in business;
(iv) such persons are employer and employee;
(v) any person directly or indirectly owns, controls or holds

twenty-five per cent. or more of the outstanding voting
stock or shares of both of them;
117
(vi) one of them directly or indirectly controls the other;
(vii) both of them are directly or indirectly controlled by a third

person;
(viii)together they directly or indirectly control a third person; or
(ix) they are members of the same family;
(b) the term ―person‖ also includes legal persons;
(c) persons who are associated in the business of one another in that
one is the sole agent or sole distributor or sole concessionaire,
howsoever described, of the other, shall be deemed to be related.
The above definition is almost the same as that in the Customs

Valuation Rules.
Value of supply of goods made or received through an agent.-
Rule 29 deals with this situation. Following methods are prescribed.
a. Firstly, it shall be
- The open market value or
- 90% of the price charged to an un-related customer
b. If value cannot be determined as above, then apply rule 30. If

even rule 30 cannot be applied then apply rule 31. In case of
supply of services, the supplier may opt for rule 31, ignoring
rule 30.
Text of rule 29 is reproduced below for ready reference:
Value of supply of goods made or received through an agent.-

The value of supply of goods between the principal and his agent
shall
(a) be the open market value of the goods being supplied, or at the
option of the supplier, be ninety per cent. of the price charged for
the supply of goods of like kind and quality by the recipient to
118
his customer not being a related person, where the goods are
intended for further supply by the said recipient.
Illustration: A principal supplies groundnut to his agent and the

agent is supplying groundnuts of like kind and quality in
subsequent supplies at a price of five thousand rupees per quintal on
the day of the supply. Another independent supplier is supplying
groundnuts of like kind and quality to the said agent at the price of
four thousand five hundred and fifty rupees per quintal. The value
of the supply made by the principal shall be four thousand five
hundred and fifty rupees per quintal or where he exercises the
option, the value shall be 90 per cent. of five thousand rupees i.e.,
four thousand five hundred rupees per quintal.
(b) where the value of a supply is not determinable under clause (a),
the same shall be determined by the application of rule 30 or
rule 31 in that order.
Method of Rule 30 : Under rule 30, the value shall be equal to 110% of
the
- cost of production or manufacture or
- the cost of acquisition of such goods or
- the cost of provision of such services.
Method of rule 31: This is the residual method of valuation. It applies

when all other methods fail. But this rule does not provide any
concrete method. It merely says that the value shall be determined
―using reasonable means consistent with the principles and

the general provisions of section 15 and the provisions of
this Chapter‖
The proviso to this rule may be noted. It reads:
Provided that in the case of supply of services, the supplier

may opt for this rule, ignoring rule 30.
Rule 30 (i.e. value based on cost) cannot be ignored in case of supply

of goods. It can be done only in case of supply of services.
119
Value in certain special cases: Rule 32 provides alternative method

of valuation in certain cases. It would be choice of the supplier as
whether to adopt these special methods or to determine value under
normal system. Since the provision regarding conversion of
currencies is a bit lengthier, we shall discuss the same first. Valuation
method for remaining supplies are tabulated thereafter.
Services by way conversion of currency
Money is neither „goods‟ nor „service‟8. Therefore supply of money is

not taxable under GST law. But there can be services in relation to
money which may be taxable. Service rendered for conversion of
currency is such a service.
Option 1: A foreign currency could be exchange to Indian rupee or

Indian rupee may be exchanged to a foreign currency. In such cases
the value of supply of service would be equal to the difference in the
- buying/selling rate, as the case may be, and
- the RBI reference rate for that currency at that time.
multiplied by the total units of currency.
The formula can be depicted as:
Value of supply =
(Buying/selling rate) - (the RBI reference rate) x units of currency
 Where RBI reference rate for a currency is not available, the

value shall be 1% of the gross amount of Indian Rupees
provided or received by the person changing the money.
8 See sec 2 (52) and sec 2 (102) respectively for the definition of goods and service.
120
 But, it may happen that neither of the currencies exchanged is

Indian Rupees. In such a case
 Calculate the amount of Indian Rupees that the person

would have received by converting the two currencies
(at the reference rate provided by the RBI).
 The value shall be 1% of the lesser of the two amounts.
Option 2: One can chose to adopt this method. But once the option is
exercised, it cannot be withdrawn during the remaining part of that
financial year. Under this option, the value shall be as under:
Sr. Gross amount of Value of supply

No. currency exchanged for
(i) Upto Rs. 1 lakh 1% of the gross amount

(minimum value Rs. 250/-)
(ii) Above Rs. 1 lakh and Rs. 1000
up to 10 lakh
+ 0.5% of the amount
exceeding Rs. 1 lakh
(iii) Exceeding Rs. 10 lakh 5,500/-
+ 0.1% of the amount
exceeding Rs. 10 lakh
(maximum Rs. 60,000)
The special method of valuation for other cases are as under:
Sub- Special Case Method of Valuation

rule
(3) Booking of tickets for 5% of the basic fare - domestic

travel by air provided bookings,
by an air travel agent
10% of the basic fare in the case of
121
international bookings
“basic fare” means that part of the

air fare on which commission is
normally paid to the air travel
agent by the airlines.
(4) Services in relation to There are three methods. But these

life insurance business methods do not apply where the
entire premium paid by the policy
holder is only towards the risk
cover in life insurance.
(a) Value = (gross premium

charged) – (amount allocated
to investments or savings on
behalf of the policy holder).
The above reduction is allowed only if

the amount is intimated to the policy
holder at the time of supply of service.
(b) In case of single premium

annuity policies other than (a)
above: Value = 10% of the
single premium charged from
the policy holder;
(c) In all other cases, value would

be:
First year: 25% of the premium

charged
Subsequent years: 12.5% of the

premium charged
(5) Person dealing in Value =

buying and selling of
(selling price) – (purchase price)
second hand goods
122
i.e., used goods  Where the value of such

supply is negative, it shall be
ignored.
 Method available only if the

dealer has not availed ITC
 Method is available even if the

goods are sold after such
minor processing which does
not change the nature of the
goods
 If the goods are repossessed

from an un-registered
defaulting borrower (for the
purpose of recovery of a loan
or debt), then
Purchase value shall be

deemed to be the purchase
price by the defaulting
borrower reduced by 5% for
every quarter or part thereof,
between the date of purchase
and the date of disposal by the
person making such
repossession.
Thus, if the borrower had used the

goods for say one year, his
purchase price would be reduced
by 20%. Thus the value would be
current sale price minus 80% of the
original purchase price.
(6) Redeemable token, or The money value of the goods or

a voucher, or a services
123
coupon, or a stamp
(7) Notified free supplies Nil

between distinct
persons
Pure Agent:
Sometimes it happens that a person temporarily makes payment on

behalf of another person and then seeks reimbursement of the same.
For instance a Customs Broker (Customs House Agent) may pay the
Customs duty on behalf of his client. Then while raising his bill he
may seek reimbursement of the Customs Duty as well. In such
circumstances it cannot be said that the customs duty was a
consideration for the supply made by the agent. He should not be
called upon to pay GST on the Customs Duty. The valuation rules
recognise this and have provided it through the concept of „pure
agent‟. Rule 33 says that
―the expenditure or costs incurred by a supplier as a pure agent of

the recipient of supply shall be excluded from the value of supply‖
However, it imposes the following three conditions. The amount can

be excluded only if all of the following three conditions are satisfied.
The conditions are:
(i) the supplier acts as a pure agent of the recipient of the

supply, when he makes the payment to the third party on
authorisation by such recipient;
(ii) the payment made by the pure agent on behalf of the

recipient of supply has been separately indicated in the
invoice issued by the pure agent to the recipient of service;
(iii) the supplies procured by the pure agent from the third party
as a pure agent of the recipient of supply are in addition to
the services he supplies on his own account.
124
The first condition is that the supplier should be acting as „pure

agent‟. The explanation to the rule defines pure agent as a person
who
(a) enters into a contractual agreement with the recipient of

supply to act as his pure agent to incur expenditure or costs
in the course of supply of goods or services or both;
(b) neither intends to hold nor holds any title to the goods or
services or both so procured or supplied as pure agent of the
recipient of supply;
(c) does not use for his own interest such goods or services so
procured; and
(d) receives only the actual amount incurred to procure such

goods or services in addition to the amount received for
supply he provides on his own account.
The rule also provides the following illustration which will help us to
understand the concept:
Corporate services firm A is engaged to handle the legal work

pertaining to the incorporation of Company B. Other than its
service fees, A also recovers from B, registration fee and approval fee
for the name of the company paid to the Registrar of Companies. The
fees charged by the Registrar of Companies for the registration and
approval of the name are compulsorily levied on B. A is merely
acting as a pure agent in the payment of those fees.
Therefore, A's recovery of such expenses is a disbursement and not

part of the value of supply made by A to B.
125
Steps to determine tax liability
Is the activity/ transaction taxable? Check Schedule III (whatever

is mentioned there, is neither supply of goods nor of service.
Check notification under section 7 (2) of CGST Act, 2017 (the

activities/ transactions so notified treated neither as a supply of
goods nor a supply of services.
Check definition of goods/ service. If the item is neither goods nor

service, it is not taxable.
Find out classification (HSN/ SAC)
Check the rate notification issued under section 9 of CGST Act,

2017 (or section 5 of IGST Act, 2017)
Check the exemption notification (issued under section 11 of CGST

Act, 2017 or section 6 of IGST Act, 2017)
126
CHAPTER 5
Time of Supply:
When does the tax liability arise?

Levy of GST is on supply; but the tax is payable when the „Time of Supply‟
occurs. It can occur even before the supply has actually been made.
Topics Discussed:
 Introduction
 Time limit for issuance of Invoice
 Time of Supply of Goods
- Normal Charge
- Reverse Charge
- Supply of Vouchers
- Other cases
- Addition to value (interest, late fees, penalty for delayed

payment)
 Time of Supply of Services
- Normal Charge
o When invoice is issued within prescribed time
o When invoice is not issued within prescribed time
- Reverse Charge
- Supply of Vouchers
- Addition to value
- Other cases
Chapter 5 Time of Supply
 Time of Supply when there is change in rate of Tax
Introduction
GST is payable on monthly basis1. Tax on all the supplies made in a

month is to be paid in the subsequent month, before the GSTR-3 is
filed; and GSTR-3 is to be filed latest by 20th day of the subsequent
month. Thus, tax for December is to be paid in January. The GSTR-3
for December is to be filed by 20th January. GSTR-3 cannot be filed
unless the tax has been paid.
OK, but which month? The month in which invoice is issued or the
month in which the goods or service is actually supplied or the
month in which the payment is received? The law has created an
amalgam of all three and that amalgam is called ‘time of supply’. It’s
an artificial, defined concept.
The liability to pay tax shall arise at the ‘time of supply’. If the time of
supply occurs in July, the tax is payable in August. If the time of
supply occurs in December, the tax is payable in January. If the time
of supply occurs in March, the tax is payable in April. If the tax is
payable on quarterly basis then the tax for entire quarter would be
payable after end of the quarter. Thus, the tax for July to September
would be payable in October.
There are separate provisions for determining ‘time of supply’ of

goods and of services. Section 12 of the CGST Act deals with the time
of supply for goods and the section 13 deals with the time of supply
for services. In each case we need to consider various situations such
as
 When tax is payable under normal charge.
 When tax is to be paid under reverse charge
1 In case of composition scheme the tax is payable on quarterly basis.
128
 Continuous supply of service: When service is rendered over

a long period and several bills are raised.
 When service is received from ‘Associated Enterprise’

situated outside India, for which tax is payable under reverse
charge.
Time limit for issuance of Invoice:
Time of supply has a close link to the time of issuance of invoice.

Therefore, we first need to know the time limit within which the
invoice can be issued or must be issued.
Sr. Situation When should the invoice be

issued?
1. Invoice for supply of Goods
(a) Supply involves Before or at the time of removal

movements of goods
(b) Other cases Before or at the time of
 delivery of goods or
 making the goods available

to the recipient
2. Invoice for continuous supply of goods
(a) If successive statements of Before or at the time when each

accounts are involved such statement is issued
(b) If successive payments are Before or at the time when each

involved such payment is received
3. Invoice for supply of services
(a) In general Before or after provision of

service – but within 30 days
(b) Insurer, Banking Within 45 days from date of

Companies, FIs, NBFC supply of service
129
(c) In case of inter-office  before or at the time of entry

billings (supply between in supplier’s book, or
distinct person) of
 before expiry of the quarter
 Insurer, Banking
Companies, FIs,
NBFC;
 Telecom Operators
 Other suppliers
notified by the
government
4. In case of continuous supply of services
(a) Due date of payment is On or before the due date of

ascertainable from the payment
contract
(b) Due date of payment is Before or at the time when the

not ascertainable supplier of service receives the
payment
(c) Payment is linked to the On or before the date of

completion of an event completion of that event.
5. In a case where the supply At the time when the supply

of services ceases under a ceases
contract before the
completion of the supply
6. Goods sent or taken on Earlier of the following two:

approval for sale or return
 Before or at the time of
(These are sent or taken
supply (i.e. when the
before the supply takes
approval is communicated);
place)
or
 Six months from the date of

removal.
130
Now, let’s consider various situations under which time of supply

has been provided by the law.
Tax is payable on receipt of Advances:
As we shall see, the tax has become payable on mere receipt of

advances even if the goods or service has not been supplied. This
system was already prevailing in case of services, but there was no
such liability in case of goods and it is for the first time that the tax
liability on supply of goods would arise even when the goods have
not been supplied.
Advance = Value + Tax: The tax on advance would be payable only to

the extent the advance has been received. Suppose an amount of Rs.
5 lakh is received as advance then for the purpose of computation of
tax the amount of Rs. 5 lakh shall be split into value and tax. Thus, if
the rate of tax is 18% then the amount would be split as under:
Value Rs. 4,23,729
Tax Rs. 76,271
Total Rs. 5,00,000
It would be convenient if the buyer pays Rs. 5 lakh + GST.
Receipt Voucher: We are required to issue a ‘Receipt Voucher’ upon

receipt of advance. The voucher should contain all the details
mentioned in Rule 50 of CGST Rules, 2017. The information
regarding advances is required to be uploaded on the GST portal
under GSTR-1.
If Rate or Nature cannot be determined: It may happen that the supply

to be made consists of various rates and the advance is not
identifiable with any particular rate. It may also happen that at the
time of receipt of advance it cannot be determined as to whether the
131
supply would be inter-State or intra-State. Rule 50 prescribes that if

at the time of receipt of advance
 Rate of tax not determinable – pay @18%
 Nature not determinable – consider it inter-State (i.e. pay

IGST)
Credit not Available: Although the tax becomes payable on advances,

Input Tax Credit is not available to the recipient until the supply is
actually received by him.
Advance vs. Deposit: Another point to note here is that there is a

difference between advance and deposit. Deposit is not a
‘consideration’ for the supply unless it is actually applied to (i.e.
adjusted against) the supply. The definition of ‘consideration’ says
“…. a deposit given in respect of the supply of goods or services or

both shall not be considered as payment made for such supply
unless the supplier applies such deposit as consideration for the said
supply2”
Whether a payment is ‘advance’ or ‘deposit’ would be subject to

interpretations. The department would try to allege that every
deposit is advance and there would be tax payers who would try to
fit in every advance as deposit. This would actually depend upon the
nature of the transaction and the kind of contract between the
parties. A professional advice may be the right course.
In the above background let’s see how time of supply has been fixed
in various situations.
Time of Supply of Goods

1. Time of supply of Goods: Normal Charge
The time of supply of goods would be the earliest of the:
2 Sec 2 (31) of the CGST Act, 2017
132
 Date of issuance of Invoice OR the last date on which invoice

is required to be issued
 Date of receipt of payment
Now, we have already noted that the invoice can be issued before or
at the time of removal of the goods. Therefore, the above criteria get
split into the following three criteria:
Time of Supply of Goods: Normal Charge

Compare Time of Supply is
 The date of Invoice
 The date of removal of
goods Whichever comes earlier
 The date of receipt of
payment
Thus, if invoice is issued in July, the goods are removed in September

and the payment is received in November, the earliest of the three is
July and that would be the ‘time of supply’. Consequently, tax would
become payable in August.
Similarly, if the payment was received in July, the goods were

removed in September and the invoice was issued at the time of
removal, then also the ‘time of supply’ has occurred in July and the
tax would become payable in August. Here we may note that so far
as the advance is concerned, the
‘time of supply’ would occur only
“Date on which the supplier
to the extent the payment was receives payment” means:
received 3 . Suppose there is an
order for Rs. 10 lakh + GST Rs. 1.8  the date on which the payment
lakh and an advance of Rs. 2 lakh is entered in the account books
of the supplier; or
+ GST Rs. 36,000/- is received,
 the date on which the payment
3 Explanation 1 to section 12 (2) says “supply” shall is
becredited
deemedtotohis bank
have account,
been made to
the extent it is covered by the payment.
whichever is earlier.
133
then tax would be payable only on Rs. 2 lakh and not on the entire
value of Rs. 10 lakh. In other words the tax payable in August would
be Rs. 36,000/- and the balance tax of Rs. 1.44 lakh would be payable
in October (as the goods were removed in September).
Suppose certain goods were supplied for Rs. 10,180/- (value Rs.
10,000/- + Tax Rs. 180/-), and the recipient makes a payment of Rs.
11,000/-, a question would come up as to how to deal with the excess
amount of Rs. 820/-. The law says that the supplier has an option:
He can either treat this as Advance and pay tax or he can pay the tax
when the next invoice is issued to the recipient for a subsequent
supply. This facility is available only if the excess amount does not
exceed Rs. 1,000/-. In case the excess amount is more than Rs. 1000/-,
he will have to treat it as advance (or may be deposit – depending
upon its actual nature).
When excess amount (up to Rs. 1000/-) is received.
Supplier issues an Receives up to Rs.

Invoice 1000 in excess
Time of Supply: Issues Invoice for

Date of the either the excess
invoice (optional) amount
2. Time of supply of Goods: Reverse Charge [Sec 12 (3)]
The tax would be payable on reverse charge if the goods are notified
(whether the supplier is registered or not) or if the same are supplied
134
by an un-registered person (URP). In case of non-notified goods

obtained from URPs the daily exemption limit of Rs. 5000/- would
apply (for all supplies of non-notified goods and services received).
The ‘time of supply’ would be the earliest of the date of
 The date of receipt of goods
 The date of payment (as entered in the books of account of the

recipient or the date on which the payment is debited in his
bank account, whichever is earlier).
 30 days from the date of the invoice (or any other document
in lieu of invoice) issued by the supplier.
There could be cases where none of the above three is ascertainable.

It has been provided that if above method fails for any reason, then
the ‘time of supply’ would be the date of entry in the books of
account of the recipient of supply.
Time of Supply of Goods: Reverse Charge

 The date of receipt of goods
 The date of payment
Whichever comes earlier
 30 days from the date of the
invoice
3. ‘Time of Supply’ when a supplier issues Vouchers for the

goods: Sec 12 (4) shall be as under:
If supply is identifiable on •Date of Issue of

the date of issue of voucher Voucher
Other Cases •Date of Redemption
135
For example, suppose a seller of furniture issues vouchers which can

be redeemed for purchase of furniture. Then the time of supply
would be the date of issue of the voucher because the goods in
question are identifiable. The rate of tax, HSN Code of the goods and
the value of the voucher is known. The tax would be payable
accordingly. (The tax would be paid on the supply of furniture.
Voucher is only a method of paying the consideration).
However, if the voucher is issued by say Big Bazar, which can be

redeemed for several items, then the supply is not identifiable. The
items would be identified only when the voucher is redeemed. Here
the time of supply would the date when the voucher is actually
redeemed.
4. Residual Cases: Sec 12 (5)
It may happen that in some cases, it is not possible to determine the

time of supply in any of the previous three methods. This will
usually happen in cases where the tax is not paid in normal course
and the liability is worked out during course of investigation by the
department. In such cases, the time of supply would be determined
as under:
 in a case where a periodical return has to be filed, be the date

on which such return is to be filed: Thus, where GSTR-3 is to
be filed, the time of supply would become 20th day of the
subsequent month.
 in any other case, be the date on which the tax is paid.
5. Addition to the Value
Suppliers usually allow a certain time limit within which the

recipient must make payment. If he makes a delay in making the
payment, then the supplier may charge interest or late fees or may
even levy penalty. Whatever be the name, it is actually a
compensation for the loss. It is a financing cost. It’s not a
consideration for the supply. Yet, somehow the GST law wants to
impose tax even on this element. Therefore, the question arises as to
136
what would be the ‘time of supply’ in case such interest/ late fee/
penalty are charged. The provision says that it would be the ‘date on
which the supplier receives such addition in value’. Fortunately, the
law does not say that the time of supply would be on merely raising
a demand for interest or that it has to coincide with the time when
the goods were removed etc.
Interest, late fees,

'Time of Supply' is the
penalty for delayed
date of receipt of the
payment of
'interest, .....etc.'
consideration
Rate of tax to be applied to the addition: It may be appreciated that

the amount of interest etc. is an addition to the value of the supply
made. Therefore, the rate of tax will be the rate applicable to the
goods in question.
Having seen the criteria to determine time of supply of ‘goods’, now

let’s move to ‘services’.
Time of Supply of Services

1. Time of Supply of Services: Normal Charge – Sec 13
In case of services, the time of supply has been linked to the fact as to
whether the invoice has been issued within the prescribed period or
not. We may recall that generally the invoice is required to be issued
within 30 days of supply of the service. But in case of insurers, banks
etc. it is to be issued within 45 days. The time of supply would be
determined as under:
a. If the invoice is issued within the prescribed period, then the

time of supply would be earlier of the following two:
 the date of issue of invoice by the supplier
 the date of receipt of payment,
137
b. In case, the invoice is delayed, then the time of supply would

be earlier of the following two:
 the date of provision of service,
 the date of receipt of payment,
Invoice within
Invoice delayed
time
Date of
Date of Invoice Provision of
Service
Receipt of Receipt of
payment Payment
We may note that delaying the issuance of invoice even by one day
would shift the time of supply back at least by 30 days. This would
result in payment of tax on GST.
If there is any case where the above two situations do not apply then
the time of supply would be the date on which the recipient shows
the receipt of services in his books of account,
Excess receipt up to Rs. 1000/- will be treated in the same manner in

which it was treated for goods. (see discussion above).
2. Time of Supply of Services: Reverse Charge
The tax would be payable on reverse charge if the services are

notified or if the same are supplied by an un-registered person
(URP). In case of notified services it is irrelevant as to whether the
supplier is registered or not. In both the cases, the tax is payable by
138
recipient under reverse charge. In case of non-notified services

obtained from URPs the daily exemption limit of Rs. 5000/- would
apply (for all supplies of non-notified goods and services received).
The ‘time of supply’ would be the earliest of the date of
 The date of payment (as entered in the books of account of the

recipient or the date on which the payment is debited in his
bank account, whichever is earlier).
 60 days from the date of the invoice (or any other document
in lieu of invoice) issued by the supplier.
It has been provided that if above method fails for any reason, then
the ‘time of supply’ would be the date of entry in the books of
account of the recipient of supply.
Time of Supply of Services: Reverse Charge

 The date of payment
 60 days from the date of the Whichever comes earlier
invoice
3. Provisions similar to that of goods:
In following cases, the Time of Supply of service would be

determined in the same manner in which it was determined for
goods (as discussed above).
 when a supplier issues Vouchers for the services
 The residual method
 Addition in the value of supply by way of interest, late fee or

penalty for delayed payment of any consideration
Change in rate of tax in respect of supply of goods or services
We saw that the time of supply is dependent mainly upon three

factors viz. the date of issue of invoice, the date of actually making
139
the supply (i.e. removing the goods or providing the service), and the
date of receipt of payment. The rate of tax may vary during these
three events. It may be possible that the rate of tax was 12% when the
advance was received, but it became 18% when the goods were
removed. How would the tax liability determined in such cases.
Section 14 of the CGST Act deals with such situation. It deals with
the subject in two parts. Therefore, before going to the actual rule,
please see the following thumb-rule. This is an idea to easily
understand and remember the provision. But actual words used in
the law must be seen.
Thumb rule for determining rate tax, when the rate changes
Three events are considered Determine whether the events
are happening after the cut-off
 Date of making the supply
line or before it.
 The date of issue of invoice
On whichever side of the cut-
off line, two events are
 The date of receipt of
happening – that would be the
payment
applicable rate.
Cut-off line = time when the rate is changing.
Example of the thumb-rule:
Rate x% Rate y% Applicable rate of Tax
2 events 1 event Tax would be payable @x%
1 event 2 events Tax would be payable @y%
1. Where the supply was made before the change in rate of tax:
Conditions Time of Supply
(i) The invoice for the same has  The date of receipt of
been issued and the payment payment or
140
is also received after the  The date of issue of invoice,

change in rate of tax
whichever is earlier
(ii) Where the invoice has been The date of issue of invoice;
issued prior to the change in
rate of tax; but:
payment is received after the

(iii) Where the payment has been The date of receipt of payment
received before the change in
rate of tax, but the invoice for
the same is issued after the
change in rate of tax,
2. Where the supply was made after the change in rate of tax:
Conditions Time of Supply
(i) Where the payment is received The date of receipt of

after the change in rate of tax but payment
the invoice has been issued prior to
the change in rate of tax
(ii) Where the invoice has been issued  The date of receipt of
and payment is received before the payment or
 The date of issue of
invoice,
whichever is earlier
(iii) Where the invoice has been issued The date of issue of
after the change in rate of tax but invoice
the payment is received before the
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The provisions may be summarised as under:
A. When supply was made before change in rate of tax
Invoice Payment Rate Time of Supply
After change After change New Rate Earlier one
Before change After change Old rate Date of Invoice
After change Before change Old rate Date of receipt of

payment
B. When supply was made before change in rate of tax
Invoice Payment Rate Time of Supply
Before change After change New rate Date of receipt of

payment
Before change Before change Old rate Earlier one
After change Before change New rate Date of invoice
142
Summary of the provisions relating to ‘Time of Supply’
Case Time of Supply
Time of supply of Earliest of the following:

goods – normal
- the date of issue of invoice
charge
- the legal last date for issue invoice (i.e.
the date of removal)
Time of supply of Earliest of the following:

goods – reverse
- 30 days from the date of issue of invoice
charge
- the date of receipt of the goods
- the date of making the payment
Time of supply of If the invoice was issued within the legal time
services – normal limit (i.e. within 30 days of provision of
charge service), then earlier of the following:
- the date of invoice; and

If the invoice was not issued within the legal

time limit (i.e. within 30 days of provision of
service), then earlier of the following:
- the date of provision of service; and

Time of supply of Earlier of the following

services – reverse
- The date of payment
charge
- Sixty days after the date of Invoice issued
by the supplier.
If it is not possible to determine the time of

supply from above two, then it shall be the
date of entry in the books of account of the
143
recipient of supply:
In case of supply from Associated Enterprises

located outside India – the earlier of the
following:
- The date of entry in the books of account

of the recipient of supply, or
- the date of payment,
The date of payment will be earlier of the

following two:
- entry in the account books (of the

recipient of the supply), or
- the date of debit in his bank

account.
Supply of Vouchers  If the supply is identifiable on the date

(Provisions are of issue of voucher – Time of supply
similar for goods as would be the ‘date of issue of the
well as services) Voucher’
 Other cases – the date of redemption
Other/ Residual In case periodical return has to be filed: the

cases date on which such return is to be filed
Any other case: the date on which the tax is

paid.
Addition to the The date on which such addition is received

Value of supply by the supplier (addition refers to interest, late
fees, penalty for delayed payment of
consideration)
144
CHAPTER 6
Input Tax Credit

GST is a tax payable by the ultimate consumer. But before the
goods/services reach the ultimate consumer, they may pass through several
hands. The supply is taxed in the hands of each of the persons in the chain.
Yet, the ITC mechanism ensures that there is no double taxation, tax is not
charged on the tax, and the total tax received by the government is equal to
the tax paid by the final consumer.
Topics Discussed:
 Highlights
 Introduction
 The e-Credit Ledger
 Eligibility to credit
 Conditions for availing credit
 Blocked Credits – The negative list of ITC
1. Motor vehicles and other conveyances
2. Cases where credit is available only if the inward supplies

are used for making an outward taxable supply of the
same category
3. Cases where credit is absolutely prohibited
4. Cases where credit is available only in certain conditions
5. Works Contract Services for construction of an immovable

property
Chapter 6 Input Tax Credit
6. Goods or services or both received by a person for

construction of an immovable property on his own
account.
7. Other supplies on which credit is not available:
- Supplies received from a person under the Composition

Scheme
- Supplies received by a non-resident taxable person except

on goods imported by him
- Supplies used for personal consumption
- Goods lost, stolen, destroyed, written off or disposed of by

way of gift or free samples
- Any tax paid in accordance with the provisions of sections

74, 129 and 130
 Legal Provisions
146
Highlights
1. Credit of input tax paid on inward supplies for the business is

available, and it can be used to pay tax on the outward supplies.
2. ITC is available to every registered person (other than the

composition dealer). Thus, credit can be availed by a
manufacturer, a trader, a retailer etc.
3. Credit is available on almost every inward supply. Thus we can

avail credit of GST paid on table, chairs, stationary, air-
conditioner, decorative items, housekeeping expenses, Courier,
inward as well as outward transportation of goods, etc.
4. However there are certain specified supplies on which the credit

is blocked i.e. it's not available. A list of such blocked credits is
given in the Appendix to this book.
5. Full (100%) credit of the tax paid on capital goods is available in

the same financial year. Now we do not need to split it into two
years.
6. Credit is available only of IGST, CGST, SGST and UTT. Credit of

any other tax is not available.
7. Credit of CGST cannot be used to pay SGST/UTT. Similarly,

credit of SGST/ UTT cannot be used to pay CGST.
8. Credit of IGST can be used to pay all the GSTs and credit of all
GSTs can be used to pay IGST.
9. Credit balance can be carried forward indefinitely.
10. Credit is available only if the inward supply is used for our
business. It is not available to the extent the supply is used for
non-business activities.
11. Credit is available only if the outward supply is taxable. Where

the outward supply is exempted from GST credit is not available
on the corresponding inward supplies.
147
12. However full credit remains available against exports and the
supplies made to SEZ. If we are not in position to utilise this
credit, refund of the same is available.
Introduction:
I hope, you are aware of the credit system used for collection of taxes.
This system was prevalent in VAT as well as in Central Excise and
Service Tax.
Stated in very brief, credit system is a mechanism where tax paid by

the supplier to the government is credited to the recipient‟s account.
Thus, if you purchase goods worth Rs. 1000 + GST Rs. 180, the
government deposits the GST amount of Rs. 180 in your e-Credit
Account. You can use this amount to discharge tax liability on your
outward supplies. The result is that each person in the supply chain
pays an additional amount of tax only on his incremental value. A
detailed explanation of the credit system is given in the Appendix.
The e-Credit Ledger:
An electronic credit Ledger would be maintained by the GST portal

for every registered person. The amount of tax paid on the inward
supplies received by the person would be credited to this Ledger. It's
like a pass book issued by banks. Whenever we deposit an amount, it
is credited to the pass book. Whenever we withdraw (or issue a
cheque, or do an online transaction) the amount is debited to the pass
book and the balance gets reduced. The e-Credit Ledger is similar to
this pass book. Whenever someone makes a supply to us, he would
issue a Tax Invoice showing the tax charged to us. He would upload
the details of the invoice on the portal (under his GSTR-1 return); we
would verify the same online. Once we grant our approval (under
our GSTR-2), the amount of tax charged by our supplier gets posted
into the e-Credit Ledger. This is a credit entry. We have thus received
ITC i.e. credit of the Input Tax.
148
This is similar to the money deposited in bank. The only difference is

that while the money deposited in bank can be used for any purpose,
the ITC available the e-Credit Ledger can be used only for paying
GST. We have to pass online entries in the e-Credit Ledger for
utilising the ITC for payment of GST. When we utilise the credit, the
balance amount gets reduced. The balance is carried forward to the
next period. There are two circumstances under which we can obtain
refund of the ITC amount (i.e. the money will actually come to our
bank account). These are:
a. If the credit gets accumulated due to exports or due to

supplies made to SEZ; or
b. If the rate of GST on inward supply is higher than the rate of

GST on our outward supply – and this leads to accumulation
of credit. (In case of some products, the government has
specifically disallowed such refunds. The refund would be
available in all other cases).
Eligibility to credit
Those familiar with CENVAT credit rules would recall that credit
was available only on input, input service and capital goods. All the
three were defined phrases and credit was not available if the goods
or the service did not fall within the definitions. Thus if a question
arose as to whether a company is entitled to credit on services of pest
control received in his office, one had to look at the definition of
input service and decide whether pest control was an input service.
In GST, the framework has changed. Now the eligibility is not to be

decided on the basis of the definition of input or capital goods or
input services. Now we are eligible to credit of „Input Tax‟. Every
registered person is entitled to credit of „Input Tax‟ charged any
supply to him - used or intended to be used in:
 the course or
 furtherance of his business;
149
We may pause here and try to understand the above prescription.

What is „Input Tax‟? What is the significance of “used or intended to
be used”? And what is the course or furtherance of business? Let's
consider them one by one.
Input tax: The term refers to IGST, CGST, SGST or UTT charged on
our inward supplies1. It includes the following:
(a) IGST charged on import of goods;
(b) IGST, CGST, SGST or UTT payable by us under reverse

charge mechanism (notified supplies as well as the goods or
services received from un-registered persons).
But Input Tax does not include the tax paid by a person under
Composition Scheme.
Thus we would be entitled to avail credit of the tax paid by ourselves

on services of a goods transport agency (GTA), an advocates firm
received by us. Similarly purchase of “Cashew nuts, not shelled or
peeled” from an Agriculturist is under reverse charge. This is an
„Input Tax‟. Apart from this tax on all goods and services procured
from un-registered persons is also required to be paid by us under
reverse charge. GST so paid would also be Input Tax. Thus, for
availing credit it is immaterial as to whether the tax was paid under
normal charge or under reverse charge.
Use of the supply: Credit becomes available as soon as the supply is

received. It is not postponed until the supply is actually used. Mere
intention to use at a later date, is sufficient. Hence the phrase „used or
intended to be used‟. However the physical receipt of the supply in
our factory is not necessary. For example, if I purchase goods from a
Trader situated in Kanpur and request him to make a direct delivery
to my customer situated at Lucknow (i.e. without first bringing it to
my premises) I become entitled to credit as soon as the supply makes
1 Please refer to the definition under section 2 (62) of CGST Act.
150
delivery as per my instruction2. In case the goods are delivered by

the vendor directly to my job worker, I become entitled to take credit
as soon as the goods were received by the job worker3. It is possible
that the inward supply is used outside my business premises. Thus
for example cement companies use explosives to blast mines from
where limestone is obtained. In past, there was a controversy as to
whether credit of the duty paid on explosives would be available or
not. The issue had arisen because the explosives were not used
within the factory. Under GST there is no stipulation about the place
of use. Credit would be available the respective of whether the
inward supply is used within or outside premises of the registered
person.
In the course or furtherance of business: We are eligible to credit only if

the supply is for the use in the course or furtherance of our business.
Use in business is far wider than the use „in or in relation to

manufacture‟ or the used for „providing the output service‟. Thus the
scope of ITC is wider than the scope of CENVAT credit. For the
purpose of availing ITC it is not necessary to prove that the inward
supply is used in the manufacturing process or has a direct nexus
with the service being provided etc. The only requirement is that it
has to have a relationship with the business.
„In the course of‟ means in the process of, during, in the path of. „In
furtherance of‟ is for the purposes of development, betterment,
advancement, improvement, promotion.
Whether an expenditure should be incurred in the course of business

or not would be a decision of the businessman. It is not relevant as to
whether the activity was necessary and finally proved beneficial for
the business or not. It is also not necessary to examine whether the
decision was wise, prudent or imprudent. All that has to be seen as
whether the inward supply was for use of the business or not.
2In terms of the explanation to Section 16 (2) (b) of the CGST Act and the Section 10 (1)
(b) of the IGST act it shall be deemed that I have received the goods.
3 Ref. section 19 (2) of the CGST Act.
151
Conditions for availing credit4:
(A) There are four basic conditions to be fulfilled before the eligible
credit could be availed. A person would is not entitled to the credit
unless:
1. He is in possession of Invoice/ debit note or other tax

payment document; and that it contains all the required
information5.
2. He has received the

ITC – A check list
goods or the services.
Here, we may note that  We have the document
if the vendor delivers
 Document contains all the
the goods or services
details
directly to our
customer, it would be  We receive the supply
deemed that we have
received the supply.  We file the GSTR-2 and
The vendor can also GSTR-3
deliver the goods
 Supplier pays the tax
directly to our job-
worker. We are entitled  We pay the supplier within
to take credit when the 180 days
job-worker receives the
goods.  ITC must be claimed before
filing GSTR-3 for September
3. The Tax has actually of next year, or GSTR-9
been paid. Here we (Annual Return)
may note that the
recipient takes credit  The tax was not paid upon
by filing GSTR-2 detection of fraud etc.
return. The credit
 We have not claimed
remains provisional
depreciation of the tax
amount.
4 Ref. sec 16 (2) of the CGST Act, 2017.
5Contents of various documents have been prescribed vide rules 46 to 55 of CGST
Rules, 2017.
152
and if the supplier fails to pay the tax, the credit is added to
the recipient‟s liability in the subsequent period.
4. He (the person taking credit) has filed return under section 39

(GSTR-3)
(B) There are five other conditions to be fulfilled:
1. Where the goods against an invoice are received in lots or

installments, we are entitled to take credit only upon receipt
of the last lot/ installment.
2. If the recipient fails to pay to the supplier, the invoice amount

(Value + Tax) within 180 days from the date of issue of the
invoice:
- The ITC availed by the recipient would be added to

his output tax liability.
- Interest would also be payable
- Later, if the recipient makes the payment to the

supplier, he can avail the ITC (to the extent the
payment is made).
This provision is problematic and does not take into account

several practical issues.
a. Firstly, the contract itself may have a payment term

beyond 180 days.
Documents for ITC
b. Secondly, in large
contracts there is a Credit can be claimed on the
system of strength of:
„retention money‟.  Tax Invoice issued by our
This remains held supplier
up for a long
 Tax invoice issued by us for
period.
supplies received from un-
c. Post supply registered persons (RCM)
discounts are not
 Debit Note
 Bill of entry
 ISD Invoice/ ISD Credit Note

153
(See rule 36 of CGST Rules, 2017)
deductible from value, unless there is a pre-existing

agreement and the invoice contains a link to the same.
Thus, if a discount has arisen out of agreement made
subsequent to the supply, the supplier will have to pay
tax on the full value (i.e. without deducting the discount)
and the recipient would not be entitled to credit for the
discount. This is really strange. On one hand the
government fixes a higher tax liability and on the other
hand it denies credit.
3. ITC cannot be claimed against any inward supply after expiry

of one year from the date of issue of the corresponding Tax
Invoice. [Sec 18 (2)]
4. Further credit against any invoices/ debit notes of previous

financial year cannot be taken after filing of:
 Return for Sept of next year; or
 Annual Return (GSTR-9)
– whichever happens earlier [Sec 16 (4)]
A combined reading of the points 3 and 4 above would

indicate that for all the invoices issued after October, the time
limit available to the recipient is less than one year and goes
on decreasing to six months as he approaches March.
5. If a demand of tax was confirmed by the GST department, on

account of any fraud, willful mis-statement or suppression of
facts, and later the tax is paid in pursuance of such demand,
then the recipient is not eligible to its credit.
Blocked Credits – The negative list of ITC
Section 17 (5) prohibits availment of credit interest of certain goods

and services. In some cases the prohibition is absolute and in others it
is conditional. The provision reads as under. We shall discuss each of
them one by one.
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(5) Notwithstanding anything contained in sub-section (1) of section

16 and subsection (1) of section 18, input tax credit shall not be
available in respect of the following, namely:-
(a) motor vehicles and other conveyances except when they are
used—
(i) for making the following taxable supplies, namely:-
(A) further supply of such vehicles or conveyances ; or
(B) transportation of passengers; or
(C) imparting training on driving, flying, navigating

such vehicles or conveyances;
(ii) for transportation of goods;
(b) the following supply of goods or services or both-
(i) food and beverages, outdoor catering, beauty treatment,

health services, cosmetic and plastic surgery except
where an inward supply of goods or services or both of a
particular category is used by a registered person for
making an outward taxable supply of the same category
of goods or services or both or as an element of a taxable
composite or mixed supply;
(ii) membership of a club, health and fitness centre;
(iii) rent-a-cab, life insurance and health insurance except

where—
(A) the Government notifies the services which are

obligatory for an employer to provide to its employees
under any law for the time being in force; or
(B) such inward supply of goods or services or both of a

particular category is used by a registered person for
making an outward taxable supply of the same category
of goods or services or both or as part of a taxable
composite or mixed supply; and
155
(iv) travel benefits extended to employees on vacation such as

leave or home travel concession;
(c) works contract services when supplied for construction of an

immovable property (other than plant and machinery) except
where it is an input service for further supply of works
contract service;
(d) goods or services or both received by a taxable person for

construction of an immovable property (other than plant or
machinery) on his own account including when such goods or
services or both are used in the course or furtherance of
business.
Explanation.--For the purposes of clauses (c) and (d), the

expression
"construction" includes re-construction, renovation,

additions or alterations or repairs, to the extent of
capitalisation, to the said immovable property;
(e) goods or services or both on which tax has been paid under
section 10;
(f) goods or services or both received by a non-resident taxable

person except on goods imported by him;
(g) goods or services or both used for personal consumption;
(h) goods lost, stolen, destroyed, written off or disposed of by way

of gift or free samples; and
(i) any tax paid in accordance with the provisions of sections 74,
129 and 130.
1. Motor vehicles and other conveyances
In general, credit is not available on motor vehicles and other

conveyances. However, the credit is available in following situations:
156
 If it is used for making a further taxable supply of vehicle/

conveyance: Thus a car dealer who is in the business of
purchasing and selling cars would be entitled to avail credit
of GST on his purchases.
 If it is used for making a taxable supply of transportation of

passengers: Thus for example, a person plying buses from
one city to another (or even within the same city) is providing
a taxable service. He would be entitled to avail credit of the
tax paid on the bus.
 If it is used making a taxable supply viz. “imparting training

on driving, flying, navigating such vehicles or
conveyances”: Be it a motor training school or a Flight School
training Pilots to fly aircraft, all such persons would be
eligible to avail credit of the GST paid on the vehicle/
conveyance.
 If it is used for transportation of goods: Here, the clause does

not say that the vehicle should be used for making a taxable
supply of transportation of goods. Therefore it is immaterial
whether the buyer of the vehicle uses it to transport goods
belonging to others or his own goods.
Thus, credit would be available if the vehicle/ conveyance is

used for making any of the three taxable supplies mentioned
here
Further supply of such For example a dealer of

vehicles or conveyances ; or vehicles
Transportation of passengers; For example a travel

or agency
Imparting training on For example a motor

driving, flying, navigating driving (training) school
such vehicles or conveyances;
157
Transportation of goods.
This could be transportation Here transportation

for others; or would be an outward
supply.
His own goods Here transportation itself

won‟t be an outward
supply
2. Cases where credit is available only if the inward supplies are

used for making an outward taxable supply of the same
category
Following are the supplies covered in this category
 Food and beverages,
 Outdoor catering,
 Beauty treatment,
 Health services,
 Cosmetic and plastic surgery
In case of above supplies, credit is generally not available. It is

immaterial as to whether the services are used in the course of or
furtherance of business. However the credit would be available
in two situations viz.
a. Where the inward supply and the outward supply fall under
the same category. Thus for example if somebody purchases
food or beverages (for example Idlee, Roti, bread, soft drinks
etc.) and sells them, then he would be eligible to avail credit
on the inward supply.
158
b. Where the inward supply is used as an element of a taxable

composite or mixed supply. Take an example of an event
management firm organising a marriage function. He may
hire an outdoor caterer, a beautician along with services of
various other persons. He would be using the services of
„outdoor catering‟ as well as „beauty treatment‟ is an element
of his outward supply. He would therefore be entitled to
avail the credit. But if the same outdoor caterer were hired by
a company during its annual sales meeting, the company
would not be entitled to avail credit of the GST paid by the
caterer.
3. Cases where credit is absolutely prohibited
In case of the following three services, the credit is not allowed under
any circumstance.
 Membership of a club,
 Membership of a health and fitness centre,
 Travel benefits extended to employees on vacation such as

leave or home travel concession.
We may note that the first item is about a „club‟. This has to be
distinguished from an „association‟ - at least from a Trade or Industry
Association. Thus the GST paid on membership fees of a Trade or
Industry Association would be available.
So far as the travel benefits extended to employees on vacation is

concerned, it would cover the situations such as the employer
providing for travel tickets, stay, camps, resorts etc. ITC of the GST
charged on any of these services would not be available to the
employer company.
4. Cases where credit is available only in certain conditions
This head covers three services
 Rent-a-cab,
159
 Life insurance,
 Health insurance
Credit on these services is available only in following two

circumstances:
i. Where the employer is under legal obligation to provide to

provide the services to the employees: A very common
example is the services of rent-a-cab used by call centres. If
the employer provides these services without any legal
obligation, then the credit is not available.
ii. The inward supply is used (a) to provide a taxable outward

supply of the same category; or (b) used as part of a taxable
composite or mixed supply. The explanation given above in
case of outdoor caterer‟s service used by an event
management company would also apply this situation.
5. Works Contract Services for construction of an immovable

property
As we have seen earlier, works contract under GST refers only to the
contracts relating to immovable property. Credit of GST paid on
works contract is not available to the recipient if the works contract
was supplied for construction of an immovable property. However
credit would be available if the immovable property in question is
„plant and machinery‟. The credit is also available in the case where it
is an input service for further supply of works contract. The
explanation below section 17 defines „plant and machinery‟ as under:
Explanation.--For the purposes of this Chapter and Chapter VI, the

expression "plant and machinery" means apparatus, equipment,
and machinery fixed to earth by foundation or structural support
that are used for making outward supply of goods or services or both
and includes such foundation and structural supports but excludes-
(i) land, building or any other civil structures;
(ii) telecommunication towers; and
160
(iii) pipelines laid outside the factory premises.
Putting both the things together we may conclude that
1. Where the service is rendered in relation to movable

property, it is not a „works contract‟ under GST and this
clause does not block credit on such inward supplies.
2. Credit would be available on works contract if
- It is supplied for apparatus, equipment, and

machinery that are used for making outward supply.
These apparatus, equipment and machinery may be
fixed to earth by foundation or structural support. In
either case the credit would be available.
- It is supplied for the foundation and structural

supports referred above.
- It is an „input service‟ for further supply of works

contract.
3. Credit would not be available if the works contract is for
- construction of other immovable properties (such as a

building)
- land, building or any other civil structures;
- telecommunication towers; and
- pipelines laid outside the factory premises.
6. Goods or services or both received by a person for construction

of an immovable property on his own account.
This is an extension of the previous clause. Where, instead of a

works contract, a person receives goods and services separately
for construction of an immovable property, the credit is not
available.
161
Here also, the credit would be available if the goods or the

services are used for construction of plant and machinery.
162
Works Contract under GST
Meaning of „works contract‟ under GST is different from the

meaning prevailing under VAT and Service Tax. Now it refers
only to the contracts relating to immovable property. Works
contract has been defined vide section 2 (119) of CGST Act as
under:
(119) "works contract" means a contract for building, construction,

fabrication, completion, erection, installation, fitting out, improvement,
modification, repair, maintenance, renovation, alteration or
commissioning of any immovable property wherein transfer of property
in goods (whether as goods or in some other form) is involved in the
execution of such contract;
We may note that the words starting from „building‟….till

„commissioning‟ refers to the activities to be undertaken.
„Building‟ has to be understood as an activity viz. „to build‟ and
not as a physical structure of walls and roofs. All these activities
would be a „works contract‟ only when undertaken in respect of
an immovable property. This is a major departure from the
definition of works contract that has held field till prior to GST.
Now contracts relating to movable property would not be treated
as works contract although they may involve aspects of goods as
well as services. All such composite contracts will have to be
classified either as goods or as service depending upon whether
the principal supply is of goods or of service. The dominant
intention of the contract would be a determining factor.
However the works contract as defined above, has to necessarily

involve transfer of property in goods. In other words if no goods
are involved in the activity then supply is not works contract. A
contract which is purely for services would not be works
contract.
In this backdrop we may also note that under GST law the
composite „works contract‟ (which necessarily involves transfer
of property in goods as well as rendering of service) is to be
treated as supply of service. [Refer the entry 6 (a) in schedule II of
the CGST Act, 2017].
163
7. Other supplies on which credit is not available
Credit is also not available on following inward supplies
 Supplies received from a person under the Composition Scheme:

The persons having aggregate turnover of Rs. 75 lakh or less
are eligible to the composition scheme. Under the scheme
there are required to pay a lower rate of tax (2% in case of
manufacturers, 5% in case of food or beverages and 1% in
case of traders). Very term of the scheme says that neither the
person availing Composition Scheme would be entitled to
ITC nor would any person receiving the supply from him be
entitled to ITC of the tax paid by such person6.
 Supplies received by a non-resident taxable person except on goods

imported by him: thus the only credit available to such person
would be that of IGST paid on the goods imported by him.
He would not be entitled to credit of GST paid on any goods
or any service received by him even if he uses the same
directly for making a taxable outward supply.
 Supplies used for personal consumption: Credit is available only

for the supplies used for business. For instance credit cannot
be availed on house-hold expenses of the owner of the
business. It may be debatable as to whether a supply is for
personal consumption or for consumption by the business.
For example whether the uniforms, safety gears and shoes
provided to the employee is for the personal consumption.
The general understanding is that if a supply forms part of
salary/remuneration of the employee, it is for his personal
consumption.
 Goods lost, stolen, destroyed, written off or disposed of by way of

gift or free samples: We may note here that in case of goods
written off, the credit is disallowed even if the goods in
question are available. Unlike rule 3(5B) of Cenvat Credit
6
Refer section 10 of CGST Act
164
Rules, 2004 there is no stipulation that credit can later be

availed if the goods are subsequently put to use.
 Any tax paid in accordance with the provisions of sections 74, 129
and 130: These are the cases where tax is paid after detention,
seizure, confiscation etc. detection of fraud etc.
- Section 74 relates to demand of tax which was not

paid by recourse to fraud, or any wilful-misstatement
or suppression of facts to evade tax,
- Section 129 relates to payment of tax on detained or

seized goods
- Section 130 relates to payment of tax on confiscated

goods.
Credit of tax paid is not available in all the three situations.
Legal Provisions:
Section 2 (46) of CGST Act says that „electronic credit ledger‟ means
the ledger referred in sec 49 (2)
Input Tax refers to various taxes charged on inward supplies. It is

defined vide section 2 (62)
"Input tax credit" means the credit of input tax [Sec 2 (63)];
Section 41 says that we are entitled to avail credit of input tax as

determined by us on provisional basis and use it to pay the output
tax.
Section 49 (2) says that the self-assessed ITC would be credited to the
e-Credit Ledger.
Sec 2(67) defines "inward supply"
Section 2 (83) defines „outward supply‟
Sec 2 (59) defines "input"
165
Sec 2 (60) defines "input service"
"Input Service Distributor" is defined vide section 2 (61)
Sec 2 (82) defines "output tax"
Section 16 creates the entitlement to credit; and prescribes conditions.
Section 17 governs the situations where the inward supply is used

partly for business and partly for other purposes; or partly for
taxable and partly for exempted supplies. It also blocks credit on
certain supplies i.e. it says credit would not be available on such
supplies. Rule 42 provides detailed method to apportion the credits.
Section 18 covers situations where a person moves into or out of the

credit system. For example, where an un-registered person obtains
registration (he would become entitled to credit on opening stocks);
or where the person was availing credit and paying tax but later the
supplies become exempted (he would have to pay back the credits on
closing stock). Similar would be the case where such person opts for
Composition Scheme.
Section 19 provides for ITC where the inputs or capital goods are
sent for job-work.
Section 20 is about manner of distribution of credit by an ISD (Input

Service Distributor); and Section 21 provides for recovery of excess
credit distributed by an ISD.
166
CHAPTER 7
Nature of Supply
Is the Supply Inter-State or Intra-State?
We will not be able to issue an invoice, unless we first determine the ‘nature
of the supply’ (i.e. whether the supply is inter-State or Intra-State). In turn,
the nature will depend upon the concept of ‘place of supply’. This is at the
heart of the design of taxation system under GST and this can prove to be
the nightmare for the business community. The state-wise fragmentation of
GST is the biggest spoiler of the most significant tax reform.
Topics Discussed
• Introduction
• Why is it important to determine the ‘Nature of the Supply’
- What happens if our determination is incorrect?
- Is it really that difficult? Why a whole chapter devoted to

it?
• Scheme of the law
• Nature of Supply
- Inter-State supply
- Intra-State supply
• Location of the Supplier
• Location of the Recipient

Chapter 7 Nature of Supply
Introduction:
• Nature of supply means – whether the supply is inter-State or

intra-State. While, in case of an inter-State supply we have to pay
IGST, in case of intra-State supply we have to pay CGST plus
SGST.
• IGST is also called IT (Integrated Tax). In the same way CGST is

also called CT (Central Tax) and SGST as ST (State Tax).
• Nature of supply depends upon two factors:
(a) location of the supplier; and
(b) the place of supply
• While the location of supplier of service is defined, the location of

supplier of goods is not defined.
• Place of Supply is a concept defined in very detail. Most of the

next chapter will deal with the question as to – what would be the
‘place of supply’ in a given situation.
• In general, the place of supply is the location of the customer. But

there are several exceptions.
• There could be several factors that would be relevant for

determining the place of supply. For example:
o The place of delivery
o The location of the customer (the recipient of the supply)
o The location of the supplier
o The place of performance
o Location of the property
o Beginning of the journey
o Destination of the journey………… etc. etc..
168
Why is it important to determine the ‘Nature of the Supply’
We may recall that we have two governments taxing the same

transaction simultaneously. The tax payable on inter-State supplies is
IGST; and in the case of intra-State supplies we have to pay CGST
and SGST1. For every transaction we will have to identify – which of
these taxes is to be paid. If we make a supply within our state, we
have to pay CGST and SGST, but if it is to another state then we have
to pay IGST.
Inter-State IGST
Nature of Supply
Intra-State CGST + SGST
Thus the invoices would typically of the following kinds:

(supply from one state to another) (supply within the state)
IGST 18% 180 CGST 9% 90
SGST 9% 90
What happens if our determination is incorrect?
It is very important for the tax payer to clearly determine whether a

transaction is inter-State or intra-State because:
• Since, in the case of intra-State supply, the SGST would be

received by the state where the supplier is located, there
1 In case of Union Territories, the tax is UTGST (instead of SGST).
169
would be a tendency of the state government officers to

contend that the supply is intra-State.
• In case it is held that the supply was intra-State (and we had

paid IGST treating it as inter-State), then we would be
compelled to pay CGST and SGST and seek refund of the
IGST paid earlier. The refund could prove to be elusive for
two reasons
- Firstly the claim will have to be made within prescribed

time limit; and
- Secondly, our customer will have to reverse the credit of

the IGST paid earlier.
• Each state has its own SGST. A recipient located in one state
cannot avail credit of the SGST paid in another state. Thus, for
instance, a person registered in Maharashtra cannot avail
Credit of the Gujarat State GST. He can avail credit only of the
Maharashtra State GST. Therefore a wrong determination of
the nature of supply may lead to loss of credit and dispute
with the government authorities.
Is it really that difficult? Why a whole chapter devoted to it?
Whether a transaction is inter-State or intra-State can be sometimes

tricky. Consider for example, the case of person who sells goods in
trains moving across several states. Suppose the goods are sold on a
train going from Mumbai to Delhi – is it an inter-state transaction?
While he is making the sales, the train would pass through several
states. Is he required to keep a note as to how much sale took place
before the train entered in Gujarat? To take another example,
consider case of the supplier located in Haryana whose buyer is also
located in Haryana but the goods are to be delivered in Rajasthan (to
buyer’s buyer). Whether he should treat this supply as inter-State or
intra-State? These and similar other cases would pose difficulty in
determining whether one is required to pay IGST or the combination
of CGST and SGST. In fact, the issue becomes more confusing and
difficult to resolve in case of services. Services are intangible. There is
no visible movement. A service could be ordered from one state,
170
performed in another state, and used in a third state. Service is being

intangible, it is difficult to track its movement and to determine as to
who is the consumer.
However, the resolution of this issue has not been left to our common
sense. Instead the legislature has created a scheme for the purpose of
determining whether the transaction is inter-State or intra-State.
Briefly stated, the scheme is as under:
a. A new concept named "Place of Supply" has been created.2 It

means that the phrase ‘place of supply’ has a special meaning
in GST law. We have to understand and adopt that meaning
even if it were contrary to our logic and common sense.
b. “Location of the supplier of service” has been defined.3
c. If the above two happen to be in the same state (or in the

same Union Territory) the supply would be intra-State. 4
Otherwise it would be inter-State.
Now, this is a mere overview. The actual concept requires an in-

depth detailed analysis. In the beginning of this book I had promised
not to make it a clause by clause study of law. However this topic
requires some deviation. It is in the interest of everyone to very
carefully study the provisions of section 7 to 13 of IGST Act. These
seven sections are going to be at the root of much litigation in future.
Therefore, let’s look at the law and understand it.
Scheme of the law:
Sections 7, 8 & 9 of IGST Act determine the nature of the supply, that
is to say, they provide the legal basis on which a supply will be
treated as inter-State or intra-State. This is done with reference to two
parameters:
2Section 2 (86) of CGST Act defines “place of supply” as referred to in Chapter V of the
IGST Act. In turn, sections 10, 11, 12 and 13 of the IGST Act decided as to what would be
the place of supply in various situations.
3 Location of the supplier of service has been defined vide section 2 (71) of CGST Act
4 Sections 7, 8, 9 of the IGST Act.
171
• the location of the supplier and
• the place of supply
The general rule is that where the location of the supplier and the
place of supply are in the same state, the supply is intra-State; and if
these are in different states the supply would be inter-State. So while
preparing an invoice, you should always ask the question – where is
the ‘place of supply’ and don’t answer it from your general
understanding. If the goods are being dispatched to a place in
Rajasthan, the place of supply may or may not be Rajasthan. Services
would prove more difficult to deal with.
State ‘A’ Intra-State
Location
of the Place of CT + ST
supplier Supply
Place of IT
Supply
State ‘B’ Inter-State
Place of supply is to be determined in terms of sections 10, 11, 12 and

13. Out of these, the first two sections deal with goods and the other
two with services. In each case division has been made in the
indigenous trade and the international trade. The domain of the four
sections is divided as per the chart on the next page.
Note that while “location of the supplier” is the first part of the
criteria, the second part is not the “location of the receiver”. Instead it
is the “place of supply”. So a supplier can say that, “I'm required to
pay IGST if the place of supply is in another state.” It doesn't matter
172
where the goods are physically delivered. What matters is the ‘place
of supply’ as defined in the above four sections of IGST Act, and not
the location of the receiver. It may happen that the supplier as well as
the receiver, both are located in the same state and still the place of
supply is in another state. The reverse is also possible. However, in
most cases the location of the recipient has been defined to be the
place of supply. Let’s now look at the provisions in detail.
Sec 10 (Domestic Trade)
Goods
Sec 11 (import/ Export)
Place of Supply
Sec 12 - Location of
Supplier & Receiver both
in India
Services
Sec 13 - When supplier or

recipient is outside India
Meaning of Inter-State Supply: Section 7 of IGST Act
Section 7 says that a supply would be treated as a supply “in the

course of inter-State trade or commerce” where the location of
supplier and the place of supply are in –
(a) two different States;

(b) two different Union territories; or
(c) a State and a Union territory
Thus, the following supplies would be treated as inter-State:
173
Location of Place of Nature of Explanation

Supplier Supply Supply
Punjab Assam Inter-State Two different states
Maharashtra Delhi Inter-State Two different states

(Delhi & Pondichery to
be considered as State)
Kerala Laksha- Inter-State A state and a Union

Dweep Territory
Dadra Daman Inter-State Two different Union

Territories
In case of goods, the above provision is subject to section 10 and in

the case of supply of services, the provision is subject to section 12.
The sections 10 deals with ‘place of supply’ of goods in the case of
trade within India. Similarly, the section 12 deals with the ‘place of
supply’ of services for indigenous supplies. ‘Subject to’ means that
before we apply the section 7, we need a prior approval of section
10/12.
Further, as per Section 7, the following supplies shall also be treated

as supply in the course of inter-State trade or commerce:
i. Import of goods till they cross the customs frontiers of India:

Thus, when an importer situated in Tamil Nadu imports
goods, the import is to be treated as an inter-State supply.
Once the customs frontier is crossed and if there is any
further supply (say the importer transfers the goods to his
depot), then the ‘place of supply’ is to be separately
determined for this second supply.
ii. Import of Services into the territory of India.
174
iii. When the supplier of service is located in India and the place of
supply is outside India: As we shall see later, while in case of
goods, the place of supply would be out of India if it is an
export, but in case of services the situation is different. It is
possible that a service
transaction is not treated
Supplies treated as inter-State
as export of service even
if the ‘place of supply’ is ▪ When the location of
outside India. A service supplier & the ‘place of
transaction would be supply’ is in different
treated as export only if State/ UT
it satisfies all the ▪ Import of Goods/ Services
conditions set under
section 2 (6) of the IGST ▪ When supplier of service is
Act. Further, even in case located in India and ‘place
of goods, if the buyer is of supply’ is outside India
located outside India and ▪ Supply to SEZ; supply by
on his instructions the SEZ
goods are delivered
within India, then the ▪ Any other supply within
‘place of supply’ will be India if it is not treated as
outside India (i.e. the ‘intra-State’
buyer’s location) 5 . For
example, say a company in UK places order on a company
in Maharashtra to deliver goods to another person in
Maharashtra. Here, even when the goods are delivered in
the same state, the place of supply is UK (buyer’s location).
The supply will be treated as ‘inter-state’.
iv. Supply to or by a SEZ developer/unit: The transactions with

SEZ are always to be treated as inter-State, irrespective of
the location of the supplier and the location of the SEZ. This
may not be palatable to our common sense. But, as we have
noted elsewhere, law does provide artificial meanings and
whenever it does so, we have to adopt the meaning assigned
by law and forget the common meaning. Also note that the
5 Please refer the discussion on section 10 (1) (b) in the next chapter.
175
supply to as well as by SEZ developer/ unit, both, are to be

treated as inter-State. Thus, if a DTA unit makes a supply to
an SEZ developer and it wants to make the supply on
payment of GST (i.e. under claim of refund) then it will
charge IGST even if the DTA unit and the SEZ are located in
the same state. Similarly IGST would be payable (as part of
customs duty) made by the SEZ unit/developer into DTA.
v. Supply in the taxable territory, not being an intra-State supply

and not covered elsewhere section 7: In effect, it means that if a
transaction is not intra-State (as determined by section 8)
then it will be treated as inter-State even if it is not covered
by any of the clauses discussed earlier. [Taxable territory is
India except Jammu & Kashmir].
Meaning of Intra-State Supply: Section 8 of IGST Act
A supply would be treated as intra-State if the location of supplier

and the place of supply are in the same state or the same Union
Territory. Similar to the case of previous section (defining inter-State
supply) this is subject to the sections 10 and 12. It has also been
provided that the following supplies would not be treated as intra-
State supply:
(i) supply to or by a SEZ developer or unit;
(ii) Import of goods till they cross the customs frontiers of

India:
(iii) Supplies made to a tourist leaving India. It applies only

to the tourist who is not normally resident in India, and
who enters India for a stay of not more than six months
for legitimate non-immigrant purposes. Section 15
contains a provision for grant of refund of tax on goods
taken out of India; and also defines such tourist.
We may note that the first two cases are already covered by section 7
and are to be treated as inter-State supply.
Establishment of Distinct Persons: Explanation to section 8
176
The section 8 contains two explanations. These are regarding

different establishments (factory, office, depot, R & D Centre etc.) of
the same person.
Suppose a manufacturer wants to transfer goods from his factory to

his godown. Is he required to pay tax? The scheme of law is that he
will be required to pay tax if:
• The stock is transferred from one state to another; or
• It is transferred within the same state, but from one

registration to another.
In case of transfer from one state to another, it is immaterial whether

the person is registered in the receiving State or not. Tax Invoice has
to be issued, and tax has to be determined. But when the transfer is
within the same state, no tax would be payable unless the factory and
godown are under separate GST registrations. In order to achieve
this, the GST law creates a fiction that the two establishments which
off course belong to the same person would be treated as
establishments of distinct persons. Once this fiction is assumed then
the stock transfers become a ‘supply’ from one person to another.
The two explanations to section 8 can be understood in light of this.
The explanations are reproduced below:
Explanation 1.––For the purposes of this Act, where a person has,–
(i) an establishment in India and any other establishment

outside India;
(ii) an establishment in a State or Union territory and any

other establishment outside that State or Union
territory; or
(iii) an establishment in a State or Union territory and any

other establishment being a business vertical registered
within that State or Union territory, then such
establishments shall be treated as establishments of
distinct persons.
177
Explanation 2.––A person carrying on a business through a

branch or an agency or a representational office in any territory
shall be treated as having an establishment in that territory.
The above explanations would apply to the whole IGST Act and not
only to the section 8. The first explanation says that two
establishments of the same person would be treated as
establishments of distinct persons in certain situations. The situations
are as under:
Location of one Other establishment

establishment
In India Outside India
In a State or Union Outside that State or UT

Territory
In a State or Union A business vertical registered in

Territory that State/ UT
Both the explanations are deeming provision. They create a fiction;

and the tax law is to be applied assuming that it is true. Thus, even
while the establishments are in fact of the same person, we have to
apply the GST law assuming that they belong to distinct persons.
The effect is that if there is a self-supply from one establishment to
another, it will be treated as a ‘supply’ under GST law.
There is a similar provision in the CGST Act as well. Section 25 deals

with the procedure for registration. The sub-section (5) says:
(5) 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.
The GST registrations are required to be taken state-wise. Thus, if a

company is making supplies from Kerala as well as from Gujarat he
will have to obtain separate registrations in the two states. The
178
establishment in Kerala and Gujarat will be treated as establishments

of distinct persons.
It may happen that the company does not make any supply from
Gujarat but has an office and manpower stationed in Gujarat. The
company may need such an office for marketing operations, for
research or for any other purpose. Since, it does not make any supply
from Gujarat, it has not obtained GST registration there. But, the
establishments in two states would still be considered as
establishments of distinct persons. If the company transfers some
stock from Kerala to its Gujarat office, it will be a ‘supply’ under GST
law. Thus so far as this concept of ‘distinct person’ is concerned, it is
not necessary that the establishments in two states must be registered
under GST. Even the unregistered establishments would be treated
as that of distinct persons.
Within a state, a single registration is sufficient. In such a situation

various branches within a state would not be treated as
establishments of distinct person. There would be no levy of GST on
the stock transfers made within the state under a single registration.
But, there is an option given to the tax payer to obtain separate

registration for different business verticals. Such separate
registrations would be treated as establishment of distinct persons.
Following table summarises the position.
Stock Transfer from B-1 to B-2
(both belong to the same company)
Supplier Recipient Tax Document

payable?
B-1 (Delhi) B-2 (Delhi) No Delivery

Challan
Registered Not
Registered
B-1 (Delhi) B-2 (Delhi) Yes Tax Invoice
Registered Registered
179
B-1 (Delhi) B-2 (Goa) Yes Tax Invoice
Registered Not
Registered
B-1 (Delhi) B-2 (Goa) Yes Tax Invoice
Registered Registered
Supplies in Territorial Waters
India has a lengthy coastal line. It is possible that either the supplier
or the place of supply (or both) are located in the Territorial Water.
There was a discussion as to whether the taxing jurisdiction for such
locations would lie with Central government or with the State
government. File was decided that the taxing jurisdiction would be
with the nearest coastal state or the union territory. Thus for example
say the place of supply happens to be in the oilfields of ONGC in
Bombay High. These oilfields are located around and 75 km off the
coast of Mumbai. The nearest state would be Maharashtra; and
therefore the place of supply would be Maharashtra. The legal basis
has been provided by the section 9 which reads as under:
9. Supplies in Territorial Waters
Notwithstanding anything contained in this Act,--
(a) where the location of the supplier is in the territorial

waters, the location of such supplier; or
(b) where the place of supply is in the territorial waters, the

place of supply,
shall, for the purposes of this Act, be deemed to be in the coastal

State or Union territory where the nearest point of the
appropriate baseline is located.
Therefore if a supply originates from Bombay High - the location of

the supplier would be Maharashtra. If the place of supply also
happens to be Maharashtra then it would be an intra-State supply
subjected to the Central tax and the state tax. If the place of supply,
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on the other hand happens to be outside Maharashtra, then the

supply would be inter-State. Similarly, if the place of supply is
Bombay High, it means the State Tax component goes to
Maharashtra.
Thus, if a person registered in Karanataka makes supply to Bombay

High, the place of supply would be ‘Maharashta’. The nature of
supply would thus be ‘inter-State’ and the person would pay IT
(Integrated Tax). If the supplier happens be in Maharashtra, it would
be an intra-State supply.
Nature of Supply: Two Factors
• Location of • Location of Supplier of Goods is not

Supplier defined
• Location of supplier of service is defined
• Place of • Separate provisions for goods and

Supply services.
• Separate provisions for domestic and

cross-border transactions.
• Section 10 to 12 state various situations

and prescribe ‘place of supply’ in those
situations.
Recipient of the supply and his location:
We have already noted that in order to ascertain the nature of a

supply (i.e. whether the supply is inter-State or Intra-State), we need
to determine two factors viz. location of supplier and the place of
supply. However, before we start discussion on these two factors
let’s try to understand how the law defines the ‘recipient’ and how is
his location determined.
Section 2 (93) defines the recipient as under:
(93) "recipient" of supply of goods or services or both, means-
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(a) where a consideration is payable for the supply of goods or

services or both, the person who is liable to pay that
consideration;
(b) where no consideration is payable for the supply of goods,

the person to whom the goods are delivered or made
available, or to whom possession or use of the goods is given
or made available; and
(c) where no consideration is payable for the supply of a service,

the person to whom the service is rendered,
and any reference to a person to whom a supply is made shall be

construed as a reference to the recipient of the supply and shall
include an agent acting as such on behalf of the recipient in
relation to the goods or services or both supplied;
Recipient
Consideration
Payable The Person Liable to Pay
Goods: Person taking

Delivery/ Possession/ Use
Not Payable
Service: To whom rendered
To take an example, if ‘A’ of Maharashtra places order on a trader ‘B’

located at Indore (MP) for certain goods and instruct him to deliver
the goods to ‘C’ at Agra (UP). Now, if the supply is for a
consideration, then ‘A’ is the recipient of the supply – although, he is
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not recipient of the goods. In GST law whenever we are talking about
‘recipient’, in general we are referring to ‘recipient of the supply’.
'A' 'B' 'C'

Maharashtra MP UP
On the other hand, the supply is free then ‘C’ would be the recipient
because the goods have been delivered to him.
We need to pay attention on the expression Recipient of supply

‘liable to pay’. ‘A’ is liable to pay. Hence he can be different
is the recipient of the supply. It may from the recipient of
happen that on the request of ‘A’, his friend the goods/ service.
‘D’ makes the payment to ‘B’. This does not
make ‘D’ as recipient of the supply. ‘D’ Recipient = the
might have made the payment but he was person liable pay.
not the person ‘liable to pay’ the
consideration. For instance if there was a default in making the
payment and ‘B’ wants to file a suit for recovery (i.e. he wants to file
a case in court), we cannot make a claim against ‘D’. The legal
liability to pay was of ‘A’ and not of ‘D’.
Location of the supplier of Service6
‘Location of supplier’ has not been defined in case of goods.

Therefore, so far as the goods are concerned, the location has to be
understood as in common parlance.
But in case of services, the location of supplier has been defined.

Following three are the locations of the supplier of service:
➢ The registered premises of the supplier;
➢ Fixed establishment elsewhere;
6 Location of the recipient of service is defined exactly in the same language in which the
location of supplier of service is defined. Hence as separate discussion on the same has
been omitted.
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➢ Residence of the supplier.
In general, the supplier’s location

What is a “Fixed
is that place for which he has taken
Establishment”?
registration. Wherever the service
is provided from a registered • A place other than the
premises, that would be the registered place of
location of supplier of service. business.
However, it is possible that he • It should have sufficient
makes supply from fixed degree of permanence.
establishment elsewhere (which is • It should have suitable
not registered). For example a structure to
manufacturer who has obtained - supply services or
registration for its factory in - to receive and use
Maharashtra also has an office in services for its own
Telengana (which is not covered needs;
under any GST registration). That • ‘Structure’ above refers to
- human resources
office is another fixed
- technical resources
establishment 7 . If he makes a
supply of service from that office,
the location of the supplier of the service would be the place where
the office is located –although it is not registered.
The location of supplier of service has been defined under the CGST
as well as the IGST Act8,. The definition is as under:
"location of the supplier of services" means,-
(a) where a supply is made from a place of business for which

the registration has been obtained, the location of such place
of business;
(b) where a supply is made from a place other than the place of
business for which registration has been obtained (a fixed
7Fixed Establishment is defined defined vide sec 2 (50) of CGST Act and 2 (7) of IGST
Act. Definitions in both the Acts are worded exactly the same.
8 Section 2 (71) of CGST Act and 2 (15) of the IGST Act.
184
establishment elsewhere), the location of such fixed

establishment;
(c) where a supply is made from more than one establishment,

whether the place of business or fixed establishment, the
location of the establishment most directly concerned with
the provisions of the supply; and
(d) in absence of such places, the location of the usual place of

residence of the supplier;
The establishment most directly concerned: There could situations where

the services provided from multiple locations. The law says that you
have to consider the location which is most directly concerned with
the supply. A similar language was used in the service tax law. The
education guide issued by CBEC in June 2012, discussed the
question: How will the establishment “most directly concerned with the
supply” be determined? The answer given there is useful in
understanding the concept in GST law as well. The education guide9
stated that this will depend on the facts and supporting
documentation, specific to each case. The documentation will include
the following:-
• the contract(s) between the service provider and receiver;
• where there are no written contracts, any written account

(documents, correspondence/e-mail etc) between parties
which sets out in detail their understanding of the oral
contract;
• in particular, for suppliers, from which establishment the

services are actually provided;
• in particular, for receivers, at which establishment the

services are actually consumed, effectively used or
enjoyed;
• details of how the business fits into any larger corporate

structure;
9 Please refer para 5.2.7 and 5.3.4 of the education guide issued by CBEC in June 2012.
185
• the establishment whose staff is actually involved in the

execution of the job;
• performance agreements (which may be indicative both of

the substance and actual nature of work performed at a
particular establishment);
Thus, normally in the case of multiple establishments of a person, it

will be the establishment that actually provides, or receives (i. e. uses
or consumes), a service that would be treated as 'directly concerned'
with the provision of service, notwithstanding the contractual
position, or invoicing or payment.
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CHAPTER 8
Place of Supply
The second criteria

Place of supply is the second criteria on the basis of which we would
determine whether the supply is inter-State or intra-State. This has an
impact not only on the tax (i.e. IT or CT + ST) to be paid, but also on the
Input Tax Credit.
Topics Discussed
• Introduction
• Location of the Recipient Place of Supply
- Goods in domestic transactions
- Goods in cross-border transactions
- Services in domestic transactions
- Services in cross-border transactions

Chapter 8 Place of Supply
Introduction
In the previous chapter, we saw that that the nature of supply (i.e.
whether it is interstate or intrastate) depends upon to factors viz. the
location of supplier and the place of supply. Having dealt with the
first one – location of supplier, let’s move to the second factor.
Practically determination of the location of supplier may not pose

much difficulty. But, determination of place of supply would slowly
develop into a fine art. It requires greater understanding of the legal
provisions. Apparently, this is going to be a much debated topic in
future. It would require us to consider very detailed criteria and
comprehension of various situations covered by the law.
The provisions are separate for goods and services. In all there are
four sections dealing with the topic:
Section 10: deals with domestic trade of goods. It determines

the place of supply of goods, other than supply of goods
imported into, or exported from India.
Section 11: deals with export and import of goods.
Section 12: deals with domestic supply of services. It

determines the place of supply of services where the location
of supplier of services and the location of the recipient of
services – both are in India.
Section 13: deals with cross-border transactions in services

where either the location of the supplier of services or the
location of the recipient of services is outside India.
Place of Supply of Goods – Domestic Trade: Section 10:
This section applies to all supplies of goods, except imports and

exports. It does not apply supply of services. As we have earlier
noted in the chapter “Scope of Levy …..” in GST on the supplies are
categorised and taxed either as supply of goods or as supply of
services. In a composite supply the whole supply is treated as supply
of the ‘principal supply’. Thus, if the principal supply is supply of a
television, the service of packing and delivery is not taxed separately.
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Instead the whole composite supply is treated as supply of television.

On the other hand, if the principal supply is a repairing service, then
the end of supply would be treated as supply of service even if some
goods were used in the process. Thus, there would be no need to
bifurcated value of goods and value of services. The entire supply
would be taxed as supply of service.
Similarly, the Schedule II to

Impact of POS on ITC
CGST Act specifies been the
transaction is as supply of Place of supply has a direct
service, though they involve impact on availability of ITC.
goods. Thus, for example, works Only the state, which gets the
revenue, would grant the ITC.
contract, or transfer of right to
Where the recipient is in the same
use goods, or transfer of right in
state in which ‘place of supply’
goods (without transferring falls, he can get the credits.
title) is treated as supply of
service. The section 10 would But imagine a case where a
apply only to the supply of company registered in Delhi holds
a conference in a hotel in Mumbai.
goods and not to the supply of
The hotel charges him the Central
services. Thus, section 10 will
Tax and the Maharashtra State
not determine place of supply of Tax. The company won’t be able
works contract although the to get credit in Delhi.
works contract involves use of
goods.
Section 10 visualises 5 specific situations and one residual case, viz.
1. Supply involves movement of goods
2. Supply does not involve movement of goods
3. Goods delivered on instructions of third person (sold to

shipped to transactions)
4. On-site assembly and installation of goods
5. Supplies on board conveyances
6. Cases not covered above (the government is to frame rules for

other situations).
189
It would be essential to read the full text of section 10. Disputes on

‘place of supply’ are likely in future and it would be in the interest of
everyone to refer and re-refer the provisions from section 7 to 13.
Text of section 10 of IGST Act is reproduced below:
10. Place of supply of goods other than supply of goods imported

into, or exported from India
(1) 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;
(d) where the goods are assembled or installed at site, the

place of supply shall be the place of such installation or
assembly;
(e) where the goods are supplied on board a conveyance,

including a vessel, an aircraft, a train or a motor vehicle,
the place of supply shall be the location at which such
goods are taken on board.
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(2) Where the place of supply of goods cannot be determined, the

place of supply shall be determined in such manner as may be
prescribed.
This section deals with five situations and then says that if a case is
not covered by any of these five, then the government will frame
rules to determine the place of supply. As of now, no rules have been
framed. Let’s consider each of these five situations and understand
what would be the ‘place of supply’ in each case.
Situation 1: When the supply involves movement of the goods:
Let’s read the clause (a), dealing with this situation. It says:
(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;
This is the most common case. There is a supplier, and a recipient of

the supply. The supply involves movement of the goods. It is not
necessary that the movement should be made by or arranged by the
supplier himself. The movement could be made by the supplier, the
recipient, or by any other person. In all the three cases, one has to see
– ‘where has the movement terminated for delivery to the recipient?’
Place of Supply
Location of the
• the supplier or goods at the time
Movement by • the recipient or at which
• any other
person • the movement
of goods
terminates
• for delivery to
the recipient
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The essential things here are – the movement of the goods and the
termination of the movement. The termination is with the reference
to ‘delivery to the recipient’. But, the movement could be even by the
recipient. The provision gets ambiguous here. How would the POS
be determined in case of ex-works delivery to the recipient? Once the
goods are handed over to the recipient, the supplier loses control
over further movement. Let us understand this by the following
example.
Suppose a trader ‘A’ having his office and godown in Ahmedabad

(Gujarat) wants to purchase goods from a manufacturer ‘B’ located in
Mumbai (Maharashtra). Now the transaction can happen in several
ways:
i. Suppose in the first case, there is a contract between the two

parties requiring the manufacturer to deliver the goods to ‘A’
at his godown in Ahmedabad. The manufacturer makes
necessary arrangement for transporting the goods. The
delivery will happen when the goods are in received by the
trader ‘B’. The movement has terminated when the delivery
was given. The place of supply would be Gujarat.
ii. Now suppose, in the above example, the trader ‘B’ sells the
very same goods to another person ‘C’ located in Rajasthan
requiring further movement. However so far as the
transaction between ‘A’ and ‘B’ is concerned, the movement
terminated at Ahmedabad. Once the delivery to ‘B’ is
complete, any further movement of the goods is not relevant
for determining the ‘place of supply’ of the supply made by
the Mumbai manufacturer ‘B’.
iii. In another scenario, suppose the Ahmedabad trader comes to

Mumbai and takes delivery of the goods factory gate of the
manufacture. On his directions, the supplier prepares a Tax
Invoice mentioning the Ahmedabad address and the GSTIN
of the buyer. The clause (a) applies even if the movement is
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made by the recipient. Therefore, the place of supply would

again be Gujarat.
iv. The situation discussed in previous paragraph creates some

tactical problem for the supplier. What if the trader ‘A’ does
not carry the goods till Ahmedabad? What if he sells the
To,
M/s. _______ (supplier)
We do hereby confirm that the goods covered by your

Tax Invoice number ______, dated_____ are to be taken to
______ (state).
For __________
______________
(Signature of the recipient)
goods in Mumbai itself? Can the place of supply be

challenged? In my view, the place of supply would still be
Gujarat. The place of supply has to be determined at the time
of issuance of Tax Invoice. It has to be based on the facts,
information and circumstances prevailing at the time of
issuance of the Tax Invoice. Any subsequent change in the
facts would be immaterial. In any case it would be in the
interest of the supplier to maintain adequate proof regarding
the proposed movement of goods. In case no evidence is
available, he can obtain in the following declaration:
v. Off course there could be a situation where the trader ‘A’

does not disclose the location to which he would be carrying
the goods. In such a situation the place of supply would be
the location of supplier himself.
Situation 2: Goods supplied on directions of a third person - ‘Bill to’,

‘Ship to’ transactions:
Please read the section 10 (1) (b) carefully. It says:
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(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;
This is a transaction involving three parties. The delivery is to be

made by the supplier on the instructions of a third person. Who is
this ‘third person’? Well, who can give directions to the supplier? It is
obvious that only the buyer or someone authorised by him (his
agent) can issue instructions to the supplier. Therefore, the ‘third
person’ here is the buyer. In the following diagram, the goods would
delivered to ‘C’ on instructions of the buyer ‘B’. In terms of section 10
(1) (b) the ‘place of supply’ would be the principal place of business
of the buyer ‘B’.
We may note that there are two supplies involved here
• Supply by supplier ‘A’ to the

Buyer ‘B’ (the third party); Buyer 'B'
and
• Supply by the Buyer to ‘C’
This clause takes care of the Supplier Delivery

invoicing to be done by ‘A’ to ‘B’. So 'A' to 'C'
far as the sale made by ‘A’ is
concerned, the ‘place of supply’
would be the principal place of business of ‘B’. ‘C’ could be customer
of ‘B’. It may be job-worker of ‘B’ or it could also be just a branch of
‘B’. We have already seen that establishment of a person in another
state is to be treated as establishments of distinct person. Therefore,
even if ‘B’ and ‘C’ happens to be establishments of the same
company, they would be treated as distinct persons.
Thus, in this situation, the place of supply is not being decided by

movement of the goods, but by the location of the buyer/customer.
In the example 1, even when the goods do not move out of state, yet
194
the supply is treated as inter-State because the customer is located in

another state. The customer would be in position to avail input tax
credit. If he's making a sale to the Pune person, he would issue an
invoice charging IGST. Thus, in this situation, the place of supply is
not being decided by movement of the goods, but by the location of
the buyer/customer. In the example 1, even when the goods do not
move out of state, yet the supply is treated as inter-State because the
customer is located in another state. The customer would be in
position to avail input tax credit. If he's making a sale to the Pune
person, he would issue an invoice charging IGST.
‘B’ says to ‘A’: Deliver the goods to ‘C’
Example 1 Example 2
Buyer 'B' Buyer 'B'

(Bangaluru) (Pune)
Supplier Delivery to
Supplier 'A' Delivery to 'A' 'C'
(Mumbai) 'C' (Pune) (Mumbai) Bangaluru
▪ Location of supplier: ▪ Location of supplier:

Maharashtra Maharashtra
▪ Place of Supply: Karanataka ▪ Place of Supply: Maharashtra
▪ Nature of supply: Inter-State ▪ Nature of supply: Intra-State
▪ Tax payable: Integrated Tax ▪ Tax payable: CT + ST
Similarly in the example 2, even when the goods are moving out of
the state, the supply remains an ‘Intra-State’ supply if the customer
happens to be within the same state.
Delivered to a recipient or any other person: ‘Recipient’ has a special

meaning in GST law. Wherever the supplies are made for
consideration the ‘recipient’ of the supply is the person who is liable
195
to pay the consideration1. It is possible that the ‘third person’ is an

agent of the recipient, and the agent can hold a separate registration.
Supplies between the principal and the agent are taxable2. Now if the
agent places an order on the supplier he may ask the delivery to be
made either to the recipient (the person liable to pay the
consideration) or of any other person. In such a situation the place of
supply would be the location of the agent.
Before or during movement of

What if?
goods: It is not necessary that
the direction to supply goods What would have happened if the
to someone is received before law was not like this? What if the
commencement of the ‘place of supply’ were to be decided
movement. Such direction can by movement of the goods? Then in
also come ‘during’ the the above example 1, the place of
supply would have been
movement i.e. after the
Maharashtra itself. The supplier
movement has commenced.
would have charged Central Tax +
Transfer of documents of title to Maharashtra State Tax. The
the goods or otherwise: For customer in Bangaluru could not
have claimed ITC.
example, a consignment note
(Lorry Receipt) issued by the In fact wherever the law fixes some
transporter is ‘document of other location (other than location of
title’. The LR can be endorsed the recipient) as the ‘place of
to another person (“Please supply’, the recipient would lose
deliver to or to the order of credit.
M/s. …………..”). This is one
way to issue directions to deliver the goods to someone.
We may note a few things here:
i. While in the previous case [clause (a)] two parties were

involved, in the present case three parties involved.
ii. Goods are to be delivered by the supplier.
1 Refer section 2 (93) of the GST act.

2 Please see entry 4 in the schedule I to CGST act.
196
iii. The delivery could be made to a recipient or any other

person. While the recipient is the person who is liable to
make payment to the supplier, ‘any other person’ could
be ‘any’ other person. For example, he could be:
- Customer of the recipient;
- Job worker of the recipient;
- A person to whom the goods are being

donated/gifted; etc.
iv. It shall be deemed that the third person has received the
goods. This will enable him to avail ITC without
physically receiving the goods at his locations.
v. Branch in another state is to be treated as a ‘distinct

person’. Therefore, if ‘Bill to’ address of the customer is in
one state and ‘Ship to’ address is of the same customer but
in another state, the place of supply would again be the
‘bill to’ location.
Situation 3: Where the supply does not involve movement of goods
The clause (c) of section 10 (1) reads as under:
(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;
There could be situations where supply takes place without

movement of goods. For example:
i. In the previous situation the goods were delivered to

person ‘C’ on instructions of the customer ‘B’. Now ‘C’
could be the customer's customer. The customer ‘B’ would
have to raise a tax invoice for the supply made by him to
his customer ‘C’. But there is no separate movement of
goods for this supply.
197
ii. Say some goods are lying in a warehouse. These can be

sold by endorsing the warehouse receipt. Multiple sale
can happen – first person to the second; second to the
third and so on – while the goods continue to remain in
the warehouse.
iii. Suppose, I am in business of leasing cars. The lease is a

service transaction. Now, it may happen that the lessee
wants to purchase the car given to him on lease. Here the
car is already lying with the buyer (as lessee). The sale
does not involve any movement.
iv. Suppose I have taken a factory premises on rent, and I

have installed the DG set in it. Suppose the rent
agreement expires after three years and I leave the
premises. At that time the owner of the premises agreed
to by the DG set from me. Here again there is no
movement of the goods; and the seller is moving out of
the premises leaving behind the goods sold.
In all the above cases the place of supply shall be the location of such
goods at the time of the delivery to the recipient. Since there is no
movement of the goods involved, the delivery to the recipient would
be given at the place where the goods are located.
Situation 4: Where the goods are erected and installed
The clause (d) of section 10 (1) reads as under:
(d) where the goods are assembled or installed at site, the place of
supply shall be the place of such installation or assembly;
Many goods are supplied in disassembled or unassembled condition

and the assembly takes place at the customer's location. Take the case
of a supply of a crane or a huge machine. These are first taken to the
location of installation and are assembled and installed at the site. In
all such cases the place of supply would be the place where assembly
or installation takes place.
In the first case above, the location of the supplier as well as the place
of installation of the goods are both in Maharashtra. Hence the
198
transaction will be Intra-State. In the second case, the supplier is in

Maharashtra but the goods are being installed in Karnataka. Hence
the supply is inter-State. Here, we are not looking at the location of
the buyer. We are looking at the location where the goods are to be
installed.
Supplier Installation Intra-State

Mumbai Pune (CT + ST)
Supplier Installation
Inter-State (IT)
Mumbai Bangalore
It may happen that the installation is in a state other than the state of
the buyer. Even in such cases the place of supply would be the place
where the goods are installed. We may note that this is contradictory
to the situation 2 discussed above. In situation 2, the ‘place of supply’
was the location of the Example 3
person on whose
instructions the goods were
delivered. In general, such
person would be the buyer.
Thus, the buyer’s location
was the place of supply.
However in the present
situation the place of supply
is the location where the
goods are installed.
199
In the adjacent ‘Example 3’ the buyer is located in Bangaluru, and the

goods are to be installed at Pune. Since the goods are to be installed
at Pune the place of supply would be Maharashtra (the state in which
Pune is situated). Had this been a case of supply without installation,
then we would have said that Karnataka is the place of supply. Thus,
in case of conflict between the situation (2) and the situation (4), the
situation (4) will apply3. To summarise, in case of ‘bill to’ and ‘ship
to’ transaction:
In case of ‘bill to’ and ‘ship to’ transaction:
Situation Place of Supply
If the goods are assembled or The place of such installation or

installed at site assembly
The goods are not assembled The buyer’s location

or installed at site
We may further note that:
(i) Between ‘assembly’ and ‘installation’ any one is sufficient to

invoke this clause. It is not necessary that the goods must be
assembled as well as installed. This clause will supply if they
are simply assembled, or simply installed, or assembled as
well as installed.
(ii) This clause does not determine as to whether the supply of

goods and supply of installation service is a composite supply
or not. Even if these can be treated as separate supplies yet if
the agreement between the supplier and a recipient of the
supply requires the supplier to supply goods as well as to
assemble/install them at the site then the place of supply
would be the place where the goods are assembled or
installed.
3That is to say that in case of conflict between clause (b) and clause (d) of the
subsection (1) of section 10, the clause (d) will prevail.
200
(iii) There could be a situation where at the time of supply of the

goods it is not known as to whether the supplier is required to
assemble/install the goods or not. In such a case this clause
cannot be invoked. The tax liability is to be determined and
discharged at the time of supply. As you would see in the
chapter “Time of supply: When does the tax become due?”,
the tax becomes payable even on receipt of advance. It is
possible that at the time of receipt of advance, the supplier is
does not know as to whether he will get the contract for
assembly/ installation, or not. In such a situation, we should
pay IGST (assuming it to be an inter-State supply). Later, if
the supply happens to be intra-State the tax so paid is
adjustable.
Situation 5: Goods supplied on board of a conveyance
The clause (e) of section 10

Supply on board is different than mere
(1) reads as under:
delivery on board.
(e) where the goods are
Suppose a person “XYZ Pvt. Ltd.” is
supplied on board a in the business of selling goods in
conveyance, including train. Let us say he is registered in the
a vessel, an aircraft, a state of Arunachal Pradesh. He
train or a motor procures goods from a vendor ‘ABC
vehicle, the place of Ltd.’ located in Kolkata. Now suppose
supply shall be the he directs the vendor to deliver the
location at which such goods to his person on a train at
goods are taken on Kolkata railway station.
board.
Here, ABC is not selling goods on
Here conveyance refers to a board of the train. For him, the place
of supply would be Arunachal
vehicle in journey. Consider
Pradesh (location of the recipient of
a case of supply of goods on
the supply i.e. the buyer).
board of an aeroplane. Say
the plane commenced its For XYZ, the place of supply in
journey from Chennai, respect of the goods sold in the train,
halted at Mumbai and then would be ‘West Bengal’ as the goods
went to Delhi. Also say the were taken on Board at Kolkata (West
Bengal)
goods were taken on board
201
at Mumbai. Now, while the goods were sold during the journey from
Mumbai to Delhi, the plane could be flying over different states at
different times. But for all such sales, the place of supply would be
Mumbai itself.
It is immaterial whether the supply on board is made by the airline

itself or it allows some other company to enter into the aircraft and
sell the goods therein. In both the cases, the supply is being made on
the board of the conveyance. However, when an outsider just
supplies the goods to the airline then such supply cannot be said is
made on board of the conveyance. Please see the discussion adjacent
box.
Situation 6: Situations not covered in any of the previous 5 cases:
Suppose a person situated in the UK places orders on a company in

Kerala with a direction that the goods be delivered to a person in
Tamil Nadu. Where would be the place of supply? Can we apply the
clause (b) of section 10 (1)? Apparently not. It does not seem that
section 10 is referring to any place outside India. This is also not
export of goods, because the goods are not going outside India.
Therefore section 10 (2) says that the government would make the
rules to cover various other situations (that is other than the five
situations discussed above). It reads as under:
(2) Where the place of supply of goods cannot be determined, the

place of supply shall be determined in such manner as may be
prescribed.
We may summarise the provisions of section 10 as under:
Clause Circumstance Place of Supply
(a) Supply involves Location of the goods at the

movement of goods time at which
• the movement of goods

terminates
• for delivery to the

recipient
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(b) Goods delivered on The principal place of business

directions of a third of the third person (i.e. the
person buyer or the agent who gave
the direction).
It is deemed that he has

received the goods)
(c) Supply does not Location of the goods at the

involve movement of time of the delivery to the
goods recipient
(d) Goods assembled or The place of such installation or

installed at site assembly
(e) Goods supplied on The location at which such

board of a conveyance goods are taken on board of the
conveyance
Sec 10 Any other situation As per the rules to be framed

(2)
Place of supply in case of Exports and Imports: Section 11
This provision is quite simple. It reads as under:
11. Place of Supply of Goods Imported into, or Exported from India
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.
Import of goods means - bringing goods into India from a place

outside India; and export of goods is defined as taking goods out of
India to a place outside India4. Here, it may of interest to know that
‘India’ has also been defined. It means the following three:
4 Section 2 (5) of IGST Act defines export and 2 (10) defines import of goods
203
(56) “India” means
The territory of India as referred This covers territories of all

to in article 1 of the Constitution, the states, the union
territories and acquired
territories, if any.
Territorial Waters, Continental Covers territorial waters,

Shelf, Exclusive Economic Zone seabed and sub-soil
and other Maritime Zones Act, underlying such waters,
1976 continental shelf, exclusive
economic zone and other
maritime zone
The air space above its territory

and territorial waters;
We may note that by definition, import and export are based on

movement of the goods and not upon location of the supplier and the
recipient. If the goods do not go out of India it is not export (even if
the payment is received from a foreign country). Conversely, if the
goods go out of India, the supply is export under GST law
irrespective of whether payment is received in convertible currency
or not. The position for services is different, which we shall see later.
Place of supply of services in domestic transactions: Section 12
This section deals with supply of services where both of the

following are in India:
• the location of supplier of services, and
• the location of the recipient of services
If any one of them is out of India then section 13 would apply.
Scheme of Section 12: Section 12 comprises of 14 sub-sections. The sub-

section (1) merely says that section 12 would apply where the
location of supplier as well as the recipient both, are in India. Twelve
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sub-sections [from (3) to (14)] discuss specific situations and

prescribe the ‘place of supply’ for those situations. All other
situations are covered by the sub-section (2).
Sec 12 (1) Section 12 would apply where the location of

supplier as well as the recipient are both in India
Sec 12 (2) Prescribes the general rule for determining ‘place

of supply’. This would apply to all situations
which are not covered by the remaining 12 sub-
sections.
Sec 12 (3) to (14) Prescribe the ‘place of supply’ for specific

situations
Text of section 12 is reproduced below:
12. Place of supply of services where location of supplier and recipient

is in India.
(1) The provisions of this section shall apply to determine the place of
supply of services where the location of supplier of services and the
location of the recipient of services is in India.
(2) 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.
(3) The place of supply of services,--
(a) directly in relation to an immovable property,

including services provided by architects, interior
205
decorators, surveyors, engineers and other related

experts or estate agents, any service provided by way of
grant of rights to use immovable property or for
carrying out or co-ordination of construction work; or
(b) by way of lodging accommodation by a hotel, inn, guest

house, home stay, club or campsite, by whatever name
called, and including a house boat or any other vessel;
or
(c) by way of accommodation in any immovable property

for organising any marriage or reception or matters
related thereto, official, social, cultural, religious or
business function including services provided in
relation to such function at such property; or
(d) any services ancillary to the services referred to in

clauses (a), (b) and (c),
shall be the location at which the immovable property

or boat or vessel, as the case may be, is located or
intended to be located:
Provided that if the location of the immovable property or boat or

vessel is located or intended to be located outside India, the place of
supply shall be the location of the recipient.
Explanation.--Where the immovable property or boat or vessel is

located in more than one State or Union territory, the supply of
services shall be treated as made in each of the respective States or
Union territories, in proportion to the value for services separately
collected or determined in terms of the contract or agreement
entered into in this regard or, in the absence of such contract or
agreement, on such other basis as may be prescribed.
(4) The place of supply of restaurant and catering services, personal

grooming, fitness, beauty treatment, health service including
cosmetic and plastic surgery shall be the location where the
services are actually performed.
(5) The place of supply of services in relation to training and

performance appraisal to,--
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(a) a registered person, shall be the location of such person;
(b) a person other than a registered person, shall be the

location where the services are actually performed.
(6) The place of supply of services provided by way of admission to a

cultural, artistic, sporting, scientific, educational, entertainment
event or amusement park or any other place and services ancillary
thereto, shall be the place where the event is actually held or where
the park or such other place is located.
(7) The place of supply of services provided by way of,-
(a) organisation of a cultural, artistic, sporting, scientific,

educational or entertainment event including supply of
services in relation to a conference, fair, exhibition,
celebration or similar events; or
(b) services ancillary to organisation of any of the events

or services referred to in clause (a), or assigning of
sponsorship to such events,--
(i) to a registered person, shall be the location of

such person;
(ii) to a person other than a registered person, shall

be the place where the event is actually held and
if the event is held outside India, the place of
supply shall be the location of the recipient.
Explanation.--Where the event is held in more than one State or

Union territory and a consolidated amount is charged for supply
of services relating to such event, the place of supply of such
services shall be taken as being in each of the respective States or
Union territories in proportion to the value for services separately
collected or determined in terms of the contract or agreement
entered into in this regard or, in the absence of such contract or
agreement, on such other basis as may be prescribed.
(8) The place of supply of services by way of transportation of goods,

including by mail or courier to,--
207

location at which such goods are handed over for their
transportation.
(9) The place of supply of passenger transportation service to,-

place where the passenger embarks on the conveyance
for a continuous journey:
Provided that where the right to passage is given for future use
and the point of embarkation is not known at the time of issue of
right to passage, the place of supply of such service shall be
determined in accordance with the provisions of sub-section (2).
Explanation.--For the purposes of this sub-section, the return

journey shall be treated as a separate journey, even if the right to
passage for onward and return journey is issued at the same time.
(10) The place of supply of services on board a conveyance, including a

vessel, an aircraft, a train or a motor vehicle, shall be the location
of the first scheduled point of departure of that conveyance for the
journey.
(11) The place of supply of telecommunication services including data

transfer, broadcasting, cable and direct to home television services
to any person shall,-
(a) in case of services by way of fixed telecommunication

line, leased circuits, internet leased circuit, cable or
dish antenna, be the location where the
telecommunication line, leased circuit or cable
connection or dish antenna is installed for receipt of
services;
(b) in case of mobile connection for telecommunication and

internet services provided on post-paid basis, be the
location of billing address of the recipient of services on
the record of the supplier of services;
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(c) in cases where mobile connection for

telecommunication, internet service and direct to home
television services are provided on pre-payment basis
through a voucher or any other means,--
(i) through a selling agent or a re-seller or a

distributor of subscriber identity module card or
re-charge voucher, be the address of the selling
agent or re-seller or distributor as per the record of
the supplier at the time of supply; or
(ii) by any person to the final subscriber, be the

location where such prepayment is received or
such vouchers are sold;
(d) in other cases, be the address of the recipient as per the

records of the supplier of services and where such
address is not available, the place of supply shall be
location of the supplier of services:
Provided that where the address of the recipient as per the records
of the supplier of services is not available, the place of supply shall
be location of the supplier of services:
Provided further that if such pre-paid service is availed or the

recharge is made through internet banking or other electronic
mode of payment, the location of the recipient of services on the
record of the supplier of services shall be the place of supply of such
services.
Explanation.--Where the leased circuit is installed in more than

one State or Union territory and a consolidated amount is charged
for supply of services relating to such circuit, the place of supply of
such services shall be taken as being in each of the respective States
or Union territories in proportion to the value for services
separately collected or determined in terms of the contract or
agreement entered into in this regard or, in the absence of such
contract or agreement, on such other basis as may be prescribed.
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(12) The place of supply of banking and other financial services,

including stock broking services to any person shall be the location
of the recipient of services on the records of the supplier of services:
Provided that if the location of recipient of services is not on the

records of the supplier, the place of supply shall be the location of
the supplier of services.
(13) The place of supply of insurance services shall,--
(a) to a registered person, be the location of such person;
(b) to a person other than a registered person, be the

location of the recipient of services on the records of the
supplier of services.
(14) The place of supply of advertisement services to the Central

Government, a State Government, a statutory body or a local
authority meant for the States or Union territories identified in the
contract or agreement shall be taken as being in each of such States
or Union territories and the value of such supplies specific to each
State or Union territory shall be in proportion to the amount
attributable to services provided by way of dissemination in the
respective States or Union territories as may be determined in
terms of the contract or agreement entered into in this regard or,
in the absence of such contract or agreement, on such other basis
as may be prescribed.
Impact of Place of Supply on Input Tax Credits:
A careful reading of section 12 will show that there are 12 exceptions

and a general rule. These 12 exceptions are actually 12 groups or
categories, and cover at least 31 services. The very first group
“services directly in relation to an immovable property” lists 8 services by
way of inclusion. Amongst these exceptions, several criteria have
been adopted to determine the place of supply. These are:
a. Location of the recipient
b. Location of the supplier
c. Location of the property/ hotel/ park etc.
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d. Place of performance
Place of supply in general – Sec 12 (2):
The sub-section (2) reads as under
(2) 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,-

record exists; and

cases.
The twelve sub-sections discussed below are exception to the general

rule. The general rule is that the place of supply of service has to be
determined as per sub-section (2). The following flow-chart may be
helpful in remembering structure of this sub-section and in deciding
the place of supply. The provision is pretty simple. If the recipient of
the service is registered, the place of supply would be his registered
location. If not, then it will be his address on the records of the
supplier. But there could be a case where even the address is not
known. In that case, the place of supply would be the location of the
supplier himself.
It may be appreciated that the above general rule will apply only in
those cases which are not covered by any of the twelve exceptions.
Thus, before one applies the general rule, he must check whether any
of the exceptions (i.e. those from sub-rule 3 to sub-rule 14) cover the
situation.
211
Supply
Place of supply of service – the general rule
Recipient
Registered
Yes No
Location of the
Registered Person Address on
Record Exists?
Yes No
That Address Location of the supplier
Exception 1: Immovable Property, and accommodation – Sec 12 (3)
All of these services are in relation to immovable property, boat &

vessel, hotel, inn, guest house, home stay, club or campsite and
ancillary services. In all the cases the place of supply has been
determined to be the
▪ Location at which the immovable property/ boat/ vessel is

located or intended to be located
▪ If the location of property is outside India – then POS

would be the location of the recipient
Intended to be located: It may happen that a service is rendered in

relation to a property that is yet to be constructed. Suppose a person
located in Mumbai wants to establish a hotel in Bangalore. Say, he
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engages a Project Consultant situated in Mumbai. The consultant

engages an Architect, a builder, and an interior contractor – all
situated in Bangalore. Now, all the four service providers need to
determine place of supply and raise Tax Invoice on the owner – who
is located in Mumbai.
• The place of supply for their services would be Karnataka,

where the immovable property is ‘intended to be located’.
• For the Architect, the builder and the interior contractor, the
supply is intra-State because all of them are situated in
Bangalore itself. Thus, they would charge CT + Karnataka ST.
• The Project Consultant is situated in Mumbai, and the POS is

Karnataka. Hence the supply is inter-State. He would charge
IT (Integrated Tax).
In the same example, if the hotel were to be located, say, in Canada,

then the place of supply would be Maharashtra (location of the
person, who is getting the hotel constructed).
The clause (a) lists following eight services, and says that they are
included.
1. Architects,
2. Interior decorators,
3. Surveyors,
4. Engineers and other related experts
5. Estate agents,
6. Grant of rights to use immovable property
7. Carrying out construction work
8. Co-ordination of construction work;
However, the above eight services are not the only services covered
by the clause. The clause says “services directly in relation to an
immovable property, including……”. Thus, any service that can be said
213
to be directly in relation to the immovable property, would be

covered here even if it is not in the list.
Lodging accommodation: In case of lodging accommodation, the POS is

the place of the accommodation. The accommodation could be
• by a hotel, inn, guest house,

• home stay,
• club or campsite,
• includes a house boat or any other vessel;
By whatever name called: The phrase indicates that the scope of the
clause is wide enough. What is relevant is that the service is of
lodging accommodation. Name of the premises is not relevant.
Accommodation for organising functions: The clause also covers

accommodation in any immovable property for
• organizing any marriage or reception or matters related

therewith,
• official, social, cultural, religious or business function
• including services provided in relation to such function at
such property
While organising the marriage/ reception/ related matters; and the
functions, the service in question is of ‘accommodation in immovable
property’. But in case of the last sentence “including services
provided in relation to….” does not mean accommodation service.
For instance, a decorator or an orchestra may also provide services in
the marriage. For them also, the POS would be the location of the
immovable property. The clause restricts to the services provided ‘at
such property’. Thus, for example, a person who prints invitation
card for the marriage may be providing service in relation to the
marriage but it would not be covered by this clause because, it is
- neither ‘accommodation in any immovable property’
- nor a service provided ‘at such property’
214
Services ancillary to the services referred in clauses (a), (b) and (c):
Ancillary service is that service which provides support to the
primary activity. Ancillary refers to supplementary, sub-ordinate.
Property located in multiple states: What would be the POS if the
contract is for construction of a road that passes through 4 states? All
the 4 states would claim share of the revenue. The explanation to
section 12 (3) provides that in such a situation the value of the
services would have to be separated for each state. It would be
advisable to raise separate invoices for the POS in separate states.
The separation of value would be done:
- in terms of the contract or agreement for the service, or
- (in the absence of such contract or agreement), the basis
would be prescribed by rules.
Exception 2: Personal services: Performance Based – Sec 12 (4)
In case of following services, the POS would be the location where
the services are actually performed:
• Restaurant and catering services,
• Personal grooming, fitness, beauty treatment,
• Health service including cosmetic and plastic surgery
Thus, a restaurant would always raise bill, charging CGST and SGST.
Same would be the case with supplier of the other services
mentioned here.
Exception 3: Services in relation to training and performance
appraisal – Sec 12 (5)
The POS would be as under:
Service to Place of Supply
A registered person Location of such person (i.e. the

recipient)
Others Where the services are actually

performed.
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Exception 4: Services by way of admission to Events or Places – Sec

12 (6)
The POS in following cases would be the place where the event is
actually held or where the park or such other place is located.
Service Details
Admission to events Cultural, artistic, sporting, scientific,

educational, or entertainment event
Admission to places Amusement park or any other place
Ancillary Services Ancillary to the admission to the

events or places
This entry refers to the fees for entry into the event or the place. For
example, if tax is to be paid on ‘entry fees’ for a bird sanctuary, the
POS would be the location of the sanctuary. But, if a restaurant is
operated inside the sanctuary, the POS would not be determined by
applying this clause. We would apply the clause 12 (4) (even under
that clause the POS would be the location of the sanctuary).
Exception 5: Organisation of Events, and Sponsorship – Sec 12 (7)
This entry covers the following services
Service Details
Organisation of Cultural, artistic, sporting, scientific,

events educational or entertainment event
Service in relation to Supply of service in relation to a

events conference, fair, exhibition, celebration
or similar events
Ancillary Services Ancillary to the above two.
Sponsorship Assigning sponsorship to such events
Compare this with the previous clause. Both are related to events.
But, the previous clause was about ‘admission’, while the present one
216
is about ‘organisation’ and ‘sponsorship’. The place of supply would

be as under:
A registered person Location of such person
Others • Where the event is actually held
• If the event is held outside India, -

then the location of the recipient
It is notable that in this case, in the first instance the POS is the
location of the registered recipient. Thus, there won’t be any
difficulty in availing credit. The provision is similar to that in case of
training and appraisal. In both the cases, if the recipient is registered,
the POS is his location. In comparison, the POS on ‘admission to
event’ will always be the place where the event is held or the park
etc. is located.
Suppose a company registered in Tamil Nadu, holds a conference in

Mumbai. The place of supply for different components would be as
under:
Service Place of Supply
Entry fees for the event Maharashtra
Event Management Tamil Nadu (location of the

company organising the registered person)
event
Food & Beverages Maharashtra
It is possible that all the components are supplied as part of a

composite supply. In that case, the POS would be determined by
nature of the composite supply.
Exception 6: Transport of Goods – Sec 12 (8)
217
This clause covers transportation of goods; and transportation of

goods by mail or courier is also included here.
Others Location at which such goods are
handed over for their transportation.
Suppose, a company ‘A’ registered in Indore (MP) sends material to a

job-worker located in Gujarat. Let’s say that after completion of the
job-work, the goods are to be sent to another job-worker located in
Karnataka through a courier agency. The courier agency would raise
a bill on the ‘A’ registered in MP. The POS for the transport charges
would be MP. Thus, if the Courier Agency is also located in MP, then
the tax would be CT + ST; and if it was located in some other state
the tax would be IT.
In the above example, if the company ‘A’ were not registered, then
the POS would be Gujarat where the goods were handed over by the
first job-worker to the courier agency.
Exception 7: Passenger Transportation – Sec 12 (9)
The place of supply would be as under:
Others The place where the passenger
embarks on the conveyance for a
continuous journey.
Right to passage for future Apply the general rule
use and the point of
[sec 12(2)]
embarkation is unknown
Return Journey – to be treated as a separate journey
Return Journey: If the recipient is not registered, the POS is the place
where the passenger embarks on the conveyance. Suppose a ticket is
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issued for journey from Mumbai to Delhi and return. In this case, for
the first journey, the POS would be Maharashtra; and for the return
journey it would be Delhi.
Right to passage for future use: This issue is relevant only for service
provided to un-registered persons. Airlines issue ticket booklets in
advance for unknown journeys. For example, ticket could be issued
for Rs. 50,000/- for 25 journeys anywhere in India in next six months.
The tax is payable at the time of issue of ticket. But at that point of
time, the embarkation point is not known. In that case, the general
rule would be applied, which means, the POS would be:

record exists; and

cases.
Exception 8: Services on Board of Conveyance – Sec 12 (10)
The place of supply of services on board a conveyance such as vessel,

aircraft, train or motor vehicle, shall be the location of the first
scheduled point of departure of that conveyance for the journey.
Scheduled point of departure: Suppose a train is going from Mumbai to

Delhi and a caterer enters into it from Vadodara (Gujarat) sells the
food and gets down at Ahmedabad. What would be the POS for the
food served between Vadodara and Ahmedabad? The provision says
that it will be the first scheduled point of departure of that
conveyance for the journey. In other words, it would be Mumbai.
The conveyance has to be in a journey: Now, suppose a plane comes to a

work-shop for interior repair works. Here the supply of service is not
on board of a conveyance, because the conveyance is not in a
journey.
Exception 9: Telecommunication Services – Sec 12 (11)
The provision can be analysed into the following chart:
219
Fixed Line Location where

installed for receipt
Post Paid Billing Address

Telecommunication
Mobile Through Agent's

Connection Agents Address
Pre-paid Where payment

To subscriber
is received
Location of
Through
recipient, on
Internet
record
Address of
Others recipient, on
record
Exception 10: Banking & Other Financial Services – Sec 12 (12)
This clause covers:
• Banking Services
• other financial services
• stock broking services
The Place of Supply would be as under:

Location of the recipient - Such location on records
on the records of the
supplier
Location not on record Location of the supplier of services
220
Exception 11: Insurance Services – Sec 12 (13)
The POS for Insurance services would be as under:
Others Location of the recipient of services on

the records of the supplier
Exception 12: Supply of Advertisement Services to Government – Sec

12 (14)
This is the last exception. The service in question is ‘Advertisement’.

This clause is applicable only when the service is provided to
• The Central Government,
• A State Government,
• A statutory body or
• A local authority meant for the States or Union territories

identified in the contract or agreement
The ‘Place of Supply’ of such advertisement service shall be in each

of the States/ UT. The value of such supply would have to be
determined separately for each state. The provision says that the
value shall be in proportion to dissemination in the respective
States/ UT.
Similar the case of immovable property located in more than one

state, this clause also says that the value will be determined
• in terms of the contract or agreement
• in the absence of such contract or agreement, as per rules

framed by the government
Thus, for example, say the Central Government awards contract to

an Advertisement Agency to disseminate advertisements in 7 states;
221
and suppose those 7 states are identified i.e. the contract/ agreement
names those 7 states. Then:
(a) The service is being provided by way of dissemination in

those 7 states.
(b) POS shall be in those 7 states.
(c) The value of supply for each state will have to be determined
separately.
(d) The value shall be in proportion to the quantum of service

provided in each state (by way of dissemination)
(e) The value would be determined in terms of the contract or

agreement
(f) If there is no contract/ agreement leading to identification of

the values, then the rules framed by the government would
be applied.
Let’s summarise the provisions:
Sub- Service/ Situation If supply What is the POS

section made to otherwise?
registered
person –
POS is
his
location?
2 General rule Yes If supply made to

others, POS is:
• Recipient’s
address on
record;
• Else, supplier’s
location.
3 (a) Services, directly in No Where the

relation to an property is located
222
immovable property or intended to be

located.
3 (b) Lodging No Location of Hotel,

accommodation inn, boat, etc.
3 (c) Accommodation in No Location of

any immovable property
property for
functions
(including services
provided in relation to
such function)
3 (d) Services ancillary to No Location of

above three property, hotel,
boat etc.
In all the 4 cases of sub-section (3):
If the property is located in more than one state, then value will
have to be divided and apportioned to each state.
4 i. Restaurant and No Place of

catering services, Performance
ii. Personal
grooming,
iii. Fitness,
iv. Beauty
treatment,
v. Health service
including
cosmetic and
plastic surgery
5 Training and Yes If supply made to

performance others - POS is the
223
appraisal ‘Place of
Performance’
6 • Admission to No The place where

events the event is held
or the park etc. is
• Admission to
located.
amusement park
or any other place
• Ancillary Services
7 • Organisation of Yes • The place

events where the
event is
• Ancillary Services
actually held
• Assigning of
• If the event is
Sponsorship
held outside
India, POS
shall be the
location of the
recipient.
8 Transportation of Yes Location where

Goods (including the goods are
mail/ courier) handed over for
transportation
9 Passenger Yes Point of

transportation embarkation
10 Supply of services on No Location of the

board a conveyance first scheduled
point of departure
11 Telecommunication No • Fixed Lines,

services leased circuits,
cable, dish etc.
– where
installed (If in
224
more than one

state, values to
be segregated).
• Post-paid
connections –
billing address
• Pre-paid
connections –
through agents
– address of the
agent
• Pre-paid
connections to
subscriber –
where payment
is received or
voucher is sold.
• Pre-paid
service availed
through
internet etc. –
location of
recipient on
record.
• Other cases –
address of
recipient, on
record.
Wherever address
on record not
available – POS is
location of the
supplier.
225
12 Banking and other No • Location on

financial services, record
including stock
• Else, location of
broking services
supplier
13 Insurance Yes Location on record
14 Advertisement No Each of the state

services to where the service
government is disseminated.
Place of Supply of Service in Cross-Border Transactions: Sec 13
Similar to the section 12 (in case of domestic supplies), this section

too provides a general rule for determining the place of supply; and
then carves out 11 exceptions. (There were 12 exceptions in section
12). The text of the section 13 is reproduced below:
13. Place of supply of services where location of supplier or location

of recipient is outside India
(1) The provisions of this section shall apply to determine the place
of supply of services where the location of the supplier of
services or the location of the recipient of services is outside
India.
(2) 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:
Provided that 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.
(3) The place of supply of the following services shall be the location
where the services are actually performed, namely:-
(a) services supplied in respect of goods which are required

to be made physically available by the recipient of
services to the supplier of services, or to a person acting
226
on behalf of the supplier of services in order to provide

the services:
Provided that when such services are provided from a remote

location by way of electronic means, the place of supply shall be
the location where goods are situated at the time of supply of
services:
Provided further that nothing contained in this clause shall

apply in the case of services supplied in respect of goods which
are temporarily imported into India for repairs and are exported
after repairs without being put to any other use in India, than
that which is required for such repairs;
(b) services supplied to an individual, represented either as

the recipient of services or a person acting on behalf of
the recipient, which require the physical presence of the
recipient or the person acting on his behalf, with the
supplier for the supply of services.
(4) The place of supply of services supplied directly in relation to an

immovable property, including services supplied in this regard
by experts and estate agents, supply of accommodation by a
hotel, inn, guest house, club or campsite, by whatever name
called, grant of rights to use immovable property, services for
carrying out or co-ordination of construction work, including
that of architects or interior decorators, shall be the place where
the immovable property is located or intended to be located.
(5) The place of supply of services supplied by way of admission to,

or organisation of a cultural, artistic, sporting, scientific,
educational or entertainment event, or a celebration, conference,
fair, exhibition or similar events, and of services ancillary to
such admission or organisation, shall be the place where the
event is actually held.
(6) Where any services referred to in sub-section (3) or sub-section

(4) or sub-section (5) is supplied at more than one location,
including a location in the taxable territory, its place of supply
shall be the location in the taxable territory.
227
(7) Where the services referred to in sub-section (3) or sub-section

(4) or sub-section (5) are supplied in more than one State or
Union territory, the place of supply of such services shall be
taken as being in each of the respective States or Union
territories and the value of such supplies specific to each State or
Union territory shall be in proportion to the value for services
separately collected or determined in terms of the contract or
agreement entered into in this regard or, in the absence of such
contract or agreement, on such other basis as may be prescribed.
(8) The place of supply of the following services shall be the location
of the supplier of services, namely:--
(a) services supplied by a banking company, or a financial

institution, or a non-banking financial company, to
account holders;
(b) intermediary services;
(c) services consisting of hiring of means of transport,

including yachts but excluding aircrafts and vessels, up
to a period of one month.
Explanation.--For the purposes of this sub-section, the

expression,-
(a) "account" means an account bearing interest to the

depositor, and includes a non-resident external account
and a non-resident ordinary account;
(b) "banking company" shall have the same meaning as

assigned to it under clause (a) of section 45A of the
Reserve Bank of India Act, 1934;
(c) ''financial institution" shall have the same meaning as

assigned to it in clause (c) of section 45-I of the Reserve
Bank of India Act, 1934;
(d) "non-banking financial company" means,--
(iii) a financial institution which is a company;
228
(iv) a non-banking institution which is a company

and which has as its principal business the
receiving of deposits, under any scheme or
arrangement or in any other manner, or lending
in any manner; or
(v) such other non-banking institution or class of

such institutions, as the Reserve Bank of India
may, with the previous approval of the Central
Government and by notification in the Official
Gazette, specify.
(9) The place of supply of services of transportation of goods, other

than by way of mail or courier, shall be the place of destination
of such goods.
(10) The place of supply in respect of passenger transportation

services shall be the place where the passenger embarks on the
conveyance for a continuous journey.
(11) The place of supply of services provided on board a conveyance

during the course of a passenger transport operation, including
services intended to be wholly or substantially consumed while
on board, shall be the first scheduled point of departure of that
conveyance for the journey.
(12) The place of supply of online information and database access or

retrieval services shall be the location of the recipient of services.
Explanation.--For the purposes of this sub-section, person receiving

such services shall be deemed to be located in the taxable territory, if
any two of the following noncontradictory conditions are satisfied,
namely:--
(a) the location of address presented by the recipient of

services through internet is in the taxable territory;
(b) the credit card or debit card or store value card or

charge card or smart card or any other card by which
the recipient of services settles payment has been issued
in the taxable territory;
229
(c) the billing address of the recipient of services is in the

taxable territory;
(d) the internet protocol address of the device used by the

recipient of services is in the taxable territory;
(e) the bank of the recipient of services in which the account

used for payment is maintained is in the taxable
territory;
(f) the country code of the subscriber identity module card

used by the recipient of services is of taxable territory;
(g) the location of the fixed land line through which the
service is received by the recipient is in the taxable
territory.
(13) In order to prevent double taxation or non-taxation of the

supply of a service, or for the uniform application of rules, the
Government shall have the power to notify any description of
services or circumstances in which the place of supply shall be
the place of effective use and enjoyment of a service.
As can be seen the provisions are quite similar to the Service Tax
provisions under Place of Provision of Service Rules.
Place of supply in general – Sec 13 (2): Location of the recipient
Section 13 applies where either of the parties is located outside India.

The general rule is that the place of supply would be the location of
the recipient. Thus, if the recipient is located abroad, the POS would
also be abroad. If the recipient is located in India, the POS would be
the state in which he is located. There are 11 exceptions to this rule.
Exception 1: Where physical presence of the goods or of the recipient

is required – Sec 13 (3)
There are certain services which can be provided only if the goods in
question are made available to the supplier of the service. For
example, a sample can be tested only if the sample is made available
to the testing agency. Similarly, the person’s presence would be
230
required for carrying out his MRI scan. In such cases and the place of
supply is the location where the services are actually performed.
However, there is one exception to this rule viz. if the goods are
imported into India for repairs. In such cases, the general rule would
apply and the Place of Supply would be location of the recipient. This
exception would apply only if:
• The goods are temporarily imported into India for

repairs
• The goods are exported after repairs
• The goods are not put to any other use in India. Off
course, their use may be required for the purpose of
repairs. Thus, repair of a machine may require its trial
run. But it should not be used beyond such
requirement.
Some operations on goods can be carried out electronically from a

remote location. In such cases, the place of supply would be the
location where goods are situated at the time of supply of service.
Thus, if the goods are located in UK and services provided (in respect
of those goods) electronically from India, then the POS would be UK.
Exception 2: Immovable Property– Sec 13 (4)
Similar to the domestic supply of services directly in relation to an

immovable property, the place of supply would be the place where
the immovable property is located or intended to be located. Mark
that the provision is worded in slightly different manner than the
section 12 (3). The following services are included in the phrase
‘services supplied directly in relation to an immovable property’:
• Services supplied by experts and estate agents,
• Supply of accommodation by a hotel, inn, guest house, club

or campsite, etc.
• Grant of rights to use immovable property,
231
• Services for carrying out or co-ordination of construction

work, including that of architects or interior decorators
Exception 3: Admission to events, and Organisation of Events – Sec

13 (5)
This clause deals with not only admission to events but also the
organisation of events. In both the cases, the place of supply shall be
the place where the event is actually held. We may contrast this with
the case covered by section 12 (services in domestic transactions).
Under Section 12, the ‘admission’ and ‘organisation’ was treated
differently. In case of ‘admission’ the POS was the place where the
event was held or the park was located; and in case of ‘organisation’
it was location of the registered service recipient. The events
mentioned under sec 13 (5) are:
• a cultural, artistic, sporting, scientific, educational or

entertainment event, or
• a celebration, conference, fair, exhibition or
• similar events, and
• services ancillary to such admission or organisation,
Services partly supplied in India – Sec 13 (6) and (7)
Sub-section (6) & (7) speak about the services covered under
previous three sub-sections viz.
• Where physical presence of the goods or of the recipient is

required – Sec 13 (3)
• Immovable Property– Sec 13 (4)
• Admission to events, and Organisation of Events – Sec 13 (5)
The net effect of the sub-section (6) is that if a service is even partly
provided in India, the place of supply for the entire service would be
the state/ UT in India. If the supplier happens to be in the same state
in India, he would have to pay CGST + SGST on the supply. The
transaction would not be export (even if payment is received in
232
convertible foreign exchange). In case the supplier is outside India,

the place of supply would be the state in which the recipient is
located. The supply would be import and IGST would be payable
under reverse charge.
The sub-section (7) complicates it further and speaks of the situation

where the services (mentioned above) are supplied in more than one
State or Union Territory. It says that in such a case it will taken that
‘place of supply’ is in each of these states and Union Territory. The
value of service in each state would be determined as under:
• the value for a state/ UT shall be in proportion to the

value for services separately collected or
• it shall be determined in terms of the contract or

agreement entered into in this regard or,
• in the absence of such contract or agreement, the basis

shall be prescribed by rules.
Example: Suppose an event is being organized in Dubai and tickets

are sold in Kerala, Maharashtra, & Daman, then place of supply of
service (admission to events) would be Kerala, Maharashtra and
Daman and the value in each state would be in proportion to the
value of the tickets sold in each state.
Exception 5: Certain Specific Services – Sec 13 (8)
In case of the services falling under following three categories, the

place of supply has been fixed as the ‘location of the supplier of the
service’.
(a) Banking, FI, NBFC: In case of services supplied by a banking

company, or a financial institution, or a non-banking financial
company, to account holders, the place of supply would be
the location of the service provider. Thus, if the Bank is
located abroad, the place of supply would be out of India. If
the Bank is in India the place of supply would be the state in
which the bank is located. The explanation provides that
"account" means an account bearing interest to the depositor,
233
and includes a non-resident external account and a non-

resident ordinary account;
(b) Intermediary services: Intermediary is defined vide section

2(13) of the IGST Act as under:
(13) "intermediary" means a broker, an agent or any other

person, by whatever name called, who arranges or facilitates
the supply of goods or services or both, or securities,
between two or more persons, but does not include a person
who supplies such goods or services or both or securities on
his own account;
(c) Hiring of means of transport: services consisting of hiring of

means of transport, including yachts but excluding aircrafts
and vessels, up to a period of one month.
This sub-section is problematic. Take the example of a commission

agent who provides services to a person located abroad and receives
commission in convertible foreign exchange. Although the service
provider is in India, the service recipient is located out of India and
the payment is received in convertible foreign exchange, yet the
transaction does not constitute export of service because the place of
supply is defined to be ‘location of the service provider’ i.e. within
India. As a result the Commission Agent will have to pay tax on this
supply5. Obviously his customer (the foreign person) would not be in
position to avail ITC. Therefore the tax is a direct cost on the
Commission Agent. It no more remains an indirect tax.
Thus, the recipient of commission will have to pay tax out of his
commission.
If we pay commission to a person outside India, the place of supply

would be outside India. No tax would be payable on such
commission. The levy of tax under section 5 of IGST Act is
5Since the ‘place of supply’ is the location of the service provider himself, the supply
will be an ‘intra-state supply’ and he will be paying CGST + SGST.
234
- On a supply made (When we pay commission, we receive

the service of the commission agent. Hence we are not
making supply of the service).
- On import of services. But since the place of supply is

outside India, this transaction does not constitute import
of service.
The first entry in the notification 10/2017-ITR requires the recipient

of the service in India to pay tax if the service is supplied by a person
located outside India. However, before this clause is invoked, one
has to establish that there has to be a levy of tax on the transaction.
Since in the present case there is no levy at all, no tax would be
payable on the commission paid abroad. Secondly, it is not an
outward supply of the person paying the commission. He is not
provider of the service. He is recipient. The supply is an inward
supply to him.
Exception 6: Transport Services – Sec 13 (9) and (10)
Service Place of Supply
Transportation of goods, (other The place of destination of such

than by way of mail or courier) goods
Passenger transportation The place where the passenger

services embarks on the conveyance for a
continuous journey
Exception 7: Services provided on board a conveyance – Sec 13 (11)
This sub-section covers the services provided on board a conveyance

during the course of a passenger transport operation. It will not cover
the situations where the conveyance is not transporting passengers.
The place of supply is the first scheduled point of departure of that
conveyance for the journey.
Thus, if food is served on an aircraft going from Mumbai to London,

the place of supply of the food would be Mumbai irrespective of
where the food was actually served.
235
However, if the food is served while the aircraft is under

maintenance, the place of supply would be determined by the
general rule (i.e. it will be location of the service recipient).
Exception 8: Online information and database access or retrieval

services (OIDARS) – Sec 13 (12)
OIDARS has been defined vide Sec 2 (17) of the IGST Act, 2017 as
under:
OIDARS Means:
services whose delivery is mediated by information technology over

the internet or an electronic network and the nature of which
renders their supply essentially automated and involving minimal
human intervention and impossible to ensure in the absence of
information technology and includes electronic services such as,--
(i) advertising on the internet;
(ii) providing cloud services;
(iii) provision of e-books, movie, music, software and other

intangibles through telecommunication networks or
internet;
(iv) providing data or information, retrievable or otherwise, to

any person in electronic form through a computer
network;
(v) online supplies of digital content (movies, television

shows, music and the like);
(vi) digital data storage; and
(vii) online gaming;
The place of supply of OIDARS is the location of the recipient of the

service. But, the location of the recipient of this service itself difficult
to determine. The explanation to the sub-section (12) prescribes
certain conditions in which the person receiving such services shall
be deemed to be located in India. It says that the recipient shall be
236
deemed to be in India if any two of the following non-contradictory

conditions are satisfied, namely:--
(a) the location of address presented by the recipient of

services through internet is in India;
(b) the credit card or debit card or store value card or charge
card or smart card or any other card by which the recipient
of services settles payment has been issued in India;
(c) the billing address of the recipient of services is in India;
(d) the internet protocol address of the device used by the

recipient of services is in India;
(e) the bank of the recipient of services in which the account

used for payment is maintained is in India;
(f) the country code of the subscriber identity module card

used by the recipient of services is of India;
(g) the location of the fixed land line through which the service
is received by the recipient is in India.
Power to prevent double taxation or non-taxation
Different countries in the world may have different system of

taxation and in may happen that the same supply gets taxed in India
as well as in another country. It may also happen that the supply
escapes taxation by any of the countries involved. Therefore, power
has been given to the government to notify any description of
services or circumstances in which the place of supply shall be the
place of effective use and enjoyment of a service, in the following two
cases:
(a) In order to prevent double taxation or non-taxation of the

supply of a service, or
(b) for the uniform application of rules,
In terms of section 13 (13), the government may notify “description”

of services or “circumstances”. Similar legal provisions do exist in
other countries as well.
237
Let’s summarise the provisions of section 13 now:
Clause Service Other Physical Locations
(2) General Rule Location of the recipient is as.
If not available – Location of

supplier
(3) a. Goods which are Place of performance.

required to be made
physically available • If provided from remote:
to the supplier in Location where goods are
order to provide the situated at the time of
services supply
b. Physical presence of • Does not apply to - Goods

the person required temporarily imported for
for the supply of repairs
services.
(4) Services supplied directly Place where the immovable property

in relation to an is located or intended to be located
immovable property
including services by
experts and estate agents,
Supply of accommodation
by a hotel, inn, guest
house, club or campsite,
by whatever name called,
grant of rights to use

immovable property,
238
Services for carrying out

construction
Co-ordination of
construction work,
including that of
architects or
interior decorators,
(5) Admission to or Where the event is actually held

Organisation of events
& functions
(6) Services supplied at multiple locations – if one of the

locations is in India, the POS is in India. (applies only to 3,
4, 5 above)
(7) If supply in India is in multiple states – divide the values

(applies only to 3,4,5 above).
(8) • Banking company Location of the supplier of the

to account holders service
(interest bearing
account)
• Intermediary
• Hiring means of
transport (except
aircraft & vessel)
up to 1 month
(9) Transport of goods Destination of the goods
(10) Transport of The place where the passenger

passengers embarks
239
(11) Services on Board a The first scheduled point of

Conveyance departure
(12) Online information and See discussion above.

database access or
retrieval services
OIDAR
240
CHAPTER 9
Documents and Records
Tax Invoice, Bill of Supply, Vouchers, Cr/ Dr Notes etc.

Documents, Records and Returns are the crux of practical compliance. This
is what we do in our day-to-day work. This chapter deals with documents &
record. Returns are dealt separately.
Topics Discussed
• Introduction
- Documents are necessary for every kind of movement of

goods
- Documents relating to payments received and made
• General Rules for all Documents and Records
- Contents & Formats
- Corrections
- Location of Documents & Records
- Series of Documents
- Serial number
- Manual Records
- Electronic Maintenance of Records
• Tax Invoice and Bill of Supply
- When can we issue the Tax Invoice for Outward Supply of

Goods?
- When can we issue the Tax Invoice for Outward Supply of

Services?
Chapter 9 Documents and Records
- Small Value Invoices:
- Tax Invoice for Inward Supplies
- Invoice for Zero Rated Supplies
- Invoices for Continuous Supplies
- Sale on Approval
- Number of Copies of the Invoices
• Vouchers
- Receipt Voucher
- Refund Voucher
- Payment Voucher
• Revised Invoice, Credit Notes & Debit Notes
• Records: Which records are required to be maintained?
• Stock Records
- Manufacturer
- Service Providers
- Works Contract
• Special Provisions for records of Storage & Transport

(registered or un-registered)
• Legal Provisions
• Table: When should the invoice be issued: Summary of the

provisions
• When goods are dispatched in multiple vehicles
242
Introduction:
Documents and records help us in ascertaining our tax liability and

in its discharge. In tax laws the government has to guard against
evasion. It also has to get relevant information from the taxpayer,
from time to time. Maintenance of records and documents is a
method of ensuring that due tax is actually paid. Documents and
records are ‘evidences’. They provide information and prove facts.
Disputes and demand of taxes centre around them. A tax payer, must
therefore, attach highest importance to proper maintenance of
records and documents. They play following roles:
• Proof of liability
• Control by the department
• Source of Information & Data
• Evidence to the department
• Safety (to tax-payer) against false allegations
The tax payer should maintain his records in such a manner that he
can easily demonstrate the nature of the transaction and the amounts
involved. If the goods are moving for the purpose of demonstration,
the document should say that it is for that purpose; if they are
moving for the purpose of weighment, the document should say so,
etc. The records should be sufficient to determine the tax liability and
should also prevent the department from making any incorrect
inference.
If improperly maintained, the records also become source of nuisance

and harassment. During audit or other visits, the departmental
officers scrutinize these very records & documents and come up with
demand for tax, or denial of credits. If there is a failure to account for
the goods or services, it would be presumed that they have been
‘supplied’1. Consequently, there would be demand for tax, interest,
1 Section 35 (6) of CGST Act, 2017
243
penalty etc. One cannot have peace of mind without properly

maintaining his records.
Documents are necessary for every kind of movement of goods: Under GST
law we are required to issue documents for every movement of
goods, irrespective of whether the movement constitutes a ‘supply’
or not. If the movement constitutes a supply, we must issue Tax
Invoice (for taxable supplies), or Bill of Supply (for exempted
supply). If the movement does not constitute ‘supply’ we still have to
issue challans. Thus, there has to be a document for every kind of
movement – whether it is for sale, stock transfer, job work,
weighment, demonstration, trial, display in exhibition or any other
reason.
Documents relating to payments received and made: The tax liability is

also connected with payments. We are required to pay tax on
advances and in case of liability on the reverse charge the date of
payment has an effect on the due date of payment of tax. The GST
law prescribes ‘vouchers’ in respect of advances, refund of advances
(for cancelled orders) and payments.
Modifications to be done through credit notes and debit notes: there

could be situations where
General Rules for all Documents and Records
Contents & Formats: The rules prescribe contents of the various

documents & records; but no formats have been prescribed. We can
devise our own formats. For example, there are 10 rules (rule 46 to 55
of the CGST Rules 2017), which prescribe contents of various
documents such as Tax Invoice, bill of supply, various vouchers,
challans, etc. So long as all the information prescribed in the rules are
contained in the documents, it’s fine. If we want we can have
additional information in the documents, but we should not delete
any of the information is required under the rules.
Corrections: We are not allowed to erase, efface or overwrite any entry

in registers, accounts and documents. If any correction is required
then:
244
• The incorrect entry should be scored out (neatly, with a single

line, so that the text remains visible and readable)
• The correct entry should be recorded
• The correction should be attested (the authorised person

should sign it and put companies stamp).
In case the registers and other documents are maintained

electronically, we are required to maintain a log of every entry edited
or deleted.
Location of Documents & Records: Manual records should be kept at the

related place of business. In case of digital records/ documents, the
same should be accessible at the related place of business.
Series of Documents: We can have as many series of invoices, Bills of

Supply, Challans etc. as we need. No permission is required from the
department for keeping more than one series of the documents.
However, the serial number of all the series should be distinct. Two
documents should not have same serial number. For example,
someone having place of business at Mumbai as well as Pune (both
in Maharashtra) may have separate series of
• Tax Invoice for indigenous sales from Mumbai & Pune
• Tax Invoice for Export of Goods from Mumbai & Pune
• Tax Invoice for Export of Services from Mumbai & Pune
• Job-Work Challans from Mumbai & Pune
• Delivery challans
In fact even at one location he can have separate series of documents.

For example Tax Invoices for customers in South India and
customers in Western India etc. or say separate series of Tax Invoices
for inter-State supplies and for intra-State supplies.
Serial number: Each of the rules (from 46 through 55) mention about
serial number of the documents. The basic requirement is that:
245
• The total characters in the serial number should not exceed

sixteen (i.e. it can be lesser than 16 or at the maximum it can
be 16 characters).
• The serial number should be consecutive and unique for a

financial year. So, the numbers 001, 002, 003, 005 etc. are
valid; but 001, 008, 034, 002 are not valid. The sequence
should be in the direction of flow of time. The date of issue
for invoice no. 012 should not be earlier than that of 007.
However, the date of removal of the goods can be in a
different sequence. It may happen that the goods under
invoice no. 012 are removed on 7th July and that under invoice
no 007 are removed on 8th July. Such removal does not violate
the rule.
• It can contain alphabets, numerals and hyphen/ dash (-) and

slash (/). But it cannot contain any other special character. For
example, the serial number cannot contain star (*), underscore
(_), percentage (%), hash (#) etc. For example the sr. no. 2017-
18/MUM-0001 is valid. But 2017-18/MUM#0001 is not valid.
• Note that the serial numbers would be read by the computer

system and numbers from different sources may have to be
matched. Therefore, the format has to be uniform and
identical. For example, if the invoice number mentioned in
GSTR-1 is to be matched with that in the shipping bill, then
the computer would throw a mismatch if number in one
document is typed as MUM 001 and another as MUM001
(note the space between MUM and 001).
• There is no requirement of filing any advance intimation of

the serial numbers. However, the serial numbers are to be
declared at the end of the month in GSTR-1.
Manual Records: Rule 56 (9) requires that each volume of books of

account maintained manually by the registered person shall be
serially numbered.
Electronic Maintenance of Records: Records can be maintained

electronically. Following conditions need to be observed:
246
(a) They should be authenticated by means of a digital signature.
(b) Proper electronic back-up of records shall be maintained and

preserved in such manner that, in the event of destruction of
such records due to accidents or natural causes, the information
can be restored within a reasonable period of time.
(c) On demand, we are required to produce the relevant records or

documents
• either in authenticated hard copy or
• in any electronically readable format.
(d) On demand, we are required provide a printed sample copy of

the information stored; and all the details for accessing the files
such as:
• the details of files,
• passwords
• explanation for codes used,
• any other information which is required for accessing the

files/ information
Tax Invoice and Bill of Supply:
Invoice is a document containing details of the supplies made and

the total amount recoverable from the customer. A Tax Invoice
would also contain details of the tax charged. It is issued in terms of
the GST law. Tax
Invoice is the basic •Taxable Supplies
assessment document. Tax Invoice •Zero-rated Supplies
This is the document in
which the goods/ •Exempted Supplies
Bill of
•Supplies by a
services covered by the Supply composition dealer
transaction are
described and the tax amount is shown. This is the document that
contains all the details required for computation of the tax amount. It
contains the HS Code, the value of supply, the rate of tax, reference
247
to exemption notifications, etc. This is also the document on the basis

of which Input Tax Credit (ITC) is allowed to the receiver of the
supply.
If you are registered under GST law then you must issue Tax Invoice
for all the supplies made by you. However, Tax Invoice should not
be issued:
• By a registered person for exempted supplies. Instead he

should issue a ‘Bill of Supply’.
• By a registered person working under composition scheme.

Instead he should issue a ‘Bill of Supply’.
• By an unregistered person. He should issue an ordinary bill

without charging GST.
The Tax Invoice should contain the details prescribed in the rules.
Similarly, the details required to be contained in a ‘Bill of Supply’ has
also been specified in the rules.2
The date of invoice is one of the factors for determining the ‘time of
supply’. Therefore it has a direct impact on the date on which tax
would become payable. Let’s see when the invoices are required to
be issued.
When can we issue the Tax Invoice for Outward Supply of Goods?
• If supply involve movement of goods – Invoice is to be issued

before or at the time of removal of goods
• In other Cases it has to be issued before or at the time of
– delivery of goods or
– making available thereof to the recipient
Thus invoice can be issued in advance. However, it must be issued

latest by the time of removal. Legally there is nothing wrong if the
invoice was issued on 25th of August and the goods are removed on
2Please refer to the Appendix for list of the details required in a Tax Invoice and Bill of
Supply. Sample formats of various documents have also been provided.
248
7th of September. However, since the invoice was issued in August,

the ‘time of supply’ would occur in August and the tax would
become payable in September. If for the same transaction we had
issued invoice in September the time of supply would have occurred
in September and the tax would be payable in October. (This is
assuming that no advance was received).
When can we issue the Tax Invoice for Outward Supply of Services?
In case of services, the invoice can be issued:
• Before the supply or
• Maximum within 30 days of the supply
Here, the date should be counted from the date of completion of the
service and not from its beginning.
Small Value Invoices: In case the Invoice value is less than Rs. 200/-
• We must issue the Invoice if the recipient is registered.
• We must issue the invoice even if the recipient is

unregistered, but he demands the invoice
• In case recipient is not registered and does not demand the

Invoice, we may issue a consolidated invoice at close of the
day.
Obviously, the shopkeeper will have to maintain sheets for data of

such sales and at the end of the day he will have to arrive at the
values HSN wise, and rate wise. He will have to issue consolidated
Tax Invoice for taxable supplies and bill of supply for exempted
supplies.
Tax Invoice for Inward Supplies: We had earlier seen that there are
certain supplies on which the tax is payable under Reverse Charge
Mechanism (RCM). The law requires us to issue Tax Invoice for the
inward supplies received from unregistered suppliers. We may note
that there can be a tax liability under reverse charge even in case of
invoices issued by a registered supplier. For example, a person may
be engaged in providing services of a goods transport agency on
249
which tax is payable under reverse charge3 and at the same time he
may be supplying other services on which tax is payable under the
normal charge. We are required to issue tax invoices only where the
supplier is not registered. Such tax invoices can be issued on a
monthly consolidated basis. Full data support such consolidated
invoice should be maintained.
Invoice for Zero Rated Supplies: Zero rated supply means (a) Exports
and (b) supply to SEZ unit or developer for their authorised
operations. Such supplies can be made in any of the following two
methods:
i. Supply on payment of IGST (We are entitled to claim

refund of the IGST so paid).
ii. Supply without payment of tax. Such supplies have to be

supported by a Bond or Letter of Undertaking. In these
cases, if the ITC gets accumulated due to zero rated
supplies, we are entitled to claim refund of the same.
Following endorsement is required on these invoices (whichever

applies):
- SUPPLY MEANT FOR EXPORT ON PAYMENT OF

INTEGRATED TAX.
- SUPPLY MEANT FOR EXPORT UNDER BOND/ LUT

WITHOUT PAYMENT OF INTEGRATED TAX
- SUPPLY TO SEZ UNIT OR SEZ DEVELOPER FOR

AUTHORISED OPERATIONS ON PAYMENT OF
INTEGRATED TAX.
- SUPPLY TO SEZ UNIT OR SEZ DEVELOPER FOR

AUTHORISED OPERATIONS UNDER BOND/ LUT
WITHOUT PAYMENT OF INTEGRATED TAX.
Invoices for Continuous Supplies:
3 A GTA has an option to avail ITC and pay tax under normal charge.
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Continuous Supply of Goods means4
• a supply of goods which is provided, or agreed to be

provided, continuously or on recurrent basis,
• under a contract,
• whether or not by means of a wire, cable, pipeline or other

conduit, and
• for which the supplier invoices the recipient on a regular or

periodic basis;
In case of such supplies, the supplier issues successive statements

and payments are also received on various occasions. The Tax
Invoice must be issued whenever the statements are issued or the
payments are received.
Supply Involves Issue invoice
Successive statements of accounts

Before or at the time each
Successive payments happens
Continuous Supply of Service means5:
• a supply of services which is provided, or agreed to be

provided, continuously or on recurrent basis,
• under a contract, for a period exceeding three months
• with periodic payment obligations and
• includes supply services notified by government
The dates for issuance of invoice are as under. We may note that date
of invoice is not the only factor to determine ‘time of supply’. The
time of supply of service will depend upon date of payment and
4 Sec 2 (32) of CGST Act, 2017

5 Sec 2 (33) of CGST Act, 2017
251
upon the fact as to whether the invoice was issued within due date or
not.
Situation Invoice to be issued
Due date of payment Before or within 30 days

ascertainable from contract
Due date not ascertainable Within 30 days of receipt of

payment
Payment is linked to the Within 30 days of the time of

completion of an event completion of that event;
Sale on Approval: It may happen that the goods are first handed over
to the customer for inspection, trial, verification etc. The customer
may take decision as to whether to buy or not after such trial and the
process may take time. The CGST Act makes provision for such a
situation. Section 31 (7) reads:
(7) Notwithstanding anything contained in sub-section (1), where

the goods being sent or taken on approval for sale or return are
removed before the supply takes place, the invoice shall be issued
before or at the time of supply or six months from the date of
removal, whichever is earlier.
Thus, in such a situation, the time of supply shall be
• when it becomes known that the supply has taken place or
• six months from the date of removal
The initial transportation of the goods would be under ‘Delivery

Challan’ (format as per Rule 55) mentioning that the goods are being
sent on approval. Later, we would issue invoice when the approval is
received from the customer. However, if the approval is not received
within six months, the invoice will have to be issued as soon as the
period of six month expires.
252
Number of Copies of the Invoices: We should issue three copies of

invoices in respect of Goods. These should be marked as
– ORIGINAL FOR RECIPIENT
– DUPLICATE FOR TRANSPORTER
– TRIPLICATE FOR SUPPLIER
In case of supply of services, we should issue two copies of invoices

and they should be marked as
– ORIGINAL FOR RECIPIENT
– DUPLICATE FOR SUPPLIER
Document Applies to
Tax Invoice Outward Taxable Supplies
Outward zero rated supplies (exports and SEZ

supplies)
Inward supplies of goods or services from un-

registered persons, on which tax is payable by
us under
Bill of Supply: Outward exempted supplies
Outward Composition Supplies
(Exports & SEZ supplies are not exempted.

They are zero rated.)
Vouchers: Rules prescribe three kinds of Vouchers to be issued by

us. These apply to goods as well as services.
(1) Receipt Voucher: We are required to issue a ‘Receipt

Voucher’ upon receipt of advance payment with respect to
any supply. We are required to pay tax on the same. Contents
of the receipt voucher are prescribed vide rule 50 of CGST
Rules, 2017. We should maintain a record of receipt and
253
adjustment of advances so that we can determine as to which

advance was adjusted against which Tax Invoice and how
much tax was so adjusted.
We need to know – what we are going to supply against the

advance. From that information, we will find out the HSN/
SAC, and rate of tax payable. We also need to know the place
of supply. The total amount received as advance is value +
tax6. It may happen that at the time of receipt of advance the
rate or nature of supply may not be determinable. For such
situations it has been prescribed that:
• if the rate of tax is not determinable, pay tax @18%
• if the nature of supply is not determinable, treat it as

inter-State supply7.
(2) Refund Voucher: In case payment is received in advance but

later on the supply is cancelled and Tax Invoice is not issued,
then we may issue a refund Voucher. Upon uploading data of
such voucher in our returns, the amount of tax paid earlier is
re-credited to our account.
(3) Payment Voucher: Payment Voucher is required to be issued

at the time of making payment to the persons where the tax is
payable by us under reverse charge. This would have to be
issued in case of:
- Notified Reverse Charge (i.e. goods & services notified under

RCM); and
- RCM on supplies received from un-registered persons.
We may note here that in case of RCM, the Tax Invoice is required to
be issued by the recipient of the supply only when the supplier is un-
6If you have received a lump sum of Rs. 1 lakh and the rate of tax is 12%, then the
Taxable Value will be 100000/1.12 i.e. Rs. 89,286, and the tax would be Rs. 10,714. [If
the rate of tax is 12% divide the amount by 1.12; if it is 18%, divide it by 1.18 and so on].
7 This is as per the proviso to rule 50 of CGST Rules, 2017
254
registered. But Payment Voucher is required to be issued even if he is

registered.
Document Applies to
Receipt Voucher: Receipt of Advance
Payment Voucher: Payment made for
Inward RCM supplies (both - registered and

unregistered)
Inward URP supplies
Refund Voucher: Payment received in advance, Receipt

Voucher issued, BUT
supply not made and Tax Invoice not issued
Revised Invoice, Credit Notes & Debit Notes:
The supplier should issue a Credit Note if
• Excess value and/ or tax had been charged in the Tax Invoice;
or
• Goods are returned by the recipient; or
• Services are found to be deficient
Conversely, he would issue a Debit Note (or supplementary invoice)

if short value and/ or tax charged.
Both of these have tax implications and have to be reported on the

GST common portal. The Credit Note can be reported latest by
September after close of financial year; but the Debit Note must be
reported in the return for the month.
Records: Which records are required to be maintained?
We are required to maintain records at the principal place of business

as well as at all the additional places of business. Record for a place
255
of business should be available at that place. The law requires us to

maintain a true and correct account of the following8:
(a) Production or manufacture of goods;
(b) Inward and outward supply of goods or services or both;
(c) Stock of goods;
(d) Input Tax Credit availed;
(e) Output tax payable and paid; and
(f) The goods or services imported or exported or
(g) Supplies attracting payment of tax on reverse charge

along with the relevant documents,
(h) Invoices, bills of supply, delivery challans, credit notes,

debit notes, receipt vouchers, payment vouchers and
refund vouchers.
(i) Advances received, paid and adjustments made thereto.
(j) Details of tax payable, tax collected and paid,
(k) Tax payable and paid under Reverse Charge Mechanism

(notified reverse charge as well as the supplies received
from un-registered persons),
(l) Input tax, input tax credit claimed, together with a

register of tax invoice, credit notes, debit notes, delivery
challan issued or received during any tax period.
Stock Records:
Every registered person (except

Stock Records are to be
composition dealer) is required to maintained in respect of
maintain account of stock in respect of
goods received and supplied by him. • Traded Goods
The stock accounts must contain9:
• Raw materials
• Finished goods
8 Section 35 of CGST Act, 2017 read with rule 56 of CGST Rules, 2017
• Waste & Scrap
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• Opening balance,
• Receipt,
• Supply,
• Goods lost, stolen, destroyed, written off or disposed of by

way of gift or free sample
• Balance of Stock
Manufacturer: One, who is manufacturing goods, is required to

maintain monthly production accounts showing quantitative details
of raw materials or services used in the manufacture and quantitative
details of the goods so manufactured. Quantitative details of waste &
scrap is also required to be maintained.
Service Providers: Service providers are required to maintain accounts

showing:
• quantitative details of goods used in the provision of services
• details of input services utilised
• the services supplied.
Works Contract: Every registered person executing works contract is

required to keep separate accounts for works contract showing -
(a) the names and addresses of the persons on whose behalf the
works contract is executed;
(b) description, value and quantity (wherever applicable) of

goods or services received for the execution of works contract;
(c) description, value and quantity (wherever applicable) of

goods or services utilized in the execution of works contract;
(d) the details of payment received in respect of each works

contract; and
9 Rule 56 (2) of CGST Rules, 2017
257
(e) the names and addresses of suppliers from whom he received

goods or services.
Special Provisions for records of Storage & Transport (registered or

un-registered)
Following persons are compulsorily required to maintain records of

the consigner, consignee and other relevant details of the goods even
if they are not registered. Off course the registered persons too have
to maintain these records. The point here is that even the un-
registered person is required to maintain these records.
1. Every transporter
2. Every owner or operator of warehouse or godown or any

other place used for storage of goods
If these persons are not registered, they have to obtain an enrolment

number from the department. Application for enrolment is to be filed
in form GST ENR-01. A single enrolment is required for all India
business. Even if the transporter or the warehouse operator has
offices in multiple states, he need not obtain separate enrolment for
each state. The enrolment in any one state shall be deemed to be
enrolment in all the states.
Records to be maintained by a transporter: Every person engaged in the

business of transporting goods is required maintain record of
- Consigner,
- Consignee
- The goods transported, delivered and
- Goods stored in transit
- GSTIN of the registered consigner and consignee
The above records are required to be maintained for each of the

branches of the transporter.
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Records to be maintained for warehouses and godowns: Every owner or

operator of a warehouse/godown is required to maintain books of
accounts
- Consigner,
- Consignee
- The period for which particular goods remain in the

warehouse
- Receipt of the goods
- Dispatch of the goods
- Movement of the goods
- Disposal of the goods.
Further, they shall store the goods in such manner that they can be
identified item-wise and owner-wise and shall facilitate any physical
verification or inspection by the GST officers.
Audit of Accounts: In case our turnover exceeds Rs. 2 Crore in a

financial year, then we are required to get our accounts audited by a
chartered accountant or a cost accountant. We will have to file the
Annual Return in form GSTR-9C along with
• a copy of the audited annual accounts,
• the reconciliation statement [section 44 (2)]
Legal Provisions:
Section 31: It requires every taxable person to issue invoice for

taxable supplies and Bill of Supply for exempted supplies. It covers
• The time limit within which the invoice must be issued. [31
(1) about goods, and 31 (2) about services]
• Issuance of Receipt Voucher, Payment Voucher
• Invoice for supplies under Reverse Charge or the supplies

received from Un-Registered Persons.
259
• When to issue invoice in case of continuous supply [Sec 2 (32)

defines ‘Continuous Supply of Goods’; and Sec 2 (33) defines
‘Continuous Supply of Services’]
• How the invoice would be issued when the supply ceases

before completion (i.e. only part supply was made)
• When to issue invoice in case of ‘sale on approval’
Sec 2 (93) defines ‘recipient’ of supply of goods or services or both
Sec 32: says an URP shall not collect tax; and a registered person shall
collect it only in accordance with the law.
Sec 33: Requires that the tax amount should be shown separately in
the invoice and other documents.
Sec 34: Addresses to the situations where the value or tax amount
mentioned in an invoice is required to be decreased or increased at a
later stage. These include the cases where goods or services are found
deficient, the goods are returned etc. It provides for issuance of credit
note and debit note. It says that the tax liability will be adjusted as
per these credit notes and debit notes.
Section 35: Prescribes various Accounts and records required to be

maintained.
Section 36: Provides for retention period of the records.
Rules 46 to 55: Prescribe contents, number of copies required, about

serial numbers etc. of various documents
- Tax Invoice
- bill of supply
- Receipt Voucher, Refund Voucher and Payment Voucher
- Revised Tax Invoice, Credit Notes & Debit Notes,
- ISD Invoice/ ISD Credit Note
- Challan for supply of liquid gas
260
- Challan for job-work
- Challan for other purposes (transportation of goods other

than by way of supply)
The rules contain some special provisions about
- Insurance companies, Banks, Financial Institutions, Non-

banking Financial companies.
- Goods Transport Agencies (road transport)
- Passenger Transportation
- Telecom Operators
Rule 56: Prescribes certain accounts & details to be maintained.
Rule 57: is about electronic records
Rule 58: is about records to be maintained by owner or operator of

godown or warehouse and transporters. This needs to be read with
section 35 (2).
261
When should the invoice be issued: Summary of the provisions
Sr. Situation When should the invoice be

issued?
1. Invoice for supply of Goods
(a) Supply involves movements Before or at the time of removal

of goods
(b) Other cases Before or at the time of
• delivery of goods or
• making the goods available

to the recipient
2. Invoice for continuous supply of goods
(a) If successive statements of Before or at the time when each

accounts are involved such statement is issued
(b) If successive payments are Before or at the time when each

involved such payment is received
3. Invoice for supply of services
(a) In general Before or after provision of

service – but within 30 days
(b) Insurer, Banking Within 45 days from date of

Companies, FIs, NBFC supply of service
(c) In case of inter-office • before or at the time of entry

billings (supply between in supplier’s book, or
distinct person) of
• before expiry of the quarter
• Insurer, Banking
Companies, FIs, NBFC;
• Telecom Operators
• Other suppliers
notified by the
262
government
4. In case of continuous supply of services
(a) Due date of payment is On or before the due date of

ascertainable from the payment
contract
(b) Due date of payment is not Before or at the time when the
ascertainable supplier of service receives the
payment
(c) Payment is linked to the On or before the date of

completion of an event completion of that event.
5. In a case where the supply At the time when the supply

of services ceases under a ceases
contract before the
completion of the supply
6. Goods sent or taken on Earlier of the following two:

approval for sale or return
• Before or at the time of
(These are sent or taken
supply (i.e. when the
before the supply takes
approval is communicated);
place)
or
• Six months from the date of

removal.
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CHAPTER 10
Payment of Tax
GST is paid by utilising the amount available in e-Credit Ledger or in the e-
Cash Ledger. Therefore, first the amounts have to be available in these
ledgers.
Topics Discussed
• Introduction
• The Three Ledgers
- The Liability Ledger PMT-01
- The e-Credit Ledger PMT-02
- The Cash Ledger PMT 05
• Debit Entries are necessary
• Depositing Amount in the e-Cash Ledger
- Creating a Challan
- Making Payment
- Challan Status
- Effect of debit entry in the cash ledger
• Sequence in which the amount in e-Credit Ledger can be used
• Sequence in which liabilities must be discharged
Chapter 10 Payment of Tax
Introduction
On one hand we need to determine our tax liability and maintain

appropriate records to prove correctness of the same, on the other we
also need to show how the liability has been discharged. The liability
is discharged either by using ITC available to us or by making
payments to the government through bank account. In order to have
a systematic record of the payments made and the liability is
discharged three ledgers are required to be maintained. While these
ledgers are to be maintained in electronic form on the portal, we
should also parallely maintain the same with us so that if there is any
discrepancy on the website, we can find out the same.
The Three Ledgers1:
There are two ledgers and one register maintained on the GST portal
(www.gst.gov.in)2 in respect of each ‘registered person’. These are:
The Liability Register – PMT-01: This is a record of our tax liability.

All liabilities of a taxable person are to be recorded and maintained
in this register as a debit entry. It is updated as and when the
relevant entries are made. For example, if we upload data of our
outward Tax Invoice, the tax element gets posted in this register.
However, if while uploading the invoice data, we indicate that the
tax is payable by our
Liability Register
customer under reverse
charge, then the customer’s Debited = Liability recorded in the register.
Liability Register gets Credited = Liability discharged/ reduced
debited by this amount. It
is also a record of various
other liabilities under GST law (interest, penalty, late fees, reversal of
credits etc.). For instance, if we had availed some credit but the
supplier did not pay the tax, the credit amount would be added to
our liability register. Similarly, if an order is passed against us, the
liability would be debited to this register. Thus, this register shows
1 Refer Rules 85 to 87 of CGST Rules, 2017.

2 These ledgers have legal status. The portal itself is notified under the law and the three
ledgers are supported by legal provisions of Section 49 of CGST Act, 2017 and the rules.
265
our total tax liability at any point of time. GST PMT-01 is name of the
form in which this register is to be maintained. In case we notice any
discrepancy in this register, we should inform the department online
in form GST PMT-04.
The Electronic Credit Ledger – PMT-02: This is the Ledger, where our
Input Tax Credits are recorded. In general, the process of recording
credits is in two steps. The supplier uploads the invoice data and we
approve it on the website. The credit is posted to the e-Credit Ledger
upon our approval. In case of supplies received from un-registered
persons, we ourselves have to issue a Tax Invoice and include its
data in form GSTR-23. When we want to utilise the credits, we have
to pass entries online (debit entries). This reduces the balance of
available ITC. The balance is carried e-Credit Ledger
forward to the next period.
Theoretically the balances can be Credited = ITC taken
carried forward for an unlimited Debited = ITC utilised/
period. The amount available in the e- reversed
Credit ledger can be used only to pay
tax. It cannot be used to pay interest
or penalty.
We can even claim refund of the ITC if the credit has accumulated
due to exports or due to inverted tax structure 4 . The amount of
refund claimed is debited in the credit ledger. In case the refund is
rejected, the officer is required to re-credit this ledger by an order in
form GST PMT-03. Such re-credit would be made only if the claim is
finally rejected even in appeal (or if we give an undertaking to the
department that we shall not file appeal).
In case we notice any discrepancy in this ledger, we should inform

the department online in form GST PMT-04.
3 See the chapter ‘GST Returns’ to know details about GSTR-2.

4 Inverted tax structure means the rate of tax on inputs is higher than the rate of tax on
outward supplies. In some cases the refund is not allowed even if the tax structure is
inverted.
266
The Electronic Cash Ledger – PMT-05: This is a Ledger, where the

tax, interest penalty, fees, etc. deposited by us in bank (in the
government account) are recorded. The deposits are made through
Challans. Later in this chapter. We shall see the step by step
procedure for making the deposits. Once the amount is deposited
through a challan the same gets reflected in the cash Ledger. The TDS
as well as the TCS 5 deducted under section 51 and 52 by your
customers/ E-Commerce operator are also deposited in our cash
Ledger.
In Central Excise we used to

e-Cash Ledger
maintain a Personal Ledger
Account (P.L.A.). The cash Ledger Credited = Amount
serves the same purpose. Similar to deposited by Challan
credit Ledger, the amount available (increases the balance)
in this Ledger can also be used to Debited = Amount utilised to
discharge our liabilities. We have pay tax, interest, penalty, etc.
to pass online entries for utilisation
of the amounts lying in this
Ledger. The balances can be carried forward to the next period. The
e-cash ledger can be used to pay tax as well as for discharging other
liabilities such as interest, penalty etc.
Debit Entries are necessary: Liabilities are not discharged merely by

having amount in the cash ledger or in the credit ledger. The money
lying in these ledgers belong to us. It’s not yet government property.
It’s like a bank account. When you deposit money in bank, it is
reflected in your account. The money belongs to you, and not to the
bank. It remains your property. If we want to pay some amount to
the bank, then we issue a cheque or instruction slip and an entry is
passed in our account. The balance in the account is our money.
Similarly, the balance in the credit and the cash ledger is our money.
If we want to use this money to pay tax, we will have to pass debit
5This is different from the TDS & TCS under Income Tax Act. We are referring to TDS &
TCS of GST. TDS is to be deducted if recipient of the supply is government, local
authorities etc. and TCS is to be deducted when the supply is made through e-
Commerce Operator.
267
entries in these ledgers. Once we pass the debit entries, the money
goes to the government and our ledger balance is reduced.
Suppose a person declares in his return that he is required to pay

IGST of Rs. 1,00,000/-. Suppose he has a balance of Rs. 60,000/- in e-
Credit Ledger and deposits Rs. 50,000/- in the e-Cash Ledger
through challan. Then:
1. Liability Register is Debited – Rs. 1,00,000/-
2. When he makes deposit through challan:
e-Cash ledger is Credited – Rs. 50,000/-
3. Now, he discharges his tax liability by utilising the amounts

available in credit ledger and cash ledger:
e-Credit Ledger – Debited: Rs. 60,000/-
e-Cash Ledger – Debited: Rs. 40,000/-
Liability Register – Credited: Rs. 1,00,000/-
We may note here that the person has deposited Rs. 50,000/- vide the
challan. Hence Rs. 50,000/- would be credited to the cash ledger.
However, he has debited this ledger only by Rs. 40,000/- to pay the
tax. This will leave a balance of Rs. 10,000/- which would be carried
forward and he can use it later. The point is that if you deposit excess
amount, it’s not lost. It remains available in the cash ledger.
Depositing Amount in the e-Cash Ledger:
Three steps are involved in depositing the amount in Cash Ledger:
1. Create a Challan. The system gives a 14 digit CPIN (Common

Portal Identification Number) to this challan.
2. Use the challan and make payment. The payment can be

made through:
a. Internet Banking through authorised banks;
b. Credit card or Debit card through the authorised bank;
268
c. NEFT/ RTGS from any

bank; or Challan in Created (CPIN)
d. Over the Counter payment

by cheque/ Cash/ DD
Payment is made
through authorised banks.
This facility is available
only for deposits up to Rs. CIN allotted - amount
10,000/- per challan per credited to the cash ledger
tax period6.
3. A Challan Identification Number (CIN) is generated and the

amount gets reflected in the e-Cash Ledger. Sometimes it may
2-3 days for the challan to reflect in the cash ledger. For all
future purposes, the challan is to be referred by the CIN. The
CPIN shall not be
relevant any more. Login to the portal with your User ID
& Password
Creating a Challan: The
adjacent chart would explain
the steps involved in creating
a challan: Go to Services > Payments > Create
Challan
The challan so created
remains valid for 15 days.
You can see it in the page
Fill in the Amounts
Services> Payments> Challan
History. Each challan is
identified with CPIN. This
challan is to be used for Select Payment Mode
making the payment. When
the payment is made, a
challan identification number
is allotted and the amount Click 'Generate Challan'
gets credited to the cash
ledger.
6Tax period means the period for which the return is required to be furnished . In
most cases it is a month. For tax payers under composition scheme, it is a quarter.
269
Making Payment: There are 3 options in ‘Payment Modes’:
• ‘E-Payment’: This covers:
o Internet banking – Click on ‘preferred banks’. This

will provide a list of banks. Select your bank and make
the payment.
o Payment using Debit/credit cards of authorized banks
• Over the Counter payment: If the challan amount does not

exceed Rs. 10,000/- you can make the payment through
check.
• NEFT/RTGS: The portal displays the Beneficiary Account

Number, IFSC Code etc. against which the payment is to be
made.
Challan Status: The tab ‘Challan History’ contains list of the challans
with a column ‘Challan Status’. Status can also be tracked by clicking
“Services> Payments > Track Payment Status”.
Effect of debit entry in the cash ledger: When we deposit money into the
cash ledger, it is off course received by the government in its account.
However, it remains available to us for use; and we can use it only to
pay GST, interest, penalty or other liabilities under the GST law. Use
of this money is indicated by passing a debit entry in the cash ledger.
Once we pass the debit entry, the money finally belongs to the
government (in the sense that now, it is no more available to us for
use).
Electronic Money goes

Payment made Debit Entry
Cash Ledger to
through Challan
Credited government
Sequence in which the amount in e-Credit Ledger can be used:
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The e-Credit ledger will have credits in respect of all the four taxes
viz. the Integrated Tax, the Central Tax, the State Tax (or UT Tax),
and the Compensation Cess. While the credit of compensation cess
can be used to pay only the compensation cess, the other credits can
be used interchangeably, but with the following two restrictions:
a. Credit of Central Tax cannot be used to pay State Tax/ UT

Tax, and vice versa.
b. There is a particular sequence in which the credits have to be

utilised.
Tax Sequence of utilisation
Integrated ➢ First to pay IT

Tax (IT)
➢ The balance can then be used to pay
CT
➢ Further balance can be used to pay

ST/ UTT
Central Tax ➢ First to pay IT

(CT)
➢ Balance to pay CT
➢ Further balance to pay ST/ UTT
State Tax (ST) ➢ First to pay ST
➢ Balance to pay IT
Union ➢ First to pay UTT

Territory Tax
➢ Balance to pay IT
(UTT)
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It will be easier for us to remember the above sequence if we

understand the purpose behind it. The taxes are divided between the
Central Government and various State Governments or Union
Territories. If we use the credit of Integrated Tax to pay a State Tax
then the Central Government will have to transfer that much amount
to the concerned State Government. Conversely, if we use credit of a
State Tax to pay IGST the concerned state government will have to
transfer the money to the Central Government. Same is the case of
the transactions are done between IT and UTT.
On the other hand if credit of IT is used to pay Central tax, the

Central government will transfer the amount from it’s IT account to
CT account, and vice versa.
The above sequence has been adopted to minimise the need for
transfers. If at all transfer becomes necessary, then it is preferable to
have a transfer between the two accounts of the Central government
(i.e. IT and CT). Transfer between the Central government and a state
government (or union territory) should be the last resort. Therefore,
another way to look at the sequence of utilisation of credits is as
under.
Stage Method
Stage I ITC of a tax should be utilised to pay

only the tax of that kind i.e. use
- IT to pay IT
- CT to pay CT
- ST to pay ST
- UT to pay UT
Stage II Transactions between IT and CT i.e. use
- IT to pay CT or
- CT to pay IT
Stage III Transactions between IT and ST/ UTT
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i.e. use
- IT to pay ST/ UTT or
- ST/ UTT to pay IT
You cannot use
- CT to pay ST/ UTT or
- ST/ UTT to pay CT
Sequence in which liabilities must be discharged:
ITC is not available to your customer unless you pay the tax. Further,
you cannot file GSTR-3 without first paying the tax. It is not possible
to file the return and show the tax amount in arrears. This brings in a
strict discipline in payment of tax. This is further fortified by section
49 (8) of the CGST act. Bt says that you cannot pay the tax for the
current period unless you have paid the tax for the past period. It
reads as under:
(8) Every taxable person shall discharge his tax and other dues
under this Act or the rules made thereunder in the following order,
namely:––
(a) self-assessed tax, and other dues related to returns of

previous tax periods;
(b) self-assessed tax, and other dues related to the return of

the current tax period;
(c) any other amount payable under this Act or the rules
made thereunder including the demand determined
under section 73 or section 74.
Here, words ‘self-assessed tax’ are notable. Self-assessed tax means

the tax liability that we have ourselves determined and declared in
the return. It does not refer to the liability determined by the officers
of the department. Let’s understand this by the following example:
273
Suppose, I have declared a tax liability of Rs. 25 lakh for October (by
way of filing GSTR-1 and GSTR-2) and suppose I fail to pay the same
by 20th November.
Next, I declare a tax liability of Rs. 20 lakh for November. Now,

suppose I arrange for funds of Rs. 20 lakh and want to discharge the
liability for November, I'm not allowed to do so. I'm not allowed to
discharge liability for November without first and discharging the
liability for October. Thus if we don't maintain financial discipline
the things will spiral out of the hands. Customers will not get credit
because we have not paid the tax. We cannot pay the tax for the
subsequent period without first discharging the liability of the past
period. Customers would simply stop buying from us.
Now suppose, during course of an audit the Department arrives at a

further liability of Rs. 5 lakh for October. Now the total liability for
October is Rs. 30 lakh out of which 25 lakh is a self-assessed liability
and 5 lakh is a liability assessed by the Department. If the discharge
the self-assessed liability of Rs. 25 lakh of October, then we are
allowed to pay the tax for November. There is no requirement that
even the liability of Rs. 5 lakh assessed by the Department must be
paid before we could proceed to be the tax for November.
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Legal Provisions:
• Sec 2 (43) defines ‘electronic cash ledger’ as the ledger

referred in section 49 (1)
• Sec 2 (46) defines ‘electronic credit ledger’ as the ledger

referred in section 49 (2)
• Section 49 specifies electronic cash ledger and the credit

ledger. It specifies the purposes for which one can use the
amounts in these ledgers. It also specifies the sequence in
which ITC can be used.
• Section 53 provides for transfer of amount from CGST

account to IGST account (in the government’s books) if the
use ITC of CGST to pay IGST.
• Similarly section 17 and 18 of IGST Act provides for

settlement of credits between IGST and CGST account as well
as with the state governments and union territories.
• Rule 85 of CGST rules prescribes the form and manner of

debiting etc. of liability register. Rule 86 is about credit
Ledger and 87 is about the cash Ledger. Rule 88 prescribes
that the portal shall generate a unique identification number
for every credit and every debit entry in the cash or credit
Ledger.
275
CHAPTER 11
GST Returns
A return is a statement where we declare our tax liability to the
government and also inform how we have discharged that liability. In most
cases, the GST returns are to be filed on monthly basis.
Topics Discussed
• Introduction
• Overview of the Process
• What data is required for preparation of returns?
• How is the data communicated?
- GSTR-1
- GSTR-2A
- GSTR-2
- GSTR-1A
- GSTR-3
• Four Ways to file the returns
• Things to know while preparing the returns:
- B2B Invoices
- B2C Large Invoices
- B2C Small Invoices
- Zero rated supplies
- Deemed Exports
- Amendments to data (Tables 9 and 10 of GSTR-1):
- Advances (Table 11)

Chapter 11 GST Returns
- HSN Summary (Table 12):
- Documents Issued (Table 13)
• Gathering Data for Preparation of Returns:
• Preparing GSTR-2:
- Understanding GSTR-2A
- Adding further data:
• Filing of GSTR-3
- Part A of GSTR-3
- Part B of GSTR-3
- Various tables in GSTR-3
• Return by a Composition Supplier
• Annual Return:
• Late fees for delay in filing returns:
• Table: List of Returns and Due dates
Introduction:
The GST law prescribes several returns to be filed, but not all of them
apply to every tax payer. Most tax payers will have to file 3 monthly
(GSTR-1, 2 and 3) and one annual return (GSTR-9). Separate returns
are prescribed for tax payers under composition scheme, those
required to deposit TDS/TCS, Non-resident tax payers, Input Service
Distributors etc. A list of 11 returns prescribed under GST law is
given at the end of this chapter. Apart from those, the tax payers will
also have to file a quarterly return (ITC-04) in respect of the materials
sent for job-work. Formats of these returns are provided in the CGST
Rules.
277
Overview of the Process
The return filing is a two-way process. The supplier as well as the

recipients both sides have to interact online and confirm the data. In
the simplest case, the supplier would upload the details of his invoice
on the GST portal. This data can be viewed on the portal by the
recipient through his login. If the recipient accepts the details he gets
credit; and the supplier’s tax liability also gets confirmed in the
process.
Supplier uploads Tax Liability is

Invoice Data posted to supplier’s
(GSTR-1) Liability Ledger
The simplest case
Recipient accepts Input Tax Credit is

the data posted to recipient’s
(GSTR-2) e-Credit Ledger
Supplier pays tax All data is combined

(Debits Cash/ and GSTR-3 is
Credit Ledger) generated
However, in practice, there would be several variations to the above

process. Firstly, tax is also payable under the reverse charge
mechanism. Therefore, the tax liability is calculated not only from the
data of outward supplies (GSTR-1) but also from the data of the
inward supplies (GSTR-2). Secondly, the structure has been designed
to accommodate the two way communication of data. May be the
recipient finds that the information uploaded by the supplier is
incorrect. May be the data of an invoice itself is missing. In such a
case, the recipient is required to modify or delete the data or add the
missing information. If he edits the data, the information would go
back to the supplier. The supplier would then have to accept or reject
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the same. Based on this two-way process, the tax liability of the
supplier and the credit of the recipient are finalised. The credit notes
and debit notes issued are also taken into account. The process finally
leads to payment of tax and filing of the consolidated return ‘GSTR-
3’.
What data is required for preparation of returns?
1. We need to gather data of sale, purchase as well as the

expenses. In fact, almost our entire profit & loss account is to
be uploaded on the website every month. The data is required
in respect of all outward supplies and all inward supplies.
Data would be required even in respect of supplies that are
- Zero rated (i.e. exports and supplies to SEZ)
- Non-taxable (for example Petrol, Electricity),
- Nil rated (for example support services to agriculture,

forestry, fishing, animal husbandry – covered by sr. 24 of
notification 11/2017-CTR)
- Exempted (for example travel by autorikshaw, or the

supplies received from un-registered persons within the
daily exemption limit of Rs. 5000/-).
2. For each transaction we also need to know
- The HSN Code/ Service Accounting Code and rate of tax
- The place of supply,
- Whether the supplier is registered or not
- Whether the supply was made through e-commerce

operator
- Whether we are eligible to avail ITC
Please note that we are required to determine rate of tax for all our
procurements from un-registered persons. So, if we are required to
pay tax on tea, coffee, photocopying expenses, etc. we need to know
the code. I had a situation where company had spent some amount
279
for conducting pooja. We had to sit with the list of items which ran
into about 117 and determine HSN Code and the rate of tax of each
of them (many were exempted).
How is the data communicated?
The communication of data between the supplier and recipient

happens through the portal. The data uploaded by the supplier is
made available to the recipient by the portal. Thus, the portal itself
communicates the data to the other party. The portal presents the
data in different ‘forms’.
GSTR-1 is a statement of our outward supplies. It will cover all the

Tax Invoices, Credit Notes, Debit Notes, etc. We are required to feed-
in the invoice wise data such as invoice number, date, recipient’s
GSTIN, the place of supply, the HSN Code or SAC of the supply,
value, tax etc. This return is to be filed latest by 10th day of the next
month.
GSTR-2A: The above data of GSTR-1 is communicated to the

respective recipients in the form GSTR-2A1. Thus, the recipient can
see invoice wise data of his purchases and expenses made from
registered suppliers. Part B of this form refers to the ISD Credits
(invoices received from ISD), and Part C refers to the TDS and TCS
Credits.
GSTR-2 is a statement of our inward supplies. We claim our ITC

through this return. Our tax liability under reverse charge is also
calculated from this return. The bulk of the data required for
preparation of this return is already available in the form GSTR-2A.
If this data is complete, we simply accept it and it would become our
GSTR-2. If some data is missing, we have to add the same. Thus, the
data of our GSTR-2 is auto-populated. The data provided by our
suppliers (in their GSTR-1) becomes the data for our GSTR-2. We
have to merely verify it and make corrections if required. However,
1 In case the recipient is under composition scheme, the data is communicated to him in
from GSTR-4A. Similarly, the data is communicated in from GSTR-6A to the ISD.
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before we finalise the GSTR-2, we must also remember to include the

following data in it:
• Inward supplies on which tax is payable by us on reverse

charge basis2.
• IGST paid on import of goods
• Credit & Debit Notes received
The GSTR-2A will also contain auto-populated details of:
Transactions Part of the

GSTR-2A
Invoices issued to us by non- Part A

resident persons
Invoices issued by an Input Part B

Service Distributor
Tax Deducted at Source Part C
Tax Collected at Source (e- Part C

Commerce)
We are required to verify and validate all the data communicated to

us in form GSTR-2A. This data has been uploaded by our suppliers
and our own ISD. If required, we may modify it or even delete the
incorrect information. For example,
• Suppose some supplier mistakenly puts our GSTIN on an

invoice under which he made a supply to someone else. The
result would be that the invoice would be seen in the GSTR-
2A communicated to us. Now, since this invoice does not
belong to us, we should delete it.
2We are required to pay tax on reverse charge basis on the notified supplies, and also
on all supplies received from un-registered persons. Please see the chapter on Reverse
Charge Mechanism, for details.
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• Similarly, there could be error in mentioning the value, or

amount of tax – we should modify the data and rectify it3.
• It may happen that the supplier has missed to upload data of

an invoice under which we have received supply from him.
We should add such invoices to the return.
• It may happen that we have received the supply, and all

details are correctly mentioned, but we are not eligible to
avail credit against the invoice. [(a) It may be a blocked credit, or
(b) the inward supply may be exclusively used for a non-business
activity. (c) It may be used exclusively for effecting exempted
outward supplies]. In such cases:
- If it is possible to determine the eligibility at invoice

level, we should specify (in the GSTR-2) the inward
supplies in respect of which we are not eligible to
credit.
- However, if the eligibility cannot be determined at

invoice level, then the total amount of ineligible
credit is required to be declared.
The form has separate columns for the amount of tax charged
and the amount of credit available. Wherever, we are not
eligible to avail credit against an invoice, we should fill in the
‘Amount of ITC available’ as zero.
Determination of ineligible credit has been discussed in detail in the

chapter Input Tax Credit.
GSTR-1A: The amendments made by the recipients are

communicated to the supplier in form GSTR-1A. We saw in the
previous step, that the recipients may correct the data uploaded by
the supplier or even add the missing data. A list of these changes is
3Here error means – the data is different from the invoice provided by the supplier.
Suppose the invoice shows value of Rs. 1 lakh and tax of Rs. 12 thousand, we need to
ensure that the online data also reflects the same figure. But we cannot modify the tax
amount to Rs. 18 thousand merely because in our opinion the rate should have been
18%.
282
made available to the supplier, on the portal. Now, the supplier is

required to accept or reject these changes. If he accepts the changes,
his tax liability is updated and the recipient’s credit becomes final. If
he rejects, a mismatch is reported.
GSTR-3 is a consolidated statement providing summary of our tax

liability, the credits available to us, the tax paid, etc. This third return
can be filed only after we pay the amount of tax due. The return is
auto-generated on the GST portal. It is to be filed latest by 20th day of
the next month. (For example, the GSTR-3 for October should be filed
latest by 20th November).
Sr. Action Form Due Date

No.
1. Supplier uploads data of Form By 10th of the next

outward supply GSTR-1 month
2. The GST portal Form On 11th

communicates the data to GSTR-2A
the recipient
3. Recipient verifies, validates, Form Between 11th to

amends, deletes or adds GSTR-2 15th
information.
(Similarly, the
• Adds data of RCM supplier would
also verify and
• Adds data of import
deal with the data
of goods
of his inward
• Declares ineligible supplies; and file
ITC GSTR-2)
4. The GST portal Form On 16th

communicates the data GSTR-1A
back to the supplier
5. The supplier accepts or GSTR-1 is 16th and 17th
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rejects the information updated
6. Pay Tax & file the GSTR-3 By 20th

Consolidated Return
Filing of GSTR-1 and 2: Process Overview
Supplier Recipient
- 4. Supplies made GSTR-2A

GSTR-1
- 4A. Amendment to
previous supplies
- 7. Cr/ Dr Notes
- 7A. Amendment to
previous Cr/Dr Notes Verify,
Validate
Modify
Delete
GSTR-1
stands
modified Add missing
Tax Invoices
Cr/ Dr Notes
Add
Accept RCM
or Import of Goods
Reject Cr/ Dr Notes
GSTR-1A GSTR-2
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Four Ways to file the returns:
There are four ways of filing these returns. We can adopt any of
them:
1. We can directly punch the data on portal. This is practicable

only if the number of entries is small.
2. The portal has provided an offline tool along with an excel

template. The tool has to be once installed on our computer
and then we can use it every month. Following steps are
involved in regular filing:
- Fill in the data in the excel template. These entries are

done offline.
- Once the data of the entire month is fed into the

template the entire excel work book is imported into
the java offline tool.
- The tool will convert the data into a file type called
‘Json’. This Json file is to be then uploaded on the
GST Portal.
- Internet will be required only at the time of

uploading the Json file on the portal.
3. We can obtain services of ‘Application Service Providers

(ASPs). They will provide tools which will convert the raw
data into returns. These returns would be filed via GST
Suvidha Providers (GSPs). The ASPs would have contract
with the GSPs. The user will not have to approach the GSPs
separately. There are hundreds of ASPs approved.
4. There are programs that take care of generation of invoices,

accounting as well as filing of returns. ERP packages like
SAP, Oracle, MS Dynamics, Tally etc. can also be used.
Whatever method we choose, now it is important to be prompt. Data

needs to be ready by end of the month. All the attributes of the data
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such as – whether the transaction is taxable, is it zero-rated, nil rated,

exempted, procured from unregistered person, whether credit is
available or not, etc. have to be kept ready. As you may note that the
time lines are quire strict. The first return (GSTR-1) becomes due by
10th it would be wise to file it say by 5th so as to avoid the last minute
rush and mistakes.
Things to know while preparing the GSTR-1:
Following information will help

B2B = Business to Business
us in gathering and organising
The recipient of supply is also
the data required for filing the registered
returns.
1. Due Date: The GSTR-1 is to B2C = Business to Consumer

be filed maximum by the The recipient of supply is not
10th day of the succeeding registered
month. To be comfortable
set a target date of 7th and gather all the data beforehand. (The
next topic will outline – what data is required to be gathered).
It’s going to be extreme rush on the website on 10th. Hence file it
by 7th. GSTR-2 can be filed only after 10th day.
2. B2B Invoices: Business to Business refers to the situations where

the recipient of the supply (the buyer) is also registered. In these
cases we must mention the GSTIN of the customer in the Tax
Invoices. If the number is not mentioned, he won’t get credit.
The number is required to be mentioned on the invoice and also
while filing the return. Data of each invoice is required to be
uploaded on the portal separately. The data of multiple invoices
cannot be consolidated.
3. B2C Large Invoices: Business to Consumer refers to the

situations where the recipient of the supply is not registered.
Large invoices refer to those invoices where the ‘Taxable Value’
is more than Rs. 2.5 lakh. (Here we are referring to ‘value’ and
not ‘value + tax’). In case of intra-State supplies we are required
to file a consolidated data (rate wise), but the inter-State supplies
would be reported invoice wise.
286
4. B2C Small Invoices: This refers to those invoices where the

‘Taxable Value’ is up to Rs. 2.5 lakh. The invoices of value Rs. 2.5
lakh or less are categorised as ‘small’. (Again we are referring to
‘value’ and not ‘value + tax’). Here the data would be
consolidated state wise and rate wise.
B2B (all) Invoice wise
Inter-
Invoice wise
Tax State
Invoice
Large
Intra-
B2C Consolidated
State
Small Consolidated
In the above chart divide the B2C Small into inter and intra state.
Inter-State is to be reported consolidated – state wise (see the
table below).
5. Zero rated supplies: Two supplies are referred as zero rated viz.
(a) Exports and (b) Supplies to SEZ
6. Deemed Exports: The government can notify certain supplies as

‘deemed export’. Here the goods are manufactured in India, the
supply does not leave India and the payment is received either
in Indian rupees or in convertible foreign exchange. The
government may grant export benefits to such supplies. As of
now no supply has been declared to be deemed export.
7. Amendments to data (Tables 9 and 10 of GSTR-1):
It may happen that there was some error in reporting the details
in the GSTR-1 for the previous periods. The same can be
corrected by providing the correct information in table no. 9 and
10 of the GSTR-1. Similarly, the invoice itself might contain error
287
and we would have issued debit note or credit note to rectify the
same. These would also get reported in these two tables. Any
debit/ credit note pertaining to invoices issued before 1st July
2017 (under pre-GST laws) are also to be reported in this table.
8. Advances (Table 11)
We know that tax is payable even on mere receipt of advances.

We need to know – what we are going to supply against the
advance. From that information, we will find out the HSN/ SAC,
and rate of tax payable. We also need to know the place of
supply. The total amount received as advance is value + tax4. It
may happen that at the time of receipt of advance the rate or
nature of supply may not be determinable. For such situations it
has been prescribed that:
• if the rate of tax is not determinable, pay tax @18%
• if the nature of supply is not determinable, treat it as

inter-State supply5.
Where Tax Invoice was issued in the same month in which

advance was received, then we don't need to report such
advances in table 11. The advances are to be reported in the
return only if the invoice has not been issued in the same month.
9. HSN Summary (Table 12):
The table 12 requires HSN wise summary of quantity, value and

tax. Those having turnover up to Rs. 1.5 crores have an option to
not mention any HSN. They may just provide description of the
goods. Of course, they can also mention the HSN code. They are
not prohibited from doing so. We may note that there is no table
to capture Service Accounting Code for services.
4If you have received a lump sum of Rs. 1 lakh and the rate of tax is 12%, then the
Taxable Value will be 100000/1.12 i.e. Rs. 89,286, and the tax would be Rs. 10,714. [If
the rate of tax is 12% divide the amount by 1.12; if it is 18%, divide it by 1.18 and so on].
5 This is as per the proviso to rule 50 of CGST Rules, 2017
288
10. Documents Issued (Table 13)
Here we are required to report one serial numbers of various

documents issued by us such as invoices vouchers, credit notes
and debit notes, etc. We may specifically note that we are
required to furnish the serial number of even the following
documents
• The delivery challans issued. This information is

separately required in respect of the work challans and
other challans.
• The Tax Invoice issued by us inward supplies received

from unregistered persons. Data of these invoices is not
to be provided in the GSTR-1, but the serial numbers are
to be reported here. The data is to be provided in GSTR-2.
Type of Nature of Data to be Tables of GSTR-1

Invoice Supply uploaded
B2B Inter-State Invoice wise 4A outward –

B2B Intra-State Invoice wise Normal Charge
4B outward – RCM
4C outward – E-Com
B2C Large Inter-State Invoice wise 5A. outward –

Normal Charge
5B outward – E-Com
B2C Large Intra-State Consolidated 7A

Rate wise 7A(1) = All
B2C Small Intra-State Consolidated (including through E-
Rate wise Com)
7A(2) = only E-Com
B2C Small Inter-State Consolidated 7B

State wise 7B(1) = Normal +
Rate wise through E-Com
289
7B(2) = only E-Com
Zero-Rated/ Invoice wise 6A Exports

Deemed 6B SEZ
Exports 6C Deemed Export
Nil rated/ Both Consolidated 8

Exempted/
Non-GST Indicate
outward whether
supplies recipient is
(Bill of registered or
Supply data) unregistered
Gathering Data for Preparation of Returns:
We will need the data in respect of
1. Outward supplies: Here we will require data in respect of

documents issued during the tax period6. The source of the
data would be the following documents issued by us:
• Tax Invoices
• Bills of Supply
• Credit Notes
• Debit Notes
2. Inward Supplies: The source of data would be:
• All the invoices
3. Advances Received:
• Receipt Vouchers issued
• Adjustments made in the Tax Invoices
6Tax Period means the period for which we are preparing the return. Please see section
2 (106) of the CGST Act.
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4. Advances Paid
Bulk of our compliance work consists in preparing the GSTR-1 and

GSTR-2. In fact, GSTR-1 may appear easy when we look at the efforts
required to prepare GSTR-2 – particularly because we are required to
upload information about procurements from un-registered persons.
If we are not using any software that would automate filing of the
return then, it will be easier for us to prepare this return if we keep
our invoice data ready in an excel sheet.
Preparing GSTR-2:
Due date: GSTR-2 is to be filed after 10th of the month and the last
date is 15th. Thus it can be filed from 11th to 15th day.
GSTR-2 is to be prepared from GSTR-2A, plus some additional data

is to be incorporated. In this return we basically aim at two things:
• Determining the total ITC available to us; and
• Arriving at our tax liability under Reverse Charge

Mechanism.
Understanding GSTR-2A: Since the greatest portion of the data (in

terms of value and amount of tax) for GSTR-2 would come from the
GSTR-2A, let’s first understand that form. The data uploaded by the
supplier’s is reflected in this form. The form has three parts (A, B &
C). The following chart would summarise the nature of the data
contained.
291
Table 3: Normal Charge
Part - A: Inward
Table 4.Reverse Charge
Supplies
GSTR-2A
Table 5. Dr./ Cr. Notes

Received
Table 6. Invoice;
Part - B: ISD
Cr/ Dr Notes
Part - C: TDS/ TCS Table 7
We are required to verify the data received in above form against the
documents and information available with us. If we find it matching,
we would accept it. If the data in the form is different from that in the
invoices received by us, then we need to rectify it. We have already
discussed this aspect in detail in the earlier part. The changes made
by us will then be communicated (by the portal) to the suppliers in
form GSTR-1A. The Table 3 captures the data of inward supplies
received from a registered person. In an ideal case, the entire data of
this table would be auto-populated (as uploaded by our suppliers
and communicated to us in form GSTR-2A). But it does not include
the invoices on which tax is payable by us under reverse charge.
Adding further data:
Apart from the data uploaded by the registered suppliers, there

would be certain other inward supplies that we need to enter into the
form GSTR-2. These are:
• Notified RCM
• RCM on supplies received from un-registered persons
• IGST on import of goods
• Goods procured from SEZ
• Credit or debit notes received in respect of above two
received
292
• Supplies received from composition dealers

• Non-taxable, Nil rated, and Exempted supplies
• Statement of Advances paid and adjusted
• Reversal of Credits under rule 42 & 43 (reversal of credit
on supplies used for exempted output or non-business
purposes)
In some cases the ineligible credits could be identified at the invoice

level itself. For example purchase of a car. However, all the ineligible
credits cannot be identified at invoice level. There can be inward
supplies that are common to taxable and exempted outward
supplies. In case of common credits we need to find out the amount
attributable to the exempted outward supplies or those used for non-
business purposes. Such amounts of ineligible credits have to be
determined by applying the rules 42 and 43 of the CGST Rules 2017.
Please see the chapter on Input Tax Credits for a discussion on the
method for determining the ineligible credits.
Partially
Invoice level
Fully
Ineligible
Credits
for Non-Taxable
supply
Quantify
Others
for Non-Business
supply
Filing of GSTR-3
GSTR-3 is the end result of the GSTR-1, GSTR-1A and GSTR-2. The
data provided in these forms is finally consolidated in the GSTR-3. It
is to be filed on or before 20th day of the succeeding month. It consists
of two parts – Part A and Part B.
Part A: This part is auto-populated (on the basis of GSTR 1, GSTR 1A

and GSTR 2). The information is arranged in 9 tables in this part
293
(tables 3 through 11). It shows summary of the following three

things:
• Computation of total liability towards tax, interest, and late

fees.
• Total amount of credit received on inward supplies.
• Credit of TDS and TCS received.
Part B: explains how the liability calculated in Part A has been

discharged. The e-Credit and Cash ledgers are also debited through
this part. There are total 4 tables in this part (tables 12 to 15).
• inward and outward supplies

• input tax credit availed,
• tax payable,
• tax paid and
• other prescribed particulars
Various Tables in GSTR-3: Following is a brief summary of the

contents of various tables in the GSTR-3 return.
Tables in Part A (Table 3 to 11)
Table 3: calculates total turnover during the tax period; and it

comprises of
- Taxable Turnover (other than zero rated)
- Zero rated supply on payment of tax
- Zero rated supply without payment of tax
- Deemed Exports
- Exempted Supply
- Nil Rated Supply
- Non-GST Supply
Table 4: Shows calculation of the total tax liability on the outward

supplies. It divides the information into three parts:
294
- Inter-State supplies
- Intra-State supplies
- Tax effect of amendments made in respect of outward

supplies
Table 5: Calculates tax liability on inward supplies. It includes import

of services and other inward supplies on which tax is payable under
RCM.
Part A (Table 3 to 11) • Computation of Liability
• Amount of ITC
• TDS/TCS Credit
Part B (Table 12 to 15) • Discharge of liability
• Claim refund from e-Cash Ledger
• Debit entries in e-Cash/ Credit

Ledger
Table 6: This table provides a summary of the ITC received during the
taxable period. It does not show the opening balance, closing balance
or the credits utilised.
Table 7: Provides details of the addition and reduction of amount in

output tax for mismatch and other reasons
Table 8: Summarises the total tax liability as:
• Tax on outward supplies
• Tax on inward supplies attracting reverse charge
• Tax on account of ITC Reversal/reclaim
• Tax on account of mismatch/ rectification /other reasons
Table 9: Credit of TDS and TCS: TDS is an amount deducted by

government customer (on supply made to the government) and TCS
295
is deducted by e-Commerce Operator. The amounts are credited in

our e-Cash Ledger and can be used to pay tax like any other amount
available in the cash ledger.
Table 10: shows our interest liability
Table 11: records the ‘late fee’ payable by us.
We can see that the total liability = Table 8 + Table 10 + Table 11.
This has to be discharged by debiting the Cash Ledger and the Credit
Ledgers. Credit cannot be used to pay interest and late fees. Thus, the
liability under tables 10 and 11can be discharged only by debit in the
Cash Ledger. For discharging the tax liability (table 8) we can use
both the ledgers.
Tables in Part B (Table 12 to 15)
Table 12: This summarises the amount of tax payable and paid. The
amount payable is same as that appearing in table 8.
Table 13: This table is about other amounts i.e. other tan tax. This
summarises the amounts of Interest, Late Fee and any other amount
payable and paid. The payment is made by debiting the Cash Ledger.
Table 14: Refund claimed from Electronic cash ledger: In case the
taxable person wishes to withdraw the amount lying in the cash
ledger, he can make a request in this table.
Table 15: This table shows the debit entries in electronic Cash Ledger
and the Credit ledger. The entries in the ledgers are not made
through this table. Instead we have to make entries directly in those
ledgers and submit the return. When the return is submitted, the
debit entries made by us get populated in this table.
Return by a Composition Supplier
A supplier who has opted for the composition scheme is required to

file a quarterly return in form GSTR-4. The due date for this return is
as under:
Quarter Last Date
296
April to June 18th July
July to September 18th October
October to December 18th January
January to March 18th April
The returns can be filed only after payment of tax and therefore the
payments are also to be made on quarterly basis, but before filing of
the return.
The composition supplier would be making purchases from

registered as well as un-registered persons. The registered persons
would file invoice wise details in their GSTR-1, which also includes
the supplies made to a composition supplier. These details are
communicated by the portal to the composition supplier in form
GSTR-4A. The composition supplier is required to prepare his GSTR-
4 on the basis of this. He will have make necessary additions,
corrections or deletions. GSTR-4 includes
• Invoice wise details of all inward supplies received; and
• Consolidated details of all outward supplies made
Annual Return:
Annual return is to be furnished in form GSTR-9 after end of the

financial year. It is to be filed on or before 31st December. Thus, the
GSTR-9 for the year 2017-18 should be filed on or before 31st
December 2018.
A composition dealer is also required to furnish annual return, but in

the form GSTR-9A.
Every registered person whose turnover during a financial year

exceeds two crore rupees is required to get his accounts audited by a
297
chartered accountant or a cost accountant7. Along with GSTR-9 he is

also required to file the
• Audited annual accounts,
• A certified reconciliation statement, reconciling the value of

supplies declared in the return with the audited annual
financial statement.
Late fees for delay in filing returns:
Late fees at the rate of Rs. 100/- per day is payable on delay in filing
the returns. This is subject to a maximum of Rs. 5000/-.
The late fee for delay in filing Annual Return is also Rs. 100/- per
day, but the maximum limit is 0.25% of the turnover in the state.
Legal Provisions:
The provisions relating to returns are contained in sections 37 to 48 of

the CGST Act and Rules 59 to 84
Sec 37 – requires us to file details of the outward supplies and says

that the same shall be communicated to the recipient. It also requires
us to accept or reject the details modified by our customers.
Sec 38 – It requires us to prepare details of our inward supplies and

credit and debit notes. For this it is mandatory (shall) for us to
“verify, validate, modify or delete” the details of the inward supplies
communicated to us (outward supplies of our suppliers). It also
requires us to include the details of imports and RCM cases in this
return. In case we make any change in this, it goes back to the
supplier for his approval.
Sec 39 – This is about filing of the consolidated return containing

details of the inward and outward supplies, the ITC availed, tax
payable, tax paid etc.
7 Sec 35 (5) of CGST Act read with rule 80 (3) of CGST Rules.
298
Sec 40 – This return is for the purpose of declaring liabilities of a

newly registered person (other than migration cases).
Sec 41 – provides that the self-assessed ITC claimed in the return

shall be provisionally available.
Sec 42 – is about matching, reversal and reclaim of ITC.
Sec 43 – is about matching, reversal and reclaim of our output tax

liability.
Sec 44 – is about the Annual Return (GSTR-9)
Sec 45 – is about ‘Final Return’ which is to be filed upon cancellation

of registration.
Sec 46 – says that if we fail to file a return, the department shall issue
us notice asking us to file the return within 15 days.
Sec 47 – prescribes late fees for delay in filing returns
Sec 48 – is about GST practitioners.
Rules 59 to 84 contain details about the forms and other procedural

details in relation to filing of the return.
299
List of Returns and Dues Dates
Return/ Content Legal Due date

Statement provision
GSTR-1 Outward supplies Sec 37 By 10th day of

the next month
GSTR-2 Inward supplies Sec 38 11th to 15th day

received of the next
month
GSTR-3 Monthly consolidated Sec 39 (1) 18th to 20th of

return (Outward & next month
Inward supplies, ITC,
Tax payable, Tax paid
etc.)
GSTR-4 Quarterly return to be Sec 39 (2) By 18th day

filed by the supplier after close of the
under Composition quarter
Scheme
GSTR-5 Return by Non- Sec 39 (5) By 20th of the

Resident person next month (or
within 7 days
from the date of
expiry of the
registration
period, if earlier)
GSTR-6 Return for the Input Sec 39 (4) By 13th of the

Service Distributor next month
GSTR-7 Return for Tax Sec 39 (3) By 10th of the
300
Deducted at Source next month
GSTR-8 Return for Tax By 10th of the

Collected at Source next month
GSTR-9 Annual Return By 31st

December of the
next Financial
Year
GSTR-10 Final return Upon

cancellation of
registration
GSTR-11 Details of inward

supplies of persons
having UIN
301
CHAPTER 12
Job-Work
Use this mechanism if you want to outsource any operation on your goods.
You can send the goods without charging GST and receive them back –
again without GST. The job-worker will charge GST on his ‘job-charges’.
Introduction
The job-work mechanism under GST is quite similar to that

prevailing under Central Excise, but it is far liberating and beneficial.
Now, you don’t need to have ‘factory’ to send the materials for job-
work. You can outsource entire manufacturing operation and finally
supply the goods under your invoice charging GST. All the flexibility
available under C. Excise provisions continues to be available.
What is Job-Work: Let us start with the definition itself. Section 2

(68) of the CGST Act contains the following definition:
(68) “job work” means any treatment or process undertaken by a

person on goods belonging to another registered person and the
expression “job worker” shall be construed accordingly;
Suppose ‘A’ sends fabrics to ‘B’ with instructions to stitch garments

out of it and give it back to him. Here:
➢ A is the Principal
➢ B is the job-worker
➢ The activity of stitching garment is the ‘job-work’.
The liability to account for the goods and to pay tax on them has
been placed on the principal. Job-worker’s liability is to pay tax on
the amount charged by him for carrying out the job-work.
Comparison with Job-Work under C. Excise/ Service Tax: Central excise

duty was payable on manufacture goods. Whoever carried out their
manufacturing activity was liable to pay the duty. Ownership was
irrelevant. Therefore a job worker was liable to pay duty if the
Chapter 12 Job-Work
process undertaken by him amounted to manufacture. To overcome

this liability, the notification 214/1986-CE granted exemption to the
job worker on the condition that the principal would undertake to
pay the duty. The job-worker’s activity amounted to rendering of
service under the service tax law only if the process did not amount
to manufacture. Even in such a case this was notification exempting
the job worker from payment of service tax if Central Excise duty
was payable by the principal. The liability to pay duty could be
shifted to the principal only if the principal was registered as a
manufacturer and this was possible only if he had a factory. There
were many cases where the principal did not have any factory.
Particularly multinationals who wanted to initially test the market,
were not willing to invest in land and building. They used to set up
an office, procure the raw materials and outsource the entire
manufacturing operation. Since the principal did not have a factory,
he was not allowed C. Excise registration as a manufacturer.
Consequently, he was neither eligible to avail credit nor to pay duty
on the final product. Therefore, the liability to pay duty fell on the job
worker. Question of valuation arose here. The job worker was
required to pay duty on the price at which the principal would sell
the product to an independent buyer.
The situation is quite different under GST. The taxable event under
GST is supply of goods or services or both. Section 143 has made a
special provision regarding job work. It allows a registered person
(the principal) to send any inputs or capital goods to a job worker
without payment of tax. The liability to pay tax on the final product
rests with the principal. Secondly, the activity of the job worker is a
service, irrespective of whether the process results into manufacture
of a new product or not. The job worker is, thus supplying a service
to the principal and is required to pay GST on the same1.
1Off course the job worker has an option to avail exemption from registration if his
turnover is below Rs. 20 lakh and he does not make any interstate supply (and fulfil
other conditions as well). But in that case, the registered principal would have to pay tax
on the job-worker’s bill, under reverse charge.
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Chapter 12 Job-Work
Under GST there is no requirement that the principal must have a

factory. The procedure remains the same irrespective of whether the
principal has a factory or does not have one.
Overview of the Procedure:
Let’s assume that I purchase certain goods and send them to you for
carrying out job-work (i.e. for some treatment or process). Let’s also
assume that I am registered under GST. The process goes on as
under:
I am the You are my

‘Principal’ ‘job-worker’
I purchase the My vendor

I get credit
goods Charges GST
I send the I issue 'Job- I don't pay

goods to you work challan' tax on this
You issue a You don't

You return the
'Delivery pay tax on
goods to me Challan' these goods
You raise 'Tax You charge

Invoice' for GST on the I get credit
job-charges job-charges
Procedure in detail:
The following procedure applies only if the principal is a registered

person. The job worker may or may not be a registered person. The
procedure is partly prescribed under the law and partly a suggestion
as a good practice.
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Chapter 12 Job-Work
1. The principal is required to file an intimation with the GST

Department2.
2. We can send inputs, semi-finished goods or even capital

goods to the job-worker. By definition input includes
intermediate goods arising from any treatment or process
carried out on the inputs by the principal or the job worker3.
1. The goods should be sent to the job-worker under cover of a

challan issued by the principal. The challan should contain
the details specified in rule 55. The rule does not prescribe
any format. Hence we can design our own format containing
all the particulars mentioned in the rule 55. Sample format is
given in the Appendix.
2. The goods can also be sent directly to the job-worker from our
vendor’s premises. For example, if a manufacturer located in
Mumbai purchases some goods from a vendor in Ahmedabad
and wants to send it to a job-worker situated in Vadodara, it
is not necessary for him to first bring the goods to Mumbai.
The goods can directly move from the vendor to the job
worker. In this case:
a. The Tax Invoice issued by the vendor should mention the

principal as the ‘recipient of the supply’ (i.e. the buyer),
and the job workers address as the place of delivery.
b. The principal should issue a job work challan to the job

worker mentioning that “The goods have been delivered
directly under invoice number__, dated ____ of M/s.
______, Ahmedabad”.
c. The principal is entitled to avail input tax credit only after

the job worker has received the goods at its premises.
2It is expected that the intimation would be online. However, at present the common
portal does not contain any such functionality. The
3 Explanation to section 143 of CGST Act.
305
Chapter 12 Job-Work
3. The job worker should return the goods under a delivery

challan. The challan should give reference to the principal's
challan under which the goods were delivered to the job
worker.
4. The challans are required to contain HSN Code, Value, the

rate of Tax and the amount of tax (although no tax is actually
to be paid for job-work movements).
5. On many occasions it so
• Job-work is a service.
happens that the principal
sends several raw materials • Manufacturing services
which are are classifiable under
processed/assembled into a headings 9988 and 9989.
new product. In such cases
the job worker should • Mention the SAC in the
provide a signed a statement invoices for job-charges.
of consumption of various
• Mention HSN Code of
materials and the quantity of
goods in the Challans
the resultant item. This
would help in reconciliation
of the quantities sent and received.
6. The material can be sent from one job-worker to another and

from him to another and so on. On each occasion, the job-
worker should issue a delivery challan indicating the
movement of the goods. Similarly on each occasions the
principal should also issue a challan for sending the goods to
the next job-worker.
7. The principal can supply the goods directly from the job-
worker’s premises to his customers in India or can export the
same. He will have to issue Tax Invoice wherein he can
mention the location of the job-worker from where the goods
are moving. Supply within India would be on payment of
appropriate GST. The export would be either on payment of
IGST or under bond/ LUT. For the purpose of ascertaining
‘place of supply’ the location of the principal would be the
‘location of the supplier’.
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Chapter 12 Job-Work
However, the principal can supply the goods directly from

the job-worker’s place only if
(a) The job-worker is registered; or
(b) The principal declares the job-worker’s place of business

as his ‘additional place of business’.
(The law empowers the Commissioner to notify goods in

respect of which this condition would not apply).
8. Tax Liability: The liability to account for the goods is on the

principal. Where the job-worker is registered, he should issue
Tax Invoice for his job-charges and charge tax on the same.
The rate of tax is given in the notification 8/2017-ITR and
11/2017-CTR (there will be corresponding notification of each
state prescribing the rate). Most of the job-work activities are
classifiable under heading 9988 and 9989.
9. Serial number of the challans issued in a month is required to

be reported in the monthly return GSTR-1.
10. Quarterly return: The principle is required to furnish a

quarterly statement in FORM GST ITC-04. This statement
should be filed latest by the 25th day of the month succeeding
the quarter. Thus, the statement for July to September should
be filed on or before 25th October. The statement shall contain
the details of challans in respect of goods
- dispatched to a job worker or
- received from a job worker or
- sent from one job worker to another
The format requires challan wise details such as challan no.

date, description of the goods, quantity, Taxable Value, Rate
of Tax, etc.
11. Time limit: The principal should bring the goods back from
the job-worker within the following time limit:
(a) Inputs: within one year
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Chapter 12 Job-Work
(b) Capital Goods (other than moulds and dies, jigs and
fixtures, or tools): within three years
(c) Moulds and dies, jigs and fixtures, or tools: No time limit
specified.
12. The above time limit would also apply if the goods are
supplied directly from the job-worker’s premises on payment
of tax within India, or with or without payment of tax for
export.
13. In case of the above time limit is breached, then it shall be

deemed that such inputs had been supplied by the principal to the
job worker on the day when the said inputs were sent out. It means
that if the inputs are not received back (or supplied directly
from the job workers premises), within one year then the
principal would become liable to pay tax. The liability would
arise on the date of the job work challan issued one year ago.
Thus he would have to pay tax along with interest for the
whole period. The value and the rate of tax, etc. would
already be available on the relevant job work challan.
14. Any waste and scrap generated during the job work can be
supplied
- by the job worker directly from his place of business

on payment of tax, if such job worker is registered
(this will be done under job-worker’s Tax Invoice), or
- by the principal, if the job worker is not registered

(this will be done under Tax Invoice of the principal).
Off course, instead of supplying the scrap from the job-

worker’s premises, the principal can also bring the waste &
scrap to his premises. The law only provides him an option to
dispose it from the premises of the job-worker itself.
15. The principal as well as the job-worker should maintain:
- Copies of the job-work challans
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Chapter 12 Job-Work
- Copies of the delivery challans under which goods

were returned.
- Transport Documents (implementation of e-way bill

has been postponed for a few months).
- Copies of the Tax Invoices.
- Register of the material dispatched, received, sent

from one job-worker to another, supplied directly
from job-worker’s premises etc. While maintaining
this register, we may keep in mind the data required
for the quarterly return (ITC-04).
Material used in job-work
Sometimes, it may happen that the job-worker uses some material

from his stock for the job-work. It may also happen that the rate of
GST on the goods used by the job-worker is different from the GST
on the job-charges. For example, suppose a person receives fabrics
from his principal and manufactures garments out of it. He may use
materials such as sewing thread, buttons, collar and cuffs supports
etc. from his own stock. He may also incur transport charges while
sending the goods back. Thus, he would recover the following
amounts from the principal:
Charges for stitching the garment 1,00,000
Cost of material used 5,000
Transport charges 5,000
Total 1,10,000
Activity of the job worker continues to remain job-work, even if he

uses some material from his side in the process. In the above example
use of the by the job-worker does not constitute a separate supply of
goods. Similarly the transport service is also not a separate supply.
There is a principal supply viz. stitching of garment; and the
remaining things are incidental. They are naturally bundled with the
309
Chapter 12 Job-Work
job-work activity. This is a ‘composite supply’ where the job-work is

the principal supply. Tax on the total bill (Rs. 1.1 lakh in the above
example) would be payable at the rate applicable to the job-work.
The entire value would be reported under a single Service
Accounting Code.
Thus, if the job-work is taxable @5%, then that would be charged on

the total value of Rs. 1.1 lakh. If it were 18%, then that would be
charged on the total value. We don’t have to look into the rate
applicable to the individual goods used or on the transport charges
separately. Whatever tax was paid on the purchase of materials,
would become available as credit to the job-worker. Similarly, the tax
paid on the amount charged by the transporter would also become
available to the job-worker as credit. Since GTA is under reverse
charge, the tax on the inward supply would also be payable by the
job-worker himself (and he would avail credit of the same). The
following chart illustrates this:
Tax Invoice
Invoices received
Collar, button, etc.

I Job-charges
Job-
T Collar, Button..
Worker
C Transport
Charges
Transporter’s bill
Registration of the Job-Worker:
Like any other supplier of goods or services, a job-worker is also

entitled to exemption from registration until his aggregate turnover
exceeds Rs. 20 lakh. This turnover would not include value of the
goods returned to the principal after completing the job-work 4 .
4 Explanation (ii) to section 22 says:

(ii) the supply of goods, after completion of job work, by a registered job worker shall be
treated as the supply of goods by the principal referred to in section 143, and the value of
such goods shall not be included in the aggregate turnover of the registered job worker;
310
Chapter 12 Job-Work
However, we should note that value of the goods used by the job-
worker to provide the job-work service would be part of the value of
the service. Hence the same would be includible in the turnover.
We may further note that a person making inter-State supply is not

eligible to exemption from registration. He has to compulsorily get
registered irrespective of his turnover. Therefore a if the job worker
undertakes job work for a principal situated in another state, he (the
job worker) would have to compulsorily be registered.
In case the job worker is registered, he has to issue a Tax Invoice and
charged GST on the value of job-work service. In case of intra-State
supply, if the job worker is not registered, the principal will have to
pay GST on the job charges under reverse charge mechanism. In case
of inter-State supply the job worker has to compulsorily get
registered.
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Chapter 12 Job-Work
Legal Provisions:
2 (68) defines job-work
Sec 19 allows ITC on the goods sent to job-worker and stipulates that
if the goods are not received back within one year it shall be deemed
to be a supply when the inputs were sent one year back. Similar are
the provision for capital goods not received back within 3 years.
Sec 22: provides that for the purpose of computing turnover limit of
Rs. 20 lakh (or 10 lakh in special category states) the value of the
goods supplied after job-work would not be included in the
aggregate turnover of the job-worker (instead it would be added to
the turnover of the principal).
Sec 143: provides the basic frame work for job-work. It enables
sending the goods to job-worker without payment of tax; sending
from one job-worker to another; return within one year 3 year;
supplying to the customer directly from job-worker’s premises; etc.
Rule 45 prescribes that movement of goods shall be under challans

and that a quarterly returns in form GST ITC-04 is to be filed by the
principal.
Rule 55: prescribes the contents of the job-work challan.
312
CHAPTER 13
Composition Scheme
Easy way out for small tax payers

Composition is an alternative scheme for small manufacturers, traders and
suppliers of food & beverages (non-alcoholic). Under this scheme, the tax
liability is very small; the procedure is also much simplified. But are you
eligible?..... read on.
Topics Discussed
• Introduction
• Salient features of the composition scheme
• Rate of Tax & Categories Covered
• Eligibility Criteria: Aggregate Turnover
• Eligibility Criteria: Other conditions
• Reverse Charge Applies: Tax to be paid at normal rate
• Procedure:
- Exercising the option:
- Issuing Bills:
- Tax Invoice for inward supplies received from un-registered

persons:
- Payment of Tax and filing of returns:
Chapter 13 Composition Scheme
Introduction
The scheme looks attractive. The tax payer under this scheme is
required to pay a very small amount of tax; the tax is payable on
quarterly basis, returns are also quarterly, and detailed records are
not required. The only catch is that neither can the person avail
credits (ITC) nor can his customers avail credit of the tax paid by
them. Presently, the scheme is available only to those whose turnover
did not exceed 75 lakh in the previous financial year. Except for the
suppliers of food & beverages (non-alcoholic), the scheme is not
available to any service provider. But the eligibility criteria are very
stringent.
Salient features of the composition scheme
1. The scheme is optional. Its choice of the registered person as

to whether he avails the scheme or not1.
2. One who opts for the scheme is not required to maintain

detailed records. A regular/ normal tax payer on the other
hand is required to maintain much detailed records.
3. The Composition Dealer is not allowed to avail input tax

credit of GST paid to their supplier.
4. He cannot collect composition tax from the buyer. In other

words, his bill cannot show the tax component separately.
5. He cannot issue a tax invoice. Instead he will issue ‘Bill of

Supply’. The recipient of the supply will not be able to claim
input tax credit.
6. He is required to furnish only one return i.e. GSTR-4 on a

quarterly basis and an annual return in FORM GSTR-9A.
7. He continues to be liable to pay tax under reverse charge –

that too at normal rates. Thus, for instance if he purchases
goods from an un-registered person then he will have to pay
1 The method for opting for the scheme is discussed later.
314
tax at full rate (say 18% or whatever is applicable to the item)

on the purchase.
8. The Scheme is available only if all the supplies made by the

person are intra-state. If a dealer is involved in inter-State
supplies, then he cannot opt for the scheme.
9. A person has to adopt the scheme for his entire business. He

cannot work under regular scheme for part of the business
and apply composition for another portion.
Rate of Tax & Categories Covered
Rule 7 of the CGST Rules, 2017 prescribes the rates of composition

levy. Parallely, the rules notified by various state governments also
specify the rates. The combined rates are as under:
Sl. Category of registered persons Rate of tax

No.
1. Manufacturers, other than manufacturers of 1% CGST +

such goods as may be notified by the
1% SGST
Government.
The following goods have been notified by the

government2. Manufacturer of these goods are not
eligible to opt for composition scheme.
• Ice cream & other edible ice, whether or not

containing cocoa. (Tariff Item 2105 00 00)
• Pan masala (Tariff Item 2106 90 20)
• All goods falling under chapter 24 of the

tariff i.e. Tobacco & manufactured tobacco
substitutes
2. Suppliers making supplies referred to in 2.5% CGST

clause (b) of paragraph 6 of Schedule II. +
2 Notification 8/2017-CT, dated 27th June, 2017.
315
The supplies referred in clause (b) are food & non- 2.5% SGST
alcoholic beverages. These are treated as supply of
service. The actual words of the clause (b) are as
under:
(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.
3. Any other supplier eligible for composition 0.5% CGST

levy under section 10 and these rules. +
Trading activities will be covered by this clause. 0.5% SGST
Eligibility Criteria: Aggregate Turnover
Composition scheme is available only to small suppliers whose

‘aggregate turnover’ in the preceding financial year did not exceed 75
lakh. In case a person is registered in any of the following states, the
limit for him is only 50 lakh (instead of 75 lakh)3.
(i) Arunachal Pradesh,

(ii) Assam,
(iii) Manipur,
(iv) Meghalaya,
(v) Mizoram,
(vi) Nagaland,
(vii) Sikkim,
(viii) Tripura,
3 Please see the notification 8/2017-CT
316
(ix) Himachal Pradesh

In further discussion, wherever we refer to turnover of Rs. 75 lakh,
please consider the same as Rs. 50 lakh when dealing with above
states. Suppose a person is registered in Punjab as well as Himachal
Pradesh, the turnover limit for him becomes Rs. 50 lakh.
The turnover is to be computed against a PAN. Thus if a person

supplies goods from several shops, the turnover of all the shops
would be added together even if the shops have different names.
What is relevant is that it is one PAN behind all the businesses.
Further, this computation is to be made on all India basis. Thus, for

example, the turnover of a business in Maharashtra and Karnataka
would not be counted as turnover of two different persons. The
turnovers in both the states would be added together and if that did
not exceed Rs. 75 lakh previous financial year, then only the person
would be eligible to avail the composition scheme in the current
financial year.
We may also note that the condition is about turnover in the previous
financial year and not in the current year. Thus if the turnover in
2016-17 did not cross Rs. 75 lakh, the person would be eligible to the
scheme in the year 2017-18. The benefit would continue to be
available so long as the turnover in a financial year does not cross Rs.
75 lakh. The moment the limit of Rs. 75 lakh is reached, the benefit
becomes unavailable.
"Aggregate turnover" 4 means the aggregate value of all of the

supplies of persons having the same Permanent Account Number, to
be computed on all India basis. It includes:
▪ taxable supplies i.e. the supplies on which GST is payable
▪ exempt supplies i.e. the supplies which attract nil rate of tax,
or which are exempted vide a notification. It also includes
4Aggregate turnover is defined vide sec 2 (6) of CGST Act. Exempt supply is defined vide
sec 2 (47) and it includes non-taxable supply. The term non-taxable supply is defined
vide sec 2 (78)
317
non-taxable supplies on which there is no levy of GST at all

(for example alcoholic liquor for human consumption).
▪ exports of goods or services or both
▪ inter-State supplies: It will include not only the supplies made

to other persons but also the supplies made to the person
with same PAN. This becomes a double counting of the
supply. One branch of a trader in Delhi and another of the
same trader in Haryana are treated as establishments of
distinct person and the supplies made between them would
also form part of the ‘aggregate value’. The composition
dealer loses his eligibility if he is making any inter-State
supply.
Aggregate turnover excludes:
▪ Value of inward supplies on which tax is payable by a person on

reverse charge basis: For example a trader receiving legal
services from an Advocate is required to pay tax under
reverse charge. The value of the advocate’s bill is not to be
added in the aggregate turnover.
▪ The amount of GST i.e. Central tax, State tax, Union territory tax,
integrated tax and cess
Eligibility Criteria: Other conditions
A person can opt for the composition scheme only if he fulfils all of
the following conditions5:
(a) Scheme not available to a person providing services
The composition scheme is available only to a manufacturer

or a trader, but not to a person engaged in supply of services.
There is one exception to this viz. supply of food & non-
alcoholic beverages.
5These conditions are specified in the Section 10 of CGST Act and the rule 5 of the CGST
Rules.
318
For example, if the person is receiving commission or rent or

sponsorship etc. he does not remain entitled to avail the
composition scheme because these are services. A hotel
providing lodging facility cannot avail the scheme because
lodging would be a service.
(b) He should not be engaged in making any supply of goods on which

GST is not leviable
GST is not leviable on liquor or on five petroleum products

(mentioned in section 9 (2) of CGST Act). Thus, if a restaurant
is also supplying liquor, it cannot get benefit of the
composition scheme.
The scheme operates for all businesses under a PAN. Thus,

suppose one has two businesses
• A restaurant where he is selling liquor
• A shop where he is selling shoes
He cannot avail the scheme. It is not possible to avail the

scheme in respect of the shop and not avail it in respect of the
restaurant. The scheme has to cover whole of the business
under a PAN. Since he is not eligible (because he is selling
liquor), he becomes ineligible for all of his businesses.
(c) He should not be making any inter-State outward supply of goods:

The scheme is available only if all the supplies are intra-State.
The person would lose eligibility to composition scheme if he
makes any inter-State supply. We may also note that export is
considered to be an inter-State supply. Thus an exporter
cannot be under composition scheme. Further, inter-State
stock transfer to his own business in the other state would
also debar him from the scheme.
(d) He should not make any supply of goods through e-commerce

operator who is required to collect tax at source: In case of the
goods supplied through an e-commerce operator, there are
two situations:
319
- Where the consideration for the supply is collected by

the operator6: In this case, the operator is required to
collect tax at source (TCS). The person making such
supplies through e-commerce operators is not entitled
to the composition scheme.
- Where the consideration is not routed through the

operator, there is no liability of TCS. The person
remains eligible to composition scheme.
(e) He should not be manufacturer of the notified goods: Manufacturer

of any of the following goods is not eligible to opt for
composition scheme:
- Ice cream & other edible ice, whether or not containing

cocoa. (Tariff Item 2105 00 00)
- Pan masala (Tariff Item 2106 90 20)
- All goods falling under chapter 24 of the tariff i.e.

Tobacco & manufactured tobacco substitutes
Moreover, he should not have manufactured these items even

in the preceding financial year7.
(f) He should not collect tax: The person operating under

composition scheme cannot charge GST on his outward
supplies. The amount of GST is over and above the bill raised
by him. Thus, if he sells something for Rs. 10,000/- he should
not charge GST in the bill. His customers do not get credit of
the tax paid by him.
(g) He is not eligible to ITC: This is part of the basic feature of the
scheme. The person working under composition scheme is
not entitled to claim credit of tax paid on his inward supplies.
Thus, neither does he get credit on inward supplies nor do his
customers get credit on the outward supplies made by him.
6 See section 52 of CGST Act

7 Rule 5 (1) (e) of the CGST Rules
320
(h) He is neither a casual taxable person nor a non-resident taxable

person: Composition scheme is not available to either ‘casual
taxable person’ nor to the ‘non-resident taxable person’.
(i) All businesses under same PAN have to come under the scheme: it
is not permissible to opt for composition scheme for merely a
part of the business. Suppose a person has businesses in
Orissa and West Bengal, it is not possible to work under
composition scheme in one state and under regular scheme in
the other one. In fact, even if more than one registrations are
obtained for different verticals of business then also, he has to
remain in any one of the scheme for all verticals.
(j) Option lapses when turnover crosses Rs. 75 lakh: The benefit of
composition scheme continues so long as the turnover does
not cross Rs. 75 lakh in a financial year. Turnover for each
financial year is to be computed separately. All the years in
which the turnover remains within the limit, the person
remains eligible to the scheme. If in any year, the turnover
crosses the limit, he loses the benefit for the further period
and also for the subsequent year.
For example suppose a person is eligible and has opted to

avail the composition scheme from 1st July 2017. His turnover
in 2017-18 remains within Rs. 75 lakh. During 2018-19 the
turnover crosses Rs. 75 lakh limit on 25th December 2018 (i.e.
the turnover from April 18 to 24th December is Rs. 75 lakh).
Now there are two consequences:
- Firstly, he has to start paying tax under regular scheme

for all supplies made with effect from 25th December
2018.
- Secondly, he will not be eligible to composition scheme

in 2019-20 (because the very first criteria discussed
above is that the turnover in the preceding financial
year should not have crossed Rs. 75 lakh)
(k) Stock held on 1st July 2017 should not have been purchased inter-
State or imported:
321
Strangely, while imposing this condition the rule 10 (1) (b)

does not say that this condition applies only for availment of
composition scheme during 2017-18. The way it is worded, it
means that if the stock contained any goods imported from
outside India or from another state, then the person
permanently loses his eligibility.
Reverse Charge Applies: Tax to be paid at normal rate
Reverse charge will apply to the inward supplies even of a person

under composition scheme. Thus for instance if a composition trader
receives services of a goods transport agency, the reverse charge will
apply and the tax on the supply will be payable by the dealer.
Similarly, if he purchases goods from any un-registered person, the
tax on the same would also be payable by the dealer. Further the tax
will be at the normal rate applicable to the supply and not the
composition rate. So if in regular course the goods are chargeable to
GST @18% then even the composition trader purchasing them from
un-registered person would be payable @18% and not 1%.
Ineligible person paying tax under Composition Scheme: If a

person who is not eligible to avail the composition scheme but still
avails it then he will become liable to pay:
- the differential amount of tax
- Interest; and
- Penalty
The provisions relating to issuance of notice, adjudication etc.

provided under section 73 or section 74 shall apply to such
cases.
Procedure:
322
Exercising the option: The person who wants to avail benefit of the
scheme has to formally opt for it. The option is to be exercised in the
following manner:
- If the person has migrated from existing registration to GST,

he has to fill in form GST CMP-01 latest by 30th July 2017.
- If the person obtains new registration under GST, he should

fill in the Part B of the application for registration (GST REG-
01).
- The person can continue to remain in the composition

scheme as long as he is remains eligible. He does not have to
repeatedly file options every year. Once exercised, the
option, continues unless withdrawn.
- Once a person starts paying tax under normal levy, he

cannot opt for ‘composition’ in the mid of the financial year.
He can go for composition scheme only from the beginning
of the next financial year. For this, he should file form GST
CMP-02 prior to commencement of the new financial year.
He will have to reverse the ITC on the stock held on the last
day of the normal levy8. Information in form GST CMP-03
would also have to be filed within 60 days.
Issuing Bills: The person working under the composition scheme

should not issue ‘Tax Invoice’ for their outward supplies. Instead he
should issue ‘Bill of Supply’. The bill of supply should contain all the
details as mentioned in rule 49 of the CGST Rules, 2017. We may note
that the bill should not show the tax amount. Tax is payable on the
total bill amount. If the bill of a trader is for Rs. 10,000, the tax will be
Rs. 100. If instead, the bill is for Rs. 10,100, the tax would be payable
on Rs. 10,100 (i.e. Rs. 101).
Bill for goods must be issued before the goods are removed. In case
of services, it can be issued within 30 days of the date of provision of
the service.
8
Section 18 (4) of CGST Act, 2017
323
Issuing bill is compulsory for all the supplies of Rs. 200 and above. If
the value of the supply is less than Rs. 200/- then:
- Issuing bill is compulsory if the recipient is registered under

GST.
- Even if the recipient is not registered, but if he requires (i.e.

asks for) a bill, the ‘bill of supply’ must be issued.
- In remaining cases, he can issue a consolidated bill of supply

for the whole day.
Tax Invoice for inward supplies received from un-registered persons: As

noted earlier, the person availing composition scheme is required to
pay tax on the inward supplies notified under reverse charge as well
as on all the supplies received from un-registered persons. In case of
the inward supplies received from un-registered persons, he is also
required to issue ‘Tax Invoice’. The rule allows him to issue a single
consolidated invoice at the end of the month.
There is an exemption from payment of tax on the supplies received

from un-registered persons on those days where the aggregate value
does not exceed Rs. 5000/-. On remaining days he is required to pay
tax. We may understand this from an example:
Suppose a trader purchases various goods and services from

registered persons as well as from un-registered persons. So far as
the purchases made from registered persons are concerned, the GST
on the same would be payable by the supplier. Off course the trader
being under composition, would not get ITC. However, the un-
registered suppliers would not charge GST on the supplies made by
them to the trader. In case of all such supplies, the trader will have to
work out his tax liability. Tax is payable only for those days on which
the value of inward supplies received from un-registered persons
exceeds Rs. 5000/-. The following table would explain this:
Date Value of total Tax payable Tax Invoice to be

purchases on issued?
from un-
registered
324
persons
15/08/2017 Rs. 7000/- Rs. 7000/- Yes
16/08/2017 Rs. 5000/- Nil No
17/08/2017 Rs. 4800/- Nil No
18/08/2017 Rs. 5001/- Rs. 5001/- Yes
Note: So far as the services or goods notified under reverse charge

are concerned9, the tax is always payable by the recipient. Value of
such supplies should not be counted within the above amount of Rs.
5000/-. Import of service is also not to be counted within this limit.
Payment of Tax and filing of returns: The person opting for composition
scheme is required to file
- quarterly return in form GSTR-4 within 18 days after end of

the quarter
- Annual return in form GSTR-9A to be filed on or before 31st

December after end of the financial year.
Tax is to be paid on quarterly basis before filing of the return. The

return has to be filed on quarterly basis even if the liability is only for
a part of the quarter. One cannot file return for any other three
months. For example although ‘May to July’ is three months – we
cannot file return for this period. The return will be for April to June
and for July to September and not for May to July. Thus, the due date
for filing returns by a composition dealer are as under:
Quarter Due Date (on or

before)
January to March 18th April
9Nine services are so notified vide notification no. 13/2017-CT (Rate) and Five goods
are notified vide notification 4/2017-CT (Rate). Parallel notifications are issued under
IGST and SGST laws as well.
325
April to June 18th July
July to September 18th October
October to 18th January

December.
Legal Provisions:
Section 10 of CGST/ SGST Act provides an option to pay tax under

composition scheme.
Rule 3 to 7 of the CGST Rules prescribe forms, some conditions and

the rate etc.
Section 2 (6) defines aggregate turnover.
Sec 2 (62) ‘input tax’ does not include tax paid under composition
levy.
326
CHAPTER 14
Import, Export & Supply to SEZ

IGST is payable on imports; and credit of the same is available as per the
ITC provisions.
Exports can be made without payment of IGST. If ITC accumulates because

of this then refund of the same is available. Exports can also be made on
payment of IGST. Refund of the IGST so paid, is available.
Topics Discussed
• Introduction
• Import of Goods
- Meaning
- Import Duty Structure before & under GST
- Input Tax Credit on Import of Goods
- High Sea Sales/ Purchase
• Import of Services
- Every supply made by a person from abroad may not be

taxable
- Meaning of Import of Service
- Manner of discharge of tax liability
• Zero Rated Supply
• Export of Goods and Services
- Meaning of export
- Tax would be payable, if the supply does not constitute

export
Chapter 14 Import and Export under GST
- Merchant Export: Supply to merchant exporter is not a

zero rated supply
• Export without Payment of Tax
- Bond or LUT is essential
- Format
- Bond
- Bank Guarantee
- Amount of Bank Guarantee
- Format of bank guarantee
- LUT
- Who can sign the Bond/ LUT?
- Who can file LUT?
- Invoice
- Exchange Rate for value of goods
- Time Limit to prove the Export
• Refund of unutilized ITC accumulated due to zero rated

supplies made under Bond or LUT
- Eligibility
- Unjust Enrichment
- Procedure
• Export on Payment of IGST
- Procedure for Refund of IGST paid on export of goods
- Procedure for Refund of IGST paid on Export of Services
• Refund in case of supplies to SEZ
• Withholding or Adjustment of Refund
328
Introduction:
We may recall that IGST is levied on “all inter-State supplies of

goods or services or both”1. Combine this with the fact that all the
supplies in the course of import are deemed to be supply in the
course of inter-State trade or commerce2. The result is that Integrated
Tax is leviable on all imports –import of goods as well as of services.
Import of Goods:
Import of goods is covered under Customs Law3. The IGST is levied

under the Customs law. It would be assessed by the customs
authorities and would be reflected in the bill of entry. However,
import of services is not covered under Customs law. The IGST on
import of services would be payable by the importer 4 . This is
discussed in the next section of the chapter.
Meaning: Import of goods concerns physical movement of goods.

Goods have to actually come to India. Thus, if someone purchases
from China and sells to UK, there is neither import nor export.
Section 2 (10) of the IGST Act
(10) ‘‘import of goods” with its grammatical variations and cognate

expressions, means bringing goods into India from a place outside
India;
Import Duty Structure before & under GST: Upon introduction of GST,
the import duty structure has been modified. Prior to GST, the duty
1 Section 5 of IGST Act, 2017

2 Article 269A of the Constitution and section 7 (2) and 7 (4) of IGST Act
3Sec 5 of IGST Act levies tax on all inter-State supplies. In terms of sec 7 (2) and (4)
import of goods and services is an inter-State supply. Thus IGST becomes leviable.
Further, the proviso to sec 5 reads as:
Provided that the integrated tax on goods imported into India shall be levied and
collected in accordance with the provisions of section 3 of the Customs Tariff Act,
1975 on the value as determined under the said Act at the point when duties of
customs are levied on the said goods under section 12 of the Customs Act, 1962.
As a consequence the IT on import of goods would be collected by Customs and would
be assessed under the Bill of Entry.
4 This is in view of the notification issued under section 5 (3) of IGST Act, 2017.
329
structure on import of goods was as under. Credit was available for

CVD, the Cess on CVD and the SAD.
Item Rate Amount
A Customs Value 100000
B Basic Duty of Customs 10% 10000
C=A+B Value for CVD 110000
D CVD 12.5% 13750
E Ed. Cess on CVD 0% 0
F Sec. & H Ed. Cess 0% 0
Total Duty (Basic + 23750

G=B+D+E+F CVD)
Ed. Cess on Customs 475

H Duty 2%
I Sec. & H Ed. Cess 1% 238
Value for Additional 124463

J=A+G+H+I Duty
Additional Duty [Sec 4979

K 3(5)] 4%
L=G+H+I+K Total Duty payable 29441
Cenvat Credit 18729

M=D+E+F+K available
Net Cost as Duty 10713
Duty structure on import of goods, under GST regime is as under:
Item Rate Amount
A Customs Value 1,00,000
330
B Basic Duty of Customs 7.5% 10,000
Ed. Cess on Customs

200
H Duty 2%
I Sec. & H Ed. Cess 1% 100
J=A+G+H+I Value for IGST 1,10,300
K IGST 18% 19,854
Input Tax Credit on Import of Goods: We may note that Input Tax
Credit is not available for the Basic Customs Duty or the Customs
Cess. Hence,
Total Tax payable 30,154
Input Tax Credit available (IGST) 19,854
Net Cost as Duty (BCD + Customs 10,300

Cess)
There are certain products on which Compensation Cess is also

leviable. The value for compensation cess would be the same as the
value for IGST5. We may remember that ITC of Compensation Cess
can be used only to pay Compensation Cess and not for any other
purpose.
The details of the import of goods have to be declared in the GSTR-2

return. Credit of IGST and Compensation Cess shall be claimed on
the basis of bill of entry. The GST portal will match the details from
the customs portal (ICEGATE).
High Sea Sales/ Purchase: There is no payment of IGST involved until

the goods are cleared from customs. Thus, IGST would not be
payable on the transactions in the High Seas. Tax would become
payable when the Bill of Entry is filed for clearance of the goods.
5 See proviso to the section 8 (2) of the GST (Compensation to States) Act, 2017.
331
Import of goods
Meaning bringing goods into India from a place outside India6;
Tax Customs Duty (Basic + Ed. Cess + Sec & Higher Ed.
Cess)
+ IGST
Payment At Customs; under Bill of Entry.
GSTR-2 Declare in table 5. Credit of IGST available.
Import of Services:
Every supply made by a person from abroad may not be taxable: In case of
import of services, the IGST is payable by the importer under reverse
charge under the IGST Act. The notification 10/2017-ITR fixing the
tax liability on recipient under reverse charge, does not use the word
‘import’. Instead it describes the category of the service as:
“Any service supplied by any person who is located in a non-taxable

territory to any person other than non-taxable online recipient.”
The liability to pay tax is on the recipient of the service which is “any
person located in the taxable territory other than non-taxable online
recipient”.
The notification merely shifts the tax liability from supplier to the
recipient. It does not create a levy. The tax liability does not arise
because of this notification. The charge is created by section 5 of the
IGST Act. The tax is levied on supply and by definition ‘supply’
includes import of services. We may recall, the provisions of section 7
(b) of CGST act and the entry 4 in the Schedule-I. Both of these deal
with import of services. They read as under:
6 Sec 2 (10) of IGST Act, 2017
332
Sec 7 (b): supply includes, import of services for a consideration

whether or not in the course or furtherance of business;
Entry 4, Schedule-I: Activities to be treated as supply even if made

without consideration
4. Import of services by a taxable person from a related

person or from any of his other establishments outside
India, in the course or furtherance of business.
Thus, if the service is imported for a consideration, then it is

subjected to levy of IGST. But, if it is without consideration, then the
tax is payable only if the import is by a taxable related person and in
the course or furtherance of business. If the related person imports
the service for his personal use or for any non-business purpose, then
tax would not be payable. This understanding can be pictorially
depicted as under:
Business:
Taxable
Related/
for a
Unrelated
consideration
Person Non-
Business:
Taxable
Import of
Service Business:
Taxable
Related/
Establishment
Abroad Non-
No Business: Not
consideration Taxable
Un-related Not Taxable
Meaning of Import of Service
333
A transaction does not become ‘import of service’ merely because the

supplier of the service is outside India and the recipient is in India.
There is a third requirement viz. the place of supply has to be in
India7. If the place of supply is not in India then the supply would
not be treated as import of service. For instance, in case of the
services provided by an intermediary (commission agent or broker
for goods, services & securities) the place of supply is the location of
the supplier of the service8. Thus, if the commission agent is located
outside India, the place of supply would be outside India and such
supply would not be ‘import of service’. Consequently, no tax is
payable on the consideration paid to the foreign agent9.
Manner of discharge of tax liability: In all the cases of taxable import of

services, the tax is payable by the importer under reverse charge
basis. The importer is required to obtain registration. He would have
to:
• Determine the value, SAC, the rate of tax
• See whether any exemption or abatement is available
• Thus compute the amount of tax payable
• Issue: (a) Tax Invoice when the supply is received; and (b)
Payment Voucher when the payment is made 10.
The Tax Invoice to be issued by the importer would have the

following tax structure11:
Tax Invoice for Import of Services
Description of Service & XXXXXX

Service Accounting Code:
7 Import of service is defined vide Sec 2 (11) of IGST Act, 2017.

8 Sec 13 (8) of the IGST Act, 2017
9Conversely, the services of commission agent located in India are not treated as export
and he is required to pay GST on the commission received from foreign persons.
10 See section 31 (3) (f) and (g) of the CGST Act, 2017.
11 Please refer the appendix for a sample invoice.
334
YYYY
Value Rs. 1,000/-
IGST @18%* Rs. 180/-
Total Rs. 1,180/-
* The rate is given for illustration purposes only. We will have to apply the
actual rate applicable to the service.
We may recall that the time of supply would be earlier of the:
(a) The date of payment
(b) Date of Invoice issued the supplier plus 60 days.
Also that in case of supply received from associated enterprises it

will be the date of entry in the importer’s account books or the date
of payment, whichever is earlier.
The tax liability on import of service is required to be declared in

GSTR-2 and paid through the e-cash ledger maintained on the GST
portal. Credit would become available in the same month.
Import of Services
Meaning Supply of Service where:
• Supplier – located outside India;
• Recipient – located in India; and
• the place of supply – in India;
Tax IGST
Documents We are required to issue
- Payment Voucher; and
- Tax Invoice (to self)
Payment of The GST liability is to be declared in GSTR-2.
335
Tax Payment is to be made by debiting e-Cash Ledger.

Since it is reverse charge, ITC cannot be used to pay
the tax.
Return Declare in Table 4C of GSTR-2.
However, in respect of import of online information and database

access or retrieval services (OIDARS) by unregistered, non-taxable
recipients, the supplier located outside India shall be responsible for
payment of taxes. Either the supplier will have to take registration or
will have to appoint a person in India for payment of taxes. Please
see the appendix for a note on OIDARS.
Supply of goods or services or both to a Special Economic Zone

developer or a unit shall be treated as inter-State supply and shall be
subject to levy of integrated tax.
336
Zero Rated Supply
Zero rated supply12 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.
These supplies are called ‘zero-rated’ even if made on payment of

IGST. Zero rated supplies are treated differently from ‘exempt
supplies’. The foremost effect of this categorisation is that ITC
remains available on inward supplies used for making zero rated
supplies, even if the supply is made without payment of tax. In fact,
ITC remains available even if the supply is otherwise exempted.
Thus zero rated supply is an exception. These are not treated as
exempted or nil rated or non-taxable supplies13. We may remember
that in regular course (i.e. supplies, other than zero rated), ITC is not
available if the outward supply is exempted or nil rated.
• ITC will be available on

Zero Rated Supply: Options
inward supplies used for
making the zero rated o Supply without payment
supplies. Such ITC will be of Tax. Need Bond or
available even if the outward LUT. If ITC accumulates,
supply is otherwise claim its refund.
exempted.
o Supply on payment of
• But, ITC will not be available IGST and claim its refund.
on ‘blocked credits’. For You will use up the ITC in
example, credit is blocked on the process.
‘food & beverages’. The
credit will not be available even if the outward supply is zero
rated.
12 Please see section 16 of IGST Act, 2017

13 Please see the discussion in chapter “Computation of Tax”
337
• The available credits can be utilised to pay tax – either on the

export/ SEZ supply itself, or on any other supply.
• The zero rated supply can be made without payment of IGST.

This is permissible only if the supplier has executed bond or
has furnished Letter of Undertaking (LUT).
• In case the supplies are made without payment of IGST under

bond/LUT, the person can claim refund of unutilised ITC.
• Alternatively, the person can make the zero rated supply on

payment of IGST and claim refund of the IGST so paid. The
tax payable would be IGST even if the supply is to an SEZ
situated within the same state in which the registered person
making the supply is situated14.
• LUT or Bond is not required when export is made on

payment of IGST.
• The benefits of zero rating (i.e. refund of ITC or IGST) would

be available only if the person is registered under GST. In
fact, the zero rated supplies are always inter-State. Hence
registration is compulsory.
• Refund of unutilized ITC will not be allowed if the supplier

has availed drawback of such tax.
• The ARE-1 procedure has been done away with. Now, ARE-1
is not required to be issued.
• There is no concept of ‘merchant exporter’ under GST. Thus,

the form ‘H’ and ‘CT-1’ procedures do not exist anymore.
14This is because supply to SEZ have been categorised as inter-State supply. Please see
section 7 (5) of the IGST Act, 2017.
338
Export of Goods and Services

Meaning of export:
While the definition of ‘export of goods’ is pretty simple, the

definition of ‘export of services’ needs special consideration. Export
of goods means taking goods out of India to a place outside India.
Export of services has been defined as under
(6) "export of services" means the supply of any service when,--
(i) the supplier of service is located in India;
(ii) the recipient of service is located outside India;
(iii) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier
of service in convertible foreign exchange; and
(v) the supplier of service and the recipient of service are not
merely establishments of a distinct person in accordance with
Explanation 1 in section 8;
Supply of service is treated as export only if all the five conditions

mentioned above are satisfied. Take the case for example, where a
person located in Germany places an order on a person in Orissa to
undertake a repairing of a machine in Tamil Nadu. Suppose the
payment for the service is made in a convertible currency. Where is
the place of supply? The recipient of the supply is in Germany.
Therefore section 13 of IGST Act would apply. In terms of section 13
(3) the place of supply of services in respect of goods which are
required to be made physically available to the supplier in order to
provide the services, shall be “the location where the services are actually
performed”. In the instant case the service was performed in the state
of Tamil Nadu. Therefore, the place of supply is Tamil Nadu. This
transaction does not qualify as export of service.
Tax would be payable, if the supply does not constitute export: There could
be situations where even though the recipient of service is abroad,
yet the service does not qualify as export. This is because there are
339
three other conditions to be fulfilled. Thus, the supply of service will

not be constitute export of service
• Where the place of supply is within India. For instance in case

of services provided by the intermediary.
• Where the payment was not received in convertible exchange.

Again the transaction might be satisfying all other conditions,
yet if payment is not received in convertible exchange, the
supply will not be treated as export and benefit of zero rating
will not be available.
• Where the recipient is a branch office of the Indian entity. The

supplies of service will also not be treated as export. We may
note here that in case of services received from foreign
branch, the transaction is treated as import and tax is payable
by the recipient in India.
Where tax is payable on supplies made to a person abroad, the tax

becomes a cost to the supplier because the recipient cannot avail ITC.
Merchant Export: Supply to merchant exporter is not a zero rated supply:

Under C. Excise law, a manufacturer could supply goods to an
exporter located in India, ‘without payment of duty’. The exporter
was required to execute bond and provide a certificate in form CT-1
to the manufacturer. The actual export outside the country was to be
made by the said exporter. He was referred as ‘merchant exporter’.
Central Sales Tax law also treated the above sale to merchant
exporter as a sale in the course of export. The merchant was required
to provide certificate in form ‘H’ to the seller. Here, the seller may or
may not be a manufacturer. Section 5 (3) of the CST Act, 1956 said
that:
“… the last sale or purchase of any goods preceding the sale or

purchase occasioning the export of those goods out of the territory of
India shall also be deemed to be in the course of such export, if
……”
This concept does not find any place in the GST law. Supply of goods
to a person who is procuring it for the purpose of export, is not
340
treated as ‘zero rated’. It is a normal supply. Whether the recipient

intends to export the goods or not, has no relevance at all for
assessment of tax liability on the supply made to him. Thus, the
supply made to him would be taxed like any ordinary supply. The
exporter would be entitled to avail ITC of the tax and can export the
same, either on payment of IGST or under Bond/ LUT. Off course,
this affects cash flow of the exporters. He will have to bear burden of
the tax until the goods are exported and the tax amount is refunded
to him.
Export without Payment of Tax
The procedure applies to export of goods as well as services. Further,

the same procedure applies to the supplies made to Special Economic
Zones (SEZ units or developers).
Bond or LUT is essential: Goods or services cannot be exported

without payment of IGST unless
- we execute a bond or furnish an LUT to the Department; and
- the Department issues letter to us communicating acceptance

of the bond/LUT.
If the exporter has not executed the bond or has not filed LUT, then
payment of IGST is the only option left to him. Off course, IGST
would not be payable if the supply is otherwise exempted. But in
that case, he will not be able to get benefit of ITC. Similarly goods or
services cannot be supplied to SEZ without payment of IGST without
bond/ LUT.
Till 30 June 2017 there was no requirement of bond/LUT for export

of services or for supply of services to SEZ. However, now it is
required even in case of services. This indeed puts burden on the
service providers particularly when their size is small.
341
Execute Bond/ Issue Tax File Shipping

LUT Invoice Bill
If failed to
Report the Tax
export within 3 Send Goods to
Invoice in
months - Pay Customs
GSTR-1
Tax + Interest
Format: Format of the bond as well as LUT is prescribed under the

CGST Rules, 2017 (form RFD-11).
Bond: Bond is a form of contract under which a person binds himself

to another for payment of a sum. The bond to be furnished for zero
rated supplies is a conditional bond where we agree to pay IGST and
interest to the government in case we are not able to prove export,
etc.
The amount of bond has to cover the IGST

Bond or LUT is
leviable on the supply. One can execute compulsory even for
bond to cover a single supply or to cover export of services
several supplies. The advisable course without payment of tax.
would be to estimate the liability on
If Bond/ LUT has not
supplies to be made in next six months. If
been executed, we will
the estimated tax liability is Rs. 10 lakh we
have to pay IGST on the
may execute bond for Rs. 10 lakh. It's a supply (refund of the
running bond where the bond is debited same is allowed).
by amount of supplies made and credited
back when proof of export is admitted. Thus, even though we had
estimated the bond to cover IGST only for six months, we will be able
to use the bond for a higher period because meanwhile we will be
able to get the proof of export and credit the bond account. We
should maintain a running account of the bond. A suggested format
is given in the appendix.
342
Bond is to be furnished on non-judicial stamp paper. The amount of

stamp depends upon the stamp duty imposed by the state
government. Each state has its own law about stamp duty to be paid
on various documents. Thus, the amount may be different for
different states.
Separate Bond/ LUT is required to be furnished for each registration.

But it is not required to be filed separately for each additional place
of business. If a person is registered in Maharashtra as well as
Karnataka he will need two LUTs one for supplies to be made from
Maharashtra and another from Karnataka. But within Maharashtra,
even if he has several locations, he is required to execute only one
Bond/ LUT. It would be filed with authority having jurisdiction over
the principal place of business and would be valid for all the
locations covered by the registration15.
Bank Guarantee: However, a bond is required to be backed by a bank

guarantee. It means that the supplier will have to furnish bank
guarantee along with the bond.
Amount of Bank Guarantee: The amount of bank guarantee is at the

discretion of the Commissioner. He can permit furnishing of bond
even without bank guarantee. The board has directed16 that
• Jurisdictional Commissioner may decide about the amount of

bank guarantee depending upon the track record of the
exporter. If Commissioner is satisfied with the track record of
an exporter then furnishing of bond without bank guarantee
would suffice.
• In any case the bank guarantee should normally not exceed

15% of the bond amount.
The word “normally” used in the second sentence above has made
the discretion of Commissioner very wide. If he feels it necessary he
can demand bank guarantee for higher amounts.
15 Circular no. 4/4/2017-GST, dated 07th July, 2017

16 Circular No. 4/4/2017-GST, dated 07th July, 2017
343
Format of bank guarantee: Format of bank guarantee is not prescribed.

Banks use their own format. A prevalent format is provided in the
appendix.
LUT: On the other hand a letter of undertaking (LUT) is to be

furnished on the letterhead of the supplier. It is not required to be
furnished on stamp paper. Most importantly, no bank guarantee is
required to be furnished along with an LUT. Therefore, furnishing
LUT is the preferred way for making zero rated supplies. However,
everyone is not allowed to file LUT.
Who can sign the Bond/ LUT?: The Bond/ LUT should be executed/
signed by the working partner, the Managing Director or the
Company Secretary or the proprietor or by a person duly authorised
by such working partner or Board of Directors of such company or
proprietor on the letter head of the registered person.
Who can file LUT?: Filing LUT is the easier option. It does not require
stamp paper and does not require bank guarantee. While bond is for
a specified amount, the LUT does not specify any amount. It shall be
valid for 12 months. But everyone is not allowed to file LUT.
Notification 16/2017-CT says that the following registered person
shall be eligible for submission of Letter of Undertaking in place of a
bond. Those not fulfilling these criteria will have to file bond.
(a) a status holder as specified in paragraph 3.20 and 3.21 of the

Foreign Trade Policy 2015-2020; or
(b) who has received the due foreign inward remittances

amounting to a minimum of 10% of the export turnover,
which should not be less than one crore rupees, in the
preceding financial year, and he has not been prosecuted for
any offence under the Central Goods and Services Tax Act,
2017 (12 of 2017) or under any of the existing laws in case
where the amount of tax evaded exceeds two hundred and
fifty lakh rupees.
Status holders are those exporters who have been recognised by the
DGFT as a ‘status holder’. The DGFT issues certificate recognising
the status. Under para 3.21 there are Star Export Houses. These are
344
granted from one star up to five star status depending upon their
export performance.
The expression “who has received the due foreign inward remittances
amounting to a minimum of 10% of the export turnover, which should not
be less than one crore rupees” had created some confusion in the field.
The confusion was about – what should not be less than one crore
rupees? Whether the inward remittances or the export turnover. This
has been amply clarified vide the CBEC Circular No. 5/5/2017– GST,
dated 11th August, 2017. The export turnover of the preceding
financial year should not be less than one crore. Both of the following
conditions should be satisfied:
a. The minimum export turnover should have been Rs. 1 Crore;

and
b. The minimum foreign inward remittance should be 10% of

the export turnover.
Thus, if the turnover is more than one crore, then correspondingly

the remittance amount would also increase.
Invoice: The supplier should issue Tax Invoice under GST Rules.
However, there is no requirement to file ARE-1 anymore. The Tax
Invoice should also include the following remarks (whichever is
applicable):
“SUPPLY MEANT FOR EXPORT UNDER BOND/

LUT, WITHOUT PAYMENT OF IGST”
“SUPPLY TO SEZ UNIT OR SEZ DEVELOPER FOR

AUTHORISED OPERATIONS UNDER BOND/ LUT
WITHOUT PAYMENT OF IGST”
A separate Commercial Invoice should be issued for accounting and

claiming payment from the foreign buyer. Generally this invoice
would be in convertible foreign currency, but it can also be in Indian
Rupees. The Tax Invoice (issued under GST law) should however be
in Indian Rupees. If required, we can put figures in both the
currencies, but putting Indian Currency is mandatory otherwise, we
won’t be able to calculate the amount of IGST.
345
Exchange Rate for value of goods: The Board regularly issues

notifications under Customs Act, specifying the exchange rate of
various currencies. This notified rate has to be applied for
determining value of the goods17.
Stuffing of Containers: The containers are stuffed and sealed either at

the factory/ warehouse of the exporter or at CFS/ ICD. Earlier,
factory stuffing could also be done under supervision of C. Excise
officers. Now, self-sealing of containers has been mandatory. A one-
time permission is required from the Customs; and intimation is
required to be filed online, every time we wish to self-seal the
containers.
Time Limit to prove the Export: Following is the time limit within
which the exporter has to prove that the goods or services have
actually been exported. Under the Bond/ LUT, the exporter binds
himself to pay the tax due along with the interest within 15 days of
the expiry of the time limit.
Export What is required to be What is the time limit

of proved?
Goods That the goods are Three months from the

exported out of India date of issue of the invoice
for export
Services That the payment of such One year from the date of
services is received by the issue of the invoice for
exporter in convertible export
foreign exchange.
The exporters should not issue Tax Invoice in advance. ‘Invoice’ here
means the invoice issued under section 31 of the CGST Act, 2017. It
does not refer to the commercial invoice raised on the foreign buyer.
Therefore, the period of three months or one year is to be counted
17Rule 34 of the CGST Rules, 2017 as amended vide notification 17/2017-CT, dated 27th
July, 2017. We can find the notifications on the Board’s website www.cbec.gov.in
346
from the date of the Tax Invoice issued under GST law and not the
Commercial Invoice issued for purpose of claiming payment from
the foreign buyer.
The proof of export is by way of a direct communication between the

GST portal and the Customs portal. Details of the Tax Invoice would
be provided at two places:
- While filing his returns, the exporter would provide details of

the export Tax Invoice in GSTR-1; and
- The details of the Tax Invoice would also be provided in the

Shipping Bill.
GST Portal Tax Invoice Customs Portal
GSTR-1 Shipping Bill

Confirmation
Both the systems will have GSTIN of the exporter. Details of the Tax
Invoice would be transmitted from GSTR-1 to the customs portal;
and export confirmation would be electronically transmitted by the
Customs System to the GST common portal. Thus, the exports
claimed in the GSTR-1 would be matched with the Shipping Bills.
Refund of unutilized ITC accumulated due to zero rated supplies

made under Bond or LUT
A person is eligible to avail credit of input tax paid on inward

supplies used in making supplies for export or to SEZ. The ITC so
availed can be used to pay tax on any outward supply. Therefore, in
case the exporter also makes other taxable outward supplies he can
use the ITC to pay the tax. Thus, for example, if he is selling goods or
supply services within India, he can use the ITC to pay the tax.
Similarly, an intermediary providing services to persons located out
of India can also use ITC to pay tax. However, it may happen that the
person has no such supply or that the turnover of such supply is very
347
low and therefore he is not in position to utilise the ITC. In such

circumstances, he has an option to claim refund of the ITC. In other
words, the refund is available if the ITC has accumulated due to zero
rated supplies.
Eligibility: Refund of un-utilized ITC is not allowed in the following

three cases18:
a. The goods exported out of India are subjected to export duty
b. If the supplier avails of drawback in respect of central tax
c. If the supplier claims refund of the IGST paid on the outward

supply.
Further, refund is available of ITC relating only to the inputs and

input services. It is not allowed of the ITC in respect of capital goods.
Unjust Enrichment: The principals of unjust enrichment do not apply

to19
- refund of IGST paid on outward zero rated supplies.
- refund of un-utilized ITC on a/c of zero rated supplies.
It means, we are not required to prove that burden of the tax has not
been passed on to the buyer.
Quantum of Refund: The refund is allowed only of the amount

accumulated due to zero rated supplies. Rule 89 (4) provides a
formula for calculation of the amount. The maximum amount of
refund would be:
(Turnover of zero-rated supply of

goods + Turnover of zero-rated X Net ITC
= supply of services)
Adjusted Total Turnover
18 Sec 54 (3) of CGST Act, 2017

19 Sec 54 (8) (a) and (b) of CGST Act, 2017
348
Essentially, the formula determines share of the ‘zero rated supply’

in the total turnover and computes same share of the ITC. Thus, if the
zero rated supplies are 10% of the total turnover, the refund is also
restricted to 10% of ITC.
Some explanation may be required about the above formula. Firstly,

we need to note that where the person is providing exempted
supplies (non-taxable, nil-rated, or exempted) the proportionate
credit is already reduced by applying rule 42. Therefore, value of
such exempted supplies is not included in the ‘adjusted total
turnover’ in the denominator. The denominator includes all taxable
supplies and zero-rated supplies.
So far as the numerator is concerned, the turnover of zero-rated

supplies refers only to the supplies which are made without payment
of tax under bond or LUT. Supplies made on payment of IGST are
not to be counted there. Further, the turnover in case of services has
to be calculated as:
Payments received during the relevant period for zero-

rated supply of services
Add: Zero-rated supply of services where supply has been

completed for which payment had been received in
advance in any period prior to the relevant period
Less: Advances received for zero-rated supply of services for

which the supply of services has not been completed
during the relevant period;
Lastly, ‘net ITC’ refers to ITC availed during the period for which
claim has been filed.
Procedure: Following are the steps involved in the refund.
• Application for refund of accumulated ITC is to be filed

online through the Common Portal in form RFD-01.
• File Statement-3: This statement is a part of the form RFD-01.

Shipping Bill is the proof of export of goods; and realisation
349
of foreign exchange is the proof of export of services. The

statement contains details of:
- shipping bills or bills of export and the relevant export

invoices for export of goods; and
- the invoices and the relevant Bank Realisation

Certificates or Foreign Inward Remittance Certificates,
for export of services;
• Also file Statement- 3A: This statement is computation of the

maximum amount of refund admissible as per the formula
prescribed under rule 89 (4) discussed above.
• We are required to debit the electronic credit ledger by an

amount equal to the refund claimed.
• The department is required to scrutinise the application for its

completeness within 15 days and issue an acknowledgement
online in form RFD-02. However, if there is any deficiency,
the same is to be communicated in form RFD-03. The
application will have to be filed afresh after removing the
deficiency.
• 90% of refund would be paid within 7 days of receipt of

‘complete’ application. Now, ‘complete’ is subjective. Past
experience shows that the authorities have found innovative
methods to say that the application is not complete. However,
it is hoped, that GST may also usher in change of attitude and
genuine refunds are not blocked on hyper-technical grounds.
• Remaining 10% will be paid within a maximum period of 60

days from the date of receipt of application complete in all
respects.
• Interest @ 6% is payable for period beyond 60 days.
Export on Payment of IGST
350
If the zero rated supplies are made on payment of tax, the supplier is
entitled to refund of the tax so paid. Where the supplier is not in
position to utilise the accumulated ITC, he can use this method to
encash the ITC. Bond or LUT is not required in this mode of supply.
Avail Input Tax Use ITC to pay Claim Refund of

Credit (ITC) IGST IGST
Procedure for Refund of IGST paid on export of goods:
We are not required to file any separate application for claiming

refund of IGST. The refund is to be claimed in the shipping bill. It
should be ensured that the details of the Tax Invoice issued under
GST law are mentioned in the shipping bill and the amount of IGST
paid, is claimed as refund.
Such application deemed to have

Application for refund of
been filed only when the person in IGST
charge of the conveyance carrying
the export goods duly files an Export of Goods: Shipping Bill
export manifest or an export report itself is the application
covering the number and the date Export of Services: Online
of shipping bills or bills of export. application in form RFD-01
Further steps are as under:
Supply to SEZ: Online
• It is essential that the application in form RFD-01.
exporter files details of the Endorsement/ Certification
Tax Invoices (under which from specified officer of the
Zone to the effect that the
the goods in question were
supply is received for
exported) clearly
‘authorised operations’ is
mentioning that the supply required.
is on payment of IGST.
• Tax should be paid and GSTR 3 should be filed.
351
• As noted earlier, the details of the relevant export invoices

contained in FORM GSTR-1 will be transmitted electronically
by the common portal to the Customs system.
• The Customs system shall in turn electronically transmit back

to the GST common portal a confirmation that the goods
covered by the said invoices have been exported out of India.
• After receipt of information in FORM GSTR-3 from the

common portal, the Customs system shall process the claim
for refund and the IGST paid in respect of each shipping bill
or bill of export shall be electronically credited to the bank
account of the applicant mentioned in his registration
particulars.
Procedure for Refund of IGST paid on Export of Services
In case, the services are exported on payment of IGST, the claim for
refund can be filed only after the payment is received in convertible
foreign exchange. The process would be as under:
• File application on the

Bank Details in Refund
common portal in form RFD- Applications
01.
Bank account details should
• Fill in the details in Statement- be as per registration data.
2. This statement contains
Any change in bank details
details of the invoices, debit
should first be amended in
notes and credit notes relating
registration particulars
to export of services. Details before quoting in the refund
of the BRC or FIRC are also to application.
be provided in this statement.
The amount of refund is
• The remaining process paid by credit to our bank
remains the same as for account.
goods. 90% of the refund is
payable within 7 days and entire claim is required to be paid
within 60 days. Interest @6% p.a. is payable on delayed
payment of refund.
352
Refund in case of supplies to SEZ
In case of supplies made to SEZ unit or SEZ Developer too, the

refund is to be claimed by filing application in form RFD-01 on the
common portal.
In case of supply of goods, the application for refund is to be filed by

the supplier only after the goods have been admitted in full in the
SEZ for authorised operations, as endorsed by the specified officer of
the Zone;
In case of supply of services, the application for refund is to be filed

by the supplier along with evidence regarding receipt of services for
authorised operations as endorsed by the specified officer of the
Zone.
Thus, in both the cases, it is essential to obtain certificate/

endorsement from the officer of the Zone to the effect that the goods/
service has been received ‘for authorised operations’.
• While claiming refund of accumulated ITC, Statement-5 and

5A are to be filled in.
• In case of supply of goods, the statement of invoice and the

evidence regarding endorsement by the officer of the Zone is
required.
• In case of supply of services, apart from the invoice statement,

endorsement from the officer of the Zone, details of the
payment made by the SEZ unit/ developer, is also to be filed.
Evidence of payment would also be required.
• A declaration is required to the effect that the SEZ Unit/

Developer has not availed ITC of the IGST paid by the
supplier.
Withholding or Adjustment of Refund
353
There are two circumstances in which the department may withhold

the refund or it can adjust the refund against a pending liability20.
These are:
• If the person has defaulted in furnishing any return; or
• If he is required to pay any tax, interest or penalty (i.e. if there

is any outstanding liability). The liability might have arisen
under the existing laws (i.e. laws existing prior to GST) or
under the GST law.
In such cases the department may:
(a) withhold payment of refund due until the said person has
furnished the return or paid the tax, interest or penalty, as the
case may be;
(b) deduct from the refund due, any tax, interest, penalty, fee or
any other amount which the taxable person is liable to pay
but which remains unpaid under this Act or under the
existing law.
However, the department is not allowed to withhold the payment of

the refund or to adjust it against our liabilities if:
a. The time limit for filing appeal has not yet expired; or
b. There is a stay against the recovery
20 Section 54 (10) of the CGST Act, 2017
354
CHAPTER 15
Transition to GST
While We Cross the Bridge

Do you want to transfer the credits of C. Excise, Service Tax, VAT, etc. to
the e-Credit Ledger? Fill in the form GST TRAN-1 online – latest by 29th
September, 2017. This chapter describes how
Topics Discussed
• Introduction
Chapter 15: Part - A
• Form GST TRAN-1
- Last date for filing TRAN-1
- Purpose of TRAN-1
- Is filing TRAN-1 mandatory for everyone?
- What happens till TRAN-1 is not filed?
• Basic conditions for transferring the credits
• Whether credit of Ed. Cess, SHE Cess, and KKC can be

transferred to GST
Chapter 15: Part - B
• Closing Balance of Credits in the returns for the period

ending June 2017 [Sec 140 (1) – Table 5]
- Transferring credits of taxes imposed by Central

Government [Table 5 (a)]
- Transferring Credits under State Law:

Chapter 15 Transition to GST
• Un-Availed Credit on Capital Goods: [Sec 140 (2) – Table 6]
• Credit on closing stock of goods as on 30th June 2017 [Sec 140

(3) – Table 7]
- Persons Covered
- Situations Covered
o Actual Credit
o Deemed Credit
o Example for claiming deemed credit:
- Conditions for allowing credit under section 140 (3)
- Structure of the table 7
• Credit to the person engaged in manufacture of

dutiable/taxable as well as exempted goods or services: [Sec
140 (4)]
• Inputs or Input Services in Transit: [sec 140 (5) – Table 7 (b)]
• Persons working under composition schemes of existing laws:

[Section 140 (6) – Table 7]
• Input service distributor (ISD): [Sec 140 (7)]
• Persons having Centralised Registration: [Sec 140 (8) –Table 8]
• Re-claim of credit reversed due to non-payment: [Sec 140 (9)]
• Transitional provisions relating to job work [Sec 141]
Chapter 15: Part - C
• Rejections and Returns: [Section 142 (1)]
• Price Revision: [Sec142 (2)]
356
• Matters to be disposed in accordance with the existing law

(i.e. in accordance with pre-GST laws) – refunds, appeals,
reviews, etc.
• Supply in GST regime would attract GST even if the contract

was entered into before 1st July, 2017 [Sec 142 (10)]
• Supplies made after 30th June, where VAT or Service Tax or

both were leviable before 30th June
• Sale on Approval: [Sec 140 (12) – Table 12]
• Tax deducted at source: [Sec 142 (13)]
• Goods of Principal lying with Agent [Sec 142 (14) of State GST
Acts – Table 10]
Introduction:
As we know, C. Excise, Service Tax & VAT are the three major taxes
subsumed into GST along with 14 other taxes. It is an obvious
question as to what will happen to the taxes paid under existing
laws1 . How will the credit be taken under GST regime? Where a
person is registered, say, under C. Excise law, his credits are already
recorded in the ER-1 or other returns. The ER-1 for June 2017 will
have closing balance of Cenvat Credit. Similar balances might be
there in other returns (Service Tax, VAT etc.). We need a mechanism
to transfer these balance to GST. And what about those who are not
registered? In fact, it may happen that the person is registered under
one law and not under the other one. Thus, for instance it is possible
that a person is registered under VAT and not registered under C.
Excise. Similarly, the transactions may spill over to the GST regime.
For example, goods supplied on payment of C. Excise duty & VAT
1 Existing laws refer to the laws relating to taxation of goods and services that were in
force prior to 1st July, 2017. Thus, the Acts, Rules, Notifications etc. relating to C. Excise,
Service Tax, VAT are ‘existing laws’. It is defined vide section 2 (48) of the CGST Act,
2017.
357
could be rejected by the customer after GST comes into force. We also
need to understand as to how to deal with the materials lying with
job-workers. What happens to the notices issued under existing laws,
on-going investigations, pending refunds, appeals etc. All such
questions and many more are specifically dealt in this chapter.
Broadly the transition provisions cover three topics:
a. Transferring credits of the taxes & duties paid under pre-GST

law to GST. This would involve the cases where the person
was registered under the previous regime and was already
availing the credits. But, this would also involve the cases
where the person was not registered and had not availed the
credits. Section 140 comprehensively deals with this matter.
b. Ensuring return of goods sent out for job-work latest by

December, 2017. This is dealt by section 141.
c. Establishing mechanism to deal with notices, appeals, refund

claims, recoveries, etc. of the pre-GST regime.
PART – A
FORM GST TRAN-1
We know that an Input Tax Credit is available to us only if it is

recorded in the e-Credit Ledger available on the GST portal. Unless
the credit appears in that ledger, it is not available to us. In regular
course, the credits would reach this ledger via form GSTR-2. But,
how do we transfer the credits available under the existing laws?
Form GST TRAN-1 has been provided for this purpose.
Last date for filing TRAN-1: The form is to be filed on the GST portal
within 90 days from 1st July, 2017. Thus the last date would be 29th
September, 2017. If the GST Council approves, then Commissioner
can been empowered to extend this period for further 90 days2.
2 See Rule 117 of the CGST Rules, 2017
358
Purpose of TRAN-1: Following are some of the purposes for which the
form would be used. Please refer the:
i. To transfer the closing balance of returns under existing

law.
ii. To avail the un-availed credit on capital goods
iii. To avail credit on the stocks held as on 30th June 2017 on

which credit had not been availed in the previous regime.
iv. To avail credit of the Duty/ Tax paid under earlier law,
but where the input/ service received after 30th June.
v. To transfer the credits from Centralised Registration to

different states
vi. To continue duty exemption on the goods sent for job-

work
vii. To avail credit on works contract/ specified contracts
viii. To regulate tax on the goods sent for sale on approval
Is filing TRAN-1 mandatory for everyone?
No. It is mandatory only for those who
- Want to transfer the credits from pre-GST to GST regime
- Want to avail credits on capital goods (the un-availed

portion)
- Want to avail credit of duty/ tax paid on the stock of goods

held by them on 30th June (it means they had not availed these
credits under the pre-GST laws).
- Want to transfer credit from Centralised Registration
- Have stock lying with their job-workers (or are holding stock
of their principals as job-worker)
359
- Had paid service tax and VAT on a contract, but the supply is
being made in the GST regime.
- Are holding stock as agent on behalf of the principal; or

whose agents are holding stock on their behalf.
- Had sent goods for sale on approval basis, before 1st July,
which were not sold before 1st July.
What happens till TRAN-1 is not filed?
The pre-GST credits will not become

We cannot utilise the
available in the e-Credit Ledger unless
pre-GST credits until
TRAN-1 is filed. Therefore, they will not be we file GST TRAN-1.
available for utilisation. May be that the
Government comes out with some other method as an interim
measure. But unless it does so, the credits will not be available.
Suppose you had a closing balance of Cenvat Credit of Rs. 5 lakh as

on 30th June and earned fresh credit of IGST of Rs. 3 lakh during July.
If you file TRAN-1, the closing balance of Rs. 5 lakh would get
transferred to your e-Credit ledger. So the total credit available
would be 8 lakh. If your liability to pay tax for July is Rs. 7 lakh, you
can discharge the entire liability by utilising the credits. On the other
hand if you have not filed TRAN-1, the credit available in the e-
Credit Ledger would be only Rs. 3 lakh (received during July). The
opening balance of Rs. 5 lakh will not be there. As a result you will
have to deposit Rs. 4 lakh in your cash ledger for discharging the
total liability of 7 lakh (by utilising 4 lakh from cash ledger and 3 lakh
from credit ledger).
Basic conditions for transferring the credits
Before we seek to apply any provision for claiming credit, we must

remember that:
i. Past credits can be transferred to GST regime only if the

credit was admissible under the existing law as well as
under GST law.
360
ii. Transfer of credits etc. would be allowed only if the person

has filed all the returns for the period from January to June
2017.
iii. Credits can be availed only if the person is liable to pay GST
on his outward supply. If there is no GST on the outward
supply, there is no question of availing ITC.
iv. A person opting to avail composition scheme under GST, is

not entitled to take credits.
v. We are required to file information in form GST TRAN-1.

The person desiring to avail deemed credit on stocks will
also have to form TRAN-2 for each month.
Whether credit of Ed. Cess, SHE Cess, and KKC can be transferred
to GST
Section 140 contains ten sub-sections covering nine different

situations. All the sub-sections allow credits ‘in such manner as
prescribed’. The sub-section (1) allows transfer of the closing balance
of the credits availed under existing laws (balance of the return). Sub-
section (2) permits taking of un-availed credits on capital goods.
Rule 117 requires filing of GST TRAN-1 for availing credits eligible
under section 140. But it says that a registered person can specify in
the form only the eligible duties and taxes, as defined in Explanation 2
to section 140, to which he is entitled. The said Explanation 2 reads “For
the purposes of sub-section (5), the expression “eligible duties and taxes”
means…….”. The list of duties and taxes thereafter do not specify Ed.
Cess, SHE Cess, and KKC as ‘eligible’. Therefore, so far as the rule
117 is concerned, it does not permit transfer of credits of these
duties/taxes.
361
However, the provision of

• Credit of Swachh Bharat Cess (SBC)
rule 117 itself appears to be
cannot be carried forward. This
ultra vires the section 140
credit was not allowed at all under
(i.e. the rule is contrary to
Cenvat Credit Rules, 2004.
the section). In legal
hierarchy a rule is • Credit of Krishi Kalyan Cess (KKC)
subordinate to the Act. can be carried forward only by a
Rule is framed for the service provider. If a person was not
purpose of carrying out provider of output service, the credit
the Act. A benefit was not available to him under the
permitted by the Act, existing law.
cannot be curtailed by
• Credit of C. Excise Duty, Service Tax,
rules. Let’s compare the
CVD and SAD would be transferred
provisions of the Act and
as CGST.
the Rule now.
While the explanation 2 • Credit of VAT and Entry Tax would

defines ‘eligible duties and be transferred as SGST.
taxes’ only for the
purposes of sub-section (5), the rule seeks to apply the same meaning
to the whole section and thereby curtail the scope of the section. For
instance, sub-section (1) allows transfer of the amount of credit
carried forward in the return for the period ending June 2017.
Nowhere does it say that credits of Ed. Cess or KKC which was
legitimately taken under pre-GST law, cannot be transferred. The
section contains two explanations. Explanation 1 defines ‘eligible
duties’ for the purposes of sub-sections (3), (4) and (6), and the
explanation 2 defines ‘eligible duties and taxes’ for the purposes of
sub-section (5). Thus, the definitions are not applicable to sub-section
(1), (2) and (7) to (10). So far as these sub-sections are concerned, if
the credit of a duty/ tax was allowed under the existing law, the
same can be transferred (provided the general conditions discussed
earlier are fulfilled). Therefore, the meaning provided in these
explanations cannot be extended to those sub-sections.
Rule 117 seeks to apply the meaning provided in explanation (2) to

the whole section i.e. even to the sub-sections (1), (2) and (7) to (10).
In other words the scope of section 140 is sought to be narrowed
362
down by a rule. This appears to be legally impermissible. Credits are

substantive rights. When the provisions of the Act do not curtail
them, the rule making authority has no power to curtail the same.
Pragmatic Way:
The department may take a view that these credits are not
admissible. Consequently, demand notices could be issued for
recovery of credit along with interest. If the amount of credit is small,
it would not be worth going into litigation. However, if the amount is
large, the right course may be to take the matter to High Court by
way of Writ. The provisions of rule 117 could be challenged on the
ground that it curtails the scope of section 140 (3) by applying the
explanation 2 to the whole section.
Part - B
Transfer of Closing Balance of Credits: [Sec 140 (1) – Table 5]
This section discusses the method to transfer the closing balance of

credits from the returns for the period ending June 2017 to the e-
Credit Ledger.
Closing Balance of
C. Excise Return
Service Tax Return Electronic Credit Ledger
VAT Return
Entry Tax Return
Transferring credits of taxes imposed by Central Government [Table 5 (a)]:

In normal course, we would have brought forward the closing
balance of credit in ER-1 for June 2017 as opening balance in the
return for July. Similarly, we would also have brought forward the
credit balance of ST-3 return to the next return. The same effect can
be achieved through table 5 of TRAN-1. Table 5 (a) is for transferring
Cenvat Credit availed under Central Excise & Service Tax laws. This
363
will include the credits of CVD and SAD availed on imported goods.
All these credits would be
transferred to GST as ‘Central Tax’ • Table 5 (a) is applicable to
(i.e. CGST) those who were registered
under C. Excise or Service
Those registered under C. Excise as
Tax law. But it’s not
a dealer/ depot/ importer, cannot
applicable to their
transfer credit through this table.
registrations as dealer/
The returns filed by them under C.
depot/ importer.
Excise law, does not have any table
showing opening or closing • Table 5 (b) and (c) are
balances of credits. It merely shows applicable to those
details of the goods sold and the registered under state laws
corresponding invoices under (VAT/ Entry tax)
which the same had been
purchased.
Similarly, this sub-section does not apply to those who were not at all
registered under the C. Excise or Service Tax law.
Illustration: Suppose following is the credit balance in the returns for

June ending:
Return Input + Capital

Goods + Input
Services
ER-1/ ER-2 for June 2017 5 lakh

(or ER-3 for Apr to June)
ST-3 for Apr to June 1 lakh

2017
Now, firstly, check whether we are really eligible to total credit of Rs.
6 lakh or to a lesser amount. Different practices have been adopted
by persons who are manufacturer as well as a service provider:
364
a. Some persons report the same amount of credit in both the

returns i.e. same figures appear in C. Excise return as well as
Service Tax return.
b. Some persons have a practice of reporting entire credit in C.

Excise return and a fraction of the total credits in ST-3.
c. While in some cases, the credits in the two returns may be

overlapping, in other cases, these may be entirely different
credits.
Therefore, one should determine his actual total credit balance. Take
help of the credit accounts maintained by you. The balance of credit
in the following accounts would be the actual balance.
• The input tax credit account (old RG23A Pt. II)
• The capital goods credit account (old RG23C Pt. II)
• The input service credit account
Credits were a common pool for C. Excise as well as Service Tax.

Therefore, the total credit available as on 30th June would be sum
total of the closing balances in the above three accounts.
Design of the table 5 (a) is as under (the data is just for illustration):
Sl. Registration Tax Date of Balance Cenvat

no. no. period to filing cenvat Credit
under which of the credit admissible
existing the last return carried as ITC of
law (C. return specified forward central tax
Excise and filed in in the in
Service Tax) under the Column said accordance
existing no. 3 last with
law return transitional
pertains provisions
1 2 3 4 5 6
1. XXXXXX123 June 2017 10th July 5 lakh 5 lakh

4.XXM001 2017
365
2. XXXXXX123 April to 14th 1 lakh Nil

4XST001 June 2017 August,
2017
Total 10 lakh 5 lakh
The amount mentioned in the last column (column 6) is transferred

to the e-Credit Ledger. Obviously, the above table is not meant for
those persons who were not registered under C. Excise or Service Tax
law.
Transferring Credits under State Law:
Similarly a person can transfer the credit balances under VAT and
Entry Tax laws. These credits would be carried forward to GST as
‘State Tax’ of the respective state. However, we are not entitled to
transfer so much credit which is attributable to pending forms viz. C,
F, H & I. We are required to list out all the pending forms and
calculate the differential tax arising out of those forms. In case the
available balance is more than the differential tax then we would
transfer the excess credit. If the available balance is lesser than the
differential tax then no amount would be transferred to the e-credit
ledger. If such forms are received subsequently, we will have to seek
refund from the state government.
Following is the list of the forms:
Form Description Provisions of

CST Act,
1956
C Sale in the course of inter-State trade or Sec 3 & 6

Form commerce
F Form Stock transfer to another state Sec 6A
H Penultimate sale for export of goods Sec 5

Form (i.e. sale to the ultimate exporter).
I Form Sale of goods to SEZ Sec 8 (8)
366
We are required to furnish information in tables 5(b) and 5(c) of the

form TRAN-1. In the table 5 (b) we are required to provide details of
all the forms that have been received for the period from 1st April
2015 to 30th June 2017.
In the table 5 (c) details of the pending forms is required to be

provided. The provision says that we are required to provide details
of such forms which have not been received within the period
prescribed under rule 12 of the CST (Registration & Turnover) Rules,
1957. Under that rule, the time limit to furnish such forms is 3
months after the end of the period to which the declaration or the
certificate relates. Thus, for instance for the period from April to June
2017 the due date for furnishing form C and F would be 30th
September. Therefore, if TRAN-1 is filed before 30th Sept, we need
not consider the forms for this period (i.e. we need not consider them
pending, because the due date is not yet over). Off course the
department can raise a demand whenever it undertakes the
assessment proceedings.
Wherever the forms are pending we will have to calculate the

differential tax If after considering the differential amount, if the
balance amount of credit is excess, then we can transfer the excess
amount to e-credit ledger. If the amount is short, then we cannot
transfer anything.
Let’s understand this by way of an example. Suppose the credit

balance as on 30th June, 2017 is Rs. 8 lakh, then
Case 1 The differential tax Rs. 5 We can transfer Rs.

liability is lakh 3 lakh to GST
Case 2 The differential tax Rs. 10 We cannot transfer

liability is lakh any amount to GST.
Off course, in the 2nd case, we don’t have to pay the differential
amount before filing the TRAN-1. But the amount to be carried
forward would be Nil. In case we produce the forms later on, we
367
shall be entitled to claim refund upto Rs. 8 lakh from the state
government.
Un-Availed Credit on Capital Goods: [Sec 140 (2) – Table 6]
Under C. Excise law, the credits on capital goods were available in

two instalments. Only 50% credit was available in the year in which
the goods were received. The balance 50% was available only in the
next financial year. In case the capital goods were received in 2017-
18, we might have taken credit of only 50% of the duty paid. This
credit amount had already become part of our return and the closing
balance would be transferred vide table 5 of TRAN-1.
On the other hand, under GST law full credit is available within the
same year in which the capital goods are received. The law allows us
to claim the balance credit through TRAN-1. In fact, if even the credit
first 50% had not been taken we can claim the entire amount through
table 6 of the TRAN-1. In this table we are required to provide
invoice wise list of the capital goods. The table 6 (a) concerns the
Central Taxes (C. Excise Duty, CVD and SAD) while the table 6 (b)
concerns state VAT and Entry Tax. The un-availed credit means the
credit admissible minus the credit already availed i.e. the amount of
balance credit that we are still eligible to avail.
Total eligible credit under existing law 5 lakh
(–) Total credit availed under the existing 2 lakh

law
Amount of un-availed credit 3 lakh
Details of imported capital goods as well as the capital goods

procured from within the country, both are to be reported in the
same table.
Credit on closing stock of goods as on 30th June 2017 [Sec 140 (3) –
Table 7]
Those who were registered under C. Excise and VAT had availed the
credits on their stocks and the closing balance of the credit as on 30th
June, is to be transferred through table 1. But there could be other
368
persons who had not availed the credits earlier, but are now eligible
to avail the same. These credits allowed in respect of the following
stocks as on 1st July 2017 (opening stock):
• inputs held in stock on 1st July 2017 (opening stock)
• inputs contained in semi-finished goods held in stock on 1st

July 2017 (opening stock)
• inputs contained in the finished goods held in stock on 1st

July 2017 (opening stock)
Persons Covered: Section 140 (3) allows credit to following persons:
(1) Those who were not liable to be registered under the existing law:
For example a person availing SSI exemption under C. Excise
law (turnover not exceeding Rs. 1.5 Crores) might not be
registered. Such a person might be holding closing stock as on
30th of June and GST would be payable on the supplies made
after that date. Such persons are allowed to avail credit on the
said closing stock. If the person was registered under VAT
but not registered under Central Excise/ Service Tax, he
would claim only CENVAT credits. He should not claim
credit of VAT under this table because the VAT credit would
form part of his VAT return and the closing balance is to be
claimed. In table 5 (b). Of course if a person was not
registered under both the laws he would be entitled to claim
credit of both the taxes.
(2) Persons whose goods/service were exempted: Irrespective of

whether the person was registered or not, it is possible that
his outward supply was exempted under the existing law but
is taxable under GST. Such persons would also be entitled to
avail credit of the tax paid on their inward supplies that were
in stock as on 1st July 2017.
(3) Those who were providing ‘works contract’ service with abatement
(under Service Tax law): Under the existing law such persons
were not allowed to avail credit on inputs. Under GST law.
369
The credits on inputs have been allowed. Therefore, the

person would be entitled credit on the inputs as on 1st July.
(4) The 1st stage or 2nd stage dealer, importer, depot of manufacturer
registered under C. Excise law: although these persons were
registered, their returns did not have any reason to indicate
the opening or closing balances of credits. Therefore, it was
not possible to transfer these credits through table 5 (a).
Situations Covered: Credits have been allowed in all the four cases
discussed above. Two situations are envisaged in each case:
a. Actual Credit: Where the taxable person has documents

evidencing payment of duty/tax. In these cases full credit is
allowed on the stock, as per the document. Off course the
amount of credit would be proportionate to the quantity held
in stock. Thus, for example, if Central Excise duty on 100 kg
of material was Rs. 5000/- and only 50 kg was in stock as on
1st July, then the person would be entitled to credit of Rs.
2500/-. To claim credit on such stock:
o We will have to declare the stock in TRAN-1 [Table

7(a) for C. Excise/ CVD/ SAD and Table 7 (c) for
VAT]
o Credit is to be claimed on the basis of document C.

Excise Invoice/ Bill of Entry (i.e. document which is
evidence for payment of duty/ VAT)
o The document should not be older than one year i.e. it

should not have been issued before 1st July 2016.
b. Deemed Credit: The second situation is where the person does

not have the document evidencing payment of duty/tax. In
such cases credit shall be allowed in the following manner:
o We will have to declare the stock as on 1st July 2017 on

which we wish to avail the credit (in GST TRAN-1).
370
o Although, we don’t possess document evidencing

payment of duty/ tax, we must possess document
evidencing procurement of the goods.
o The credit shall be allowed after the goods in stock are

supplied and GST is paid.
o Every month we will have to file a statement of the

outward supplies made out of the declared stock (in
form GST TRAN-2).
o If the rate of GST payable on the goods is 18% or

more, then the person would be eligible to avail credit
of 60% of the GST paid.
o If the rate of GST payable on the goods is lesser than

18% then the person would be eligible to avail credit
of 40% of the GST paid.
•TRAN-1: Declare Stock (OB of 1st July 2017)

A
•TRAN-2: Declare the stock supplied & the

deemed credit claimed (every month)
B
•TRAN-2: Can keep claiming credits for

supplies made, till December 2017
C
o Where the supply made by him is inter-State (i.e. he

pays IGST), the available credits would be 30% and
20% respectively.
o The scheme would remain in operation only till

December, 2017. Deemed credit would not be
available on the stock that is left behind on 31st
December (out of the declared stock of 1st July).
o The stock should be stored in such a manner that the

same is easily identifiable.
371
Example for claiming deemed credit: We may take an example to

understand working of the deemed credit system. Suppose a
Trader had 100 kg of material in stock as on 1st July. Out of it,
he sells 25 kg in July for Rs. 2 lakh, 20 kg in August for Rs. 1.8
lakh and pays tax @18% as under:
Month Quantity Value CGST SGST IGST Eligible

Credit
(CGST)
July 5 kg 50,000 4500 4500 NA 60% of

4500 =
2700
July 20 kg 1,50,000 NA NA 27000 30% of

27000 =
8100
August 20 kg 1,80,000 16,200 16,200 NA 60% of

16200=
9720
Since the rate of GST paid by him is 18%, he is entitled to

avail credit of 60% of the CGST component. Where the
transaction was inter-State, the CGST component was taken
as half of the total IGST. If in the above example the rate were
12%, then the person would be entitled to credit of only 40%
of the GST paid (half in case of IGST).
Conditions for allowing credit under section 140 (3): The above
credits are allowed only if all of the following conditions are
satisfied:
372
(i) Such inputs or goods are

Deemed Credits not available to
used or intended to be
manufacturer or a service
used for making taxable provider:
supplies under this Act:
This is a basic We have noted that the taxable
principle of value- person would be entitled to avail
added taxation. One credit on the stock held as on 1st
July, even if he does not possess
cannot avail credit on
the document of evidencing
inputs if the output is
payment of duty. Credit of
not taxable. However amount equal 40% or 60% of the
zero rated supplies are GST paid has been allowed.
an exception. Credits However, such benefit is not
of remain available available to a manufacturer or a
even if the goods are supplier of services.
exported or supplied
It is possible that a person is
to SEZ without simultaneously engaged into
payment of tax. activity of rendering service as
well as of trading. Similarly a
(ii) The said registered
manufacturer may
person is eligible for
simultaneously be engaged into
input tax credit on such
trading activity. Section 140 (3) or
inputs under this Act: any other provision does not
The credit is not clarify whether such
allowed on the manufacturers of service
opening stock if the providers would be eligible to
same is not eligible avail deemed credits are not.
under GST law.
In my opinion such persons
However, the situation would be entitled to avail the
is rarely possible. deemed credits. Their status as
Coverage of GST manufacturer of service provided
credit is wider. would be limited to their
manufacturing and service
(iii) The said registered businesses. However, those
person is in possession of persons cannot be regarded as
invoice or other manufacture or service provider
prescribed documents in respect of their trading
evidencing payment of activities.
duty under the existing
373
law in respect of such inputs: this condition would apply

only when the credit is claimed on actual basis. In case of
deemed credits although the person must possess the
purchase document, that document would not be a duty
paying document.
(iv) Such invoices or other prescribed documents were issued not

earlier than twelve months immediately preceding the appointed
day: credits are available only against documents issued on
or after 1st July 2016.
(v) The supplier of services is not eligible for any abatement under
this Act: the person would be eligible to avail credit on the
opening stock of inputs if
- he is a service provider; and
- eligible to avail abatement under GST law
Structure of the table 7: The credits in

Input Services used for
both the situations (i.e. at actuals or on
semi-finished/ finished
deemed basis) have to be claimed by
stock
persons in all the above four
categories by providing information in These provisions do not
table number 7 (a), 7 (c) and 7 (d). The allow credit on input
table 7 (a) relates to credit of Central services that might have
been used to manufacture
Excise Duty, CVD, SAD, etc. and has
the semi-finished or the
been divided into two parts. The part finished goods in stock.
A relates to actual credits and part B to
the deemed credits. The table 7 (c)
relates to credit of VAT on actual basis (i.e. when the tax invoice is
available). Table 7 (d) relates to credit of VAT on deemed basis (i.e.
when the documents are not available). The deemed credit of VAT is
available only in those states where there is a single point VAT.
The following chart explains the structure of the table 7. We have yet
not discussed the table 7 (b). The same is discussed later.
374
Part A - Duty
paying document Full Credit as per
available documents
7(a) Central
Excise, CVD,
SAD
Part B - Duty Credit = 40% or
paying document 60% of CGST paid
not available (also file TRAN-2)
Table 7
7 (c) - Tax Invoice Full Credit as per

available documents
7 (c) and 7 (d) -

VAT & Entry 7 (d) - Tax Invoice
Tax not available Credit = 40% or 60%
(applies only to of SGST paid (also
states with single file TRAN-2)
point VAT)
Credit to the person engaged in manufacture of dutiable/taxable as

well as exempted goods or services: [Sec 140 (4)]
The person who was engaged in manufacture of dutiable as well as

exempted goods was required to follow the provisions of rule 6 of
the Cenvat Credit Rules, 2004. It was possible that he was
maintaining separate record of inputs to be used for manufacture of
exempted goods. Similar could be the case of a service provider.
Now if under GST regime the supply is taxable, then the person
would be entitled to credit of the inputs in stock (as inputs, inputs
contained in semi-finished or finished goods). Of course, so far as the
inputs intended to be used in manufacture of dutiable products are
concerned, the person would already have taken credit; and to that
extent the credit would form part of the closing balance in his return.
In view of this the sub-section (4) allows credit in the following
manner:
a. the amount of Credit carried forward in return furnished for

the period ending 30th June, should be declared in table 5 as
per sub-sec (1) discussed above.
375
b. The amount of Credit on inputs relating to exempted goods

would be claimed in the table 7 as per subsection (3)
discussed above. The person would have to declare such
stock in the table 7 and claim the credit.
Credit
Input Used for Credit Transfer Balance of
dutiable/ Credit Taken return -
taxable in return Through
output Table 5.
Declare the
Used for
Credit not stock and
exempted
taken claim in
output
Table 7
Inputs or Input Services in Transit: [sec 140 (5) – Table 7 (b)]
There could be cases where the goods or services are received in the
month of July, on payment of Central Excise duty or service tax. For
instance, the inputs removed on 27th of June 2017 under a C. Excise
Invoice might have been received in July. The question is how to get
credit against such document. The GST law allows the credit on such
inputs and input services (but not ‘capital goods’).
• We are required to declare such receipts in table 7 (b) and

claim the credits. The credit of VAT is also to be claimed in
the same table.
• The credit is available only if the receipt of the input/ input

services is recorded in the recipient’s books of account latest
by 30th July 2017.
• The provision does not allow credit of duty paid on capital

goods in transit. It refers only to inputs and input services.
Inputs/ Input
Duty/ Tax paid
Services received in
under pre-GST law
July (latest by 30th)
There are three scenarios:
376
i. The inputs were removed under C. Excise invoice dated

27th June and were received in our factory on or before
30th June. We would take credit in the return for June itself
and report in the return for June. Closing Balance of the
June would be transferred to e-credit ledger through the
table 5.
ii. The inputs removed under invoice dated 27th June were
received in our factory in July (on or before 30th July). We
record the receipt in our account books and claim the
credit through table 7 (b).
iii. The inputs were removed under a Tax Invoice dated 1st
July, 2017 issued under GST law. This credit is taken
directly in the e-Credit Ledger. The supplier uploads the
invoice data and we approve the same in our GSTR-2.
We may note that this provision does not take care of delay in
receiving documents. Thus, for instance, this provision won't help if
the goods were received in June itself, but the invoice was not
available to the excise section of the company person before filing of
the ER-1 for June. In fact, in such cases and the only way for the
recipient appears to make a claim for refund.
Further, the provision uses the words input and input services.
Therefore, it does not cover capital goods. This may have been an
inadvertent error in drafting the law, but we have to presume that
use of the words is deliberate; and that it was intention of the
lawmaker to not allow credit on capital goods in transit.
Persons working under composition schemes of existing laws:

[Section 140 (6) – Table 7]
This section allows credit on the opening stocks held as on 1st July
2017 to a person who was either paying tax at a fixed rate or paying a
fixed amount in lieu of the tax payable under the existing law. For
example, under Central Excise law there was a method of payment of
duty based on production capacity. Based on capacity of the
machines installed, these persons were required to pay a fixed
amount every month. Similarly, there were products where the duty
377
was payable on the basis of quantity and not on the basis of value.
For instance, a duty of Rs. 2 per litre on certain goods (irrespective of
its value) is the case of tax at fixed rate.
Credit on the opening stocks (inputs in stock, inputs contained in

semi-finished and finished goods in stock) held as on 1st July 2017
can be claimed by declaring the same in table 7. The credit is
available only on actual basis i.e. as per the invoices available with
the person. The deemed credit facility is not available here. All the
four conditions discussed under the head “Conditions for allowing
credit under section 140 (3)” would apply here as well. The state in
brief:
(i) The goods in stock should be used for making taxable

supplies under GST regime.
(ii) ITC should be admissible under GST law
(iii) Duty paying document should be available.
(iv) The duty paying document should not be older than one
year (i.e. it should have been issued on or after 1st July 2016).
Additionally, it may be noted that the credit would not be available if

the person opts to work under Composition Scheme under GST.
Input service distributor (ISD): [Sec 140 (7)]
Role of an ISD is to distribute credits received under an invoice to

various units. For instance, if a company had three factories and its
head office was registered as an ISD. Now if the auditor’s Invoice
was received at the head office, the service tax charged in the Invoice
was required to be distributed to the three locations.
Sec 140 (7) says that
“Notwithstanding anything to the contrary contained in this Act,

the input tax credit on account of any services received prior to the
appointed day by an Input Service Distributor shall be eligible for
distribution as credit under this Act even if the invoices relating to
such services are received on or after the appointed day".
378
The phrase “Notwithstanding anything to the contrary contained in this

Act” means that this sub-section has overriding effect over all other
provisions. If there is any conflict between this sub-section and any
other provision, then this sub-section will prevail.
This provision applies when the service was received before 1st July,
but the invoice was received in the GST regime. The ISD can
distribute the credit even if the invoices are received on or after 1st
July 2017. For distributing the credit as credit under CGST Act, the
ISD needs to be registered under GST law. To summarise:
i. The ISD should be registered under GST
ii. The ISD can also distribute the credits in respect of

services received prior to 1st July 2017.
iii. The credit can be distributed even if the invoice in

question was received on or after 1st July.
iv. The credit would be distributed as CGST/ SGST or IGST3.
Persons having Centralised Registration: [Sec 140 (8) – Table 8]
Under Service Tax law it was permissible for a person to have a

centralised registration where tax payments and credits relating to all
locations were handled. The locations could fall within the same state
or in different states. Now, there is no such facility under GST law.
Consequently, a question does arise as to how to deal with the credit
balances available with the Centralised registration. If the person has
locations in different states, he would obtain multiple registrations.
Even in the same state, he can obtain separate registrations for
different business verticals. Each registration under GST will have a
separate e-Credit Ledger.
Sec 140 (8) provides that the person having centralised registration
can transfer the credit to e-Credit Ledger of any of his registrations
under GST. The transfer is to be effected through entry in table 8. Off
course, if the Centralised Registration and the GST Registration are in
3Transitional provisions of CGST Act have been adopted by IGST Act as well vide
section 20 (xxiv).
379
the same state, then there is no need to use table 8. The credit should
then be transferred through table 5 (a).
For example, suppose the person had the Centralised Registration in

Maharashtra and post GST has registered himself in Maharashtra as
well as in Orissa and West Bengal. He has an option to transfer the
credits to either of the states. If he wishes to transfer it to Orissa, or
West Bengal he should provide the details in table 8. If he wishes to
transfer it to Maharashtra itself, he should provide the details in table
5 (a). It is totally left to the choice of the person as to how much credit
he transfers to which state. He can transfer the entire credit to a
single state or can transfer part of the credit to one state and a part to
another or he can transfer to all the three states. Obviously, the total
amount to be transferred cannot exceed the amount available.
The section requires fulfilment of following conditions:
a. The return for the period ending June 2017 should be filed
within three months (i.e. by September 2017). If this return is
revised, and the revision results in reduction of the credit
then only the reduced credit can be transferred. If it results in
increased credit, only the credit shown in the original return
can be transferred. The excess credit amount can be claimed
only through refund application under the Service Tax law.
b. The credit should be admissible under as ITC under GST law.

It is obvious that the credit should have been admissible
under old law as well otherwise the Centralised Registration
would not be in position to claim it.
c. The provision allows transfer of the credit to any of the

registrations. The transferee and the transferor should have
the same PAN.
Re-claim of credit reversed due to non-payment: [Sec 140 (9)]
380
Under Cenvat Credit Rules, 2004 4 the person availing service tax
credit was required to reverse the credit taken by him if he fails to
pay the service provider within three months of the date of the
invoice. Sec 140 (9) allows him to re-claim this credit if he pays the
consideration to the service provider by September 2017.
Credit But, paid on

Re-claim the
Reversed Paid after or before
credit as
due to non- 30th June 30th
CGST
payment September
Transitional provisions relating to job work [Sec 141]
Job-work provisions existed in the pre-GST law and they also exist
under the GST regime. Under the GST regime the time limit to bring
the goods back has been enhanced to one year (one year for inputs
and three years for capital goods).
However, there may be inputs/ semi-finished goods that had been

removed under the pre-GST law, which are lying with the job-
worker as on 1st July. The section 141 allows a period of six months to
get these goods back. No tax would be payable if the goods are
returned within six months. In other words if the goods are received
back latest by 31st December, 2017 then no tax is payable. Else, ITC
would become recoverable under section 142 (8) (a).
The Commissioner has been empowered to extend the above period

of six months by two further months. Application will have to be
made to the Commissioner providing “sufficient cause” for the
delay.
Similar provisions have been made in respect of:
a. Semi-finished goods removed for carrying out certain

manufacturing processes.
4 Please see the 2nd proviso to rule 4 (7) ibid.
381
b. Manufactured goods removed for carrying out tests or any

other process not amounting to manufacture.
The time limit of 6 months and extension of 2 months applies to

above cases as well.
In all the cases the stocks lying with the job-worker are required to be
declared by the principal as well as the job-worker (by those who are
registered).
Rejections and Returns: [Section 142 (1)]
There could be a situation where the goods supplied in pre-GST

regime are returned in GST regime. Suppose ‘A’ had sold certain
goods to ‘B’ and had paid duty/ VAT under an invoice. Let’s also
assume that ‘A’ is registered under GST:
‘A’ removed goods ‘B’ received the

on payment of duty same
‘B’ wants to return the goods
The provisions are as under:
a. Where ‘B’ is not registered under GST: If the person, who wishes
to return the goods (‘B’), is not registered under GST, he can
return without payment of any tax. The recipient ‘A’ (the
original supplier) would be entitled to claim refund of the tax
paid earlier. Following conditions need to be satisfied.
• The goods should not have been removed (by ‘A’) earlier
than January 2017 (i.e. the removal should have been
during the period from January, 2017 to June 2017).
• The goods should be returned by ‘B’ latest by 31st

December, 2017.
• The goods should be received in any place of business as

declared in the registration application. Obviously, the
place of business cannot be in another state.
382
• The goods are identifiable to the satisfaction of the proper

officer.
Establishing identity of the goods may be a difficult task

because the officers may not be easily satisfied. It would be a
bit easier where the goods have serial numbers, mark and
brand name. But in routine cases it would be discretion of the
officer.
If the above conditions are NOT satisfied then it would

amount to the supply by ‘B’ to ‘A’. This has two
repercussions:
i. Value of the goods would be added to the turnover of

‘B’; and
ii. ‘A’ would become liable to pay tax under reverse

charge mechanism (a registered person receiving
supply from unregistered person).
b. Where ‘B’ is registered under GST: The return of the goods by

‘B’ to ‘A’ would be treated as a supply and GST would
become payable.
Price Revision: [Sec142 (2)]
There can be a situation where the price of goods (supplied before 1st
July) is revised later. If the price is revised upwards the supplier
should issue a supplementary invoice or debit note within 30 days of
such revision. It will be deemed that the supplementary invoice or
the debit note has been issued in respect of an outward supply made
under GST law. Once it is so deemed, then the tax payable under the
supplementary invoice or the debit note would be GST and its credit
would become admissible in terms of ITC provisions.
Example: A contract for supplying certain chemicals was entered in

April 2017. Goods valued at Rs. 10 lakh were supplied during April,
May and June on payment of C. Excise duty and VAT. On 10th July,
383
the parties re-negotiated the prices and as a result the total value of
Rs. 10 lakh was revised to Rs. 11 lakh.
• The supplier is required to issue a ‘supplementary invoice’ or

a ‘debit note’ containing all the details specified under rule 53,
for Rs. 1 lakh. He should also charge the applicable GST on
this amount of Rs. 1 lakh. The recipient would be eligible to
avail credit of the same. The details of the supplementary
invoice/debit note would have to be uploaded on the portal
in form GSTR-1.
• If in the above example, the price were reduced to Rs. 9 lakh,

then the supplier should issue a Credit Note for Rs. 1 lakh
and GST. The supplier’s tax liability would get reduced only
when the recipient reduces his ITC.
• The above invoice/ debit note/ credit note should be issued

within 30 days of 10th July i.e. by 9th August, 2017.
Matters to be disposed in accordance with the existing law (i.e. in

accordance with pre-GST laws):
Section 142 provides that various matters relating to activities

undertaken in the pre-GST regime shall be disposed in accordance
with existing law. List of such matters is provided under the heading
after ‘General Conditions’.
General Conditions: These conditions apply to all the situations listed

under the next heading:
• All the refunds shall be paid in cash, even if the existing

law did not permit grant of refund in cash. Even where
the duty/tax was paid by utilisation of credit, the same
would be refunded in cash.
• Provisions of section 11 B (2) of C. Excise Act, 1944 (i.e. the

principal of unjust enrichment)5 would apply.
5Section 11B (2) also provides exceptions where the principal of unjust enrichment
would not apply.
384
• Wherever claim for refund/ Credits are allowed, the same

would be refunded in cash.
• Wherever credits are disallowed, or the demands for

duty/ tax are confirmed, the same would be recovered as
arrears of tax under GST law. This amount would not be
allowed as ITC.
• Wherever claim for refund of CENVAT credit is rejected,

the amount so rejected shall lapse. Thus, for instance, in
case of claim for refund of credit accumulated due to
export, if the refund is rejected 6 , the person won’t be
allowed to take the credit back. This is a departure from
the regular provision in the existing law.
• Refund of CENVAT credit would not be allowed if the

amount has been carried forward to GST
List of matters that are to be disposed in accordance with the existing law:
i. Refer Sec 142 (3): Refund claims for refund of Cenvat Credit,
duty, tax, interest or any other amount paid under the existing
law. This applies to the claims filed before, on or after 1st July.
ii. Refer Sec 142 (4): Claim for refund of any duty or tax paid under
existing law in respect of the goods or services exported. For
example, if goods removed for export on 25th of June 2017 on
payment of Central Excise duty were exported on 3rd August
2017, the refund of the duty would be disposed under Central
Excise Law. Thus,
• Duty/ Tax should have been paid under existing law
• Export may have been done before or after 1st July
iii. Refer Sec 142 (5): Claim for refund of Service Tax on the ground
that services not provided.
6 Off course his right to appeal/ revision against rejection of refund claim remains
intact. He can file appeal/ revision applications, as provided under the existing law. But
if he ultimately loses the matter, he cannot claim the credit back.
385
iv. Refer Sec 142 (6): Proceedings relating to CENVAT credit: (appeal,
review or reference relating to a claim for CENVAT credit): This
is irrespective of whether the proceedings were initiated before,
on or after 1st July 2017. If the assessee succeeds in appeal, the
amount of credit would be refunded to him in cash. As noted
earlier the refund would not be allowed if the balance credit has
been carried forward to GST.
Suppose the Department issues a show cause notice for denial of

CENVAT credit on the matter travels up to Supreme Court. Let's
also suppose that the matter is finally decided in favour of the
assessee. It may happen that meanwhile, the assessee had paid
the amount of credit (partially or fully). Now since the matter
has finally been decided in favour of the assessee, he is entitled
to get the money back. Such claims would be paid in cash.
v. Refer Sec 142 (7): Proceedings relating to output duty or tax

liability: (appeal, review or reference relating to any output duty
or tax liability)
vi. Refer Sec 142 (8):Assessment or adjudication proceedings
vii. Refer Sec 142 (9): Return, furnished under the existing law (such
as C. Excise/ Service Tax/ VAT Returns), and revised after 1st
July
In above three cases (sub-sections 7, 8 and 9) the law provides

for the following:
• It is immaterial whether the proceedings of appeal,

review, reference, assessment or adjudication were
initiated before, on or after 1st July 2017. In either case,
these would be disposed under the existing laws (i.e. pre-
GST laws).
• In case of revision of returns furnished under existing

law (for example C. Excise/Service Tax/ VAT return) the
sub-section applies only if the revision was done after 1st
July, 2017.
386
• If as a result of the above, any amount becomes

recoverable, the same shall be recovered as an arrear of
duty or tax under GST law (unless recovered under
existing law). The customer would not be allowed to
avail credit as ITC.
• If as a result of the above, any amount becomes

admissible to the claimant, it shall be refunded in cash. If
the amount is rejected, in these proceedings, the ITC
would not be available.
Supply in GST regime would attract GST even if the contract was
entered into before 1st July, 2017 [Sec 142 (10)]
Suppose a contract for ‘manpower supply’ was entered on 20th June

but was executed on 2nd July. Whether the supplier of the service
should pay Service Tax or GST? Section 142 (10) says that:
- Ordinarily GST would be payable on such supply.
- However, if any provision of Chapter XX7 of the CGST Act,

2017 requires otherwise, then that provision should prevail.
The sub-section reads as under:
Save as otherwise provided in this Chapter, the goods or services or

both supplied on or after the appointed day in pursuance of a
contract entered into prior to the appointed day shall be liable
to tax under the provisions of this Act.
‘Save as’ means ‘except as’. Analysis of the above would show that:
i. The provision deals with supply of goods or services or both.
ii. The contract for supply is entered into before 1st July.
iii. The supply is made on or after 1st July.
iv. The supply would be liable to tax under GST law.
7 Chapter XX comprises of sections 139 to 142 and is titled “Transitional Provisions”
387
v. However, this is subject to exceptions contained in chapter

XX.
Supplies made after 30th June, where VAT or Service Tax or both
were leviable before 30th June
This sub-section is closely connected with the previous one. While

the previous sub-section gave a general rule that GST would be
payable if the supply is made on or after 1st July. This sub-section
deals with the situation where – although the supply is made in GST
regime – yet VAT or Service Tax or both had already become leviable
(in part or in full). It says that on a supply:
i. If VAT8 had become leviable9, GST is not payable to that

extent.
ii. If Service Tax had become leviable, GST is not payable to

that extent.
iii. If both had become leviable then:
a. GST would be payable on the supply made on or

after 1st July, 2017.
b. The amount of VAT & Service Tax already paid

would be allowed as credit. This amount is to be
declared in table 11 of the form TRAN-1.
The section 142 (11) reads:
(a) notwithstanding anything contained in section 12, no tax shall

be payable on goods under this Act to the extent the tax was
leviable on the said goods under the Value Added Tax Act of the
State;
8It is notable that the provision does not speak of C. Excise duty. GST is not payable to
the extent VAT was leviable. C. Excise duty was in any case leviable only on the date of
removal of the goods.
9 Once the tax became leviable in June, it becomes payable – even if it is payable or paid
after June. Thus, service tax leviable in June was payable by 6 th July. If there is a delay,
interest under service tax law would be payable. Yet, the tax to be paid would be
‘Service Tax’ and not GST.
388
(b) notwithstanding anything contained in section 13, no tax shall

be payable on services under this Act to the extent the tax was
leviable on the said services under Chapter V of the Finance Act,
1994;
(c) where tax was paid on any supply both under the Value Added
Tax Act and under Chapter V of the Finance Act, 1994, tax shall
be leviable under this Act and the taxable person shall be entitled
to take credit of value added tax or service tax paid under the
existing law to the extent of supplies made after the appointed
day and such credit shall be calculated in such manner as may be
prescribed.
Service Tax was payable in accordance with the ‘Point of Taxation’ –

which was a concept similar to ‘Time of Supply’ under GST. It was
possible that the point of taxation occurred even before the service
was actually provided. If the point of taxation occurred before 1st
July, the service tax would become leviable. A question arises as to
how a supply would be taxed if the actual supply was made after 30th
June but VAT, Service Tax or both had become leviable (in part or in
full) under the existing law.
Example: A contract for Management Consultancy was entered into

for total value of Rs. 2 lakh. Advance payment of Rs. 50,000 was
received on 20th June, 2017. The consultancy was actually provided in
July.
So far as the amount of Rs. 50,000/- received in advance is

concerned, the point of taxation occurred in June itself. Hence Service
Tax was payable on that amount. GST is payable only on the balance
amount.
What would happen if in a case the ‘Point of Taxation’ occurred in

June and the ‘Time of supply’ occurred in July. Whether we should
pay Service Tax (because POT has occurred in June) or GST (because
TOS has occurred in July)? This dilemma is resolved by the phrase
“notwithstanding anything contained in section 13”10. It implies that this
provision has an overriding effect over section 13. Thus, to the extent
10 Section 13 of CGST Act, 2017 fixes the ‘Time of Supply’ for services.
389
Service Tax was leviable, we have to ignore the provisions of Section

13. The tax to be paid would be ‘service tax’. Let’s once again refer to
the previous example.
Entire supply made in July 2017: Rs. 2 lakh
Point of Taxation occurred in June: Rs. 50,000
Service Tax would be payable on Rs. 50,000/-. We do not have to

compute GST on this value. GST would be payable only on the
balance value of Rs. 1,50,000/-. GST is not required to be paid on the
entire value of Rs. 2 lakh.
Where VAT as well as Service Tax was paid, but supply is made in GST
regime:
Take a case of works contract which is partly executed till 30th June
2017 and part thereafter. Till 30th June VAT and Service Tax both
were payable. Cenvat Credit was not available on the inputs. Credit
has been allowed not only on the inward supplies received in GST
regime, but also on the opening stocks as on 1st July. Here also, it is
possible that the supply is made in the GST regime but VAT/ Service
Tax has already been paid as per the existing law. Here, we are
required to re-calculate the amount of GST payable and adjust the
amounts of tax paid under the existing law. Let’s understand this by
way of an example. Please see the example given at the next page. It
deals with a works contract where part of the supply was made
before 1st July, 2017.
Please note that so far as the supply was made before 1st July, the tax
liability is not to be re-calculated. GST would apply only to that
portion of supply which is made on or after 1st July.
Also note that the clause (c) does not have any overriding effect over
sections 12 and 13. It means that so far such supplies are concerned,
the Time of Supply would be determined in accordance with CGST
Act.
390
Total value of the Works Contract Rs. 5 Crore
Supplies made before 1st July Rs. 1 Crore
Tax paid on the value of Rs. 1 Crore VAT - Rs. 1 lakh
Service Tax – Rs. 4.5

lakh
Tax paid on further value of Rs. 2 VAT – Rs. 2 lakh

Crore (supply to be made after 30th
Service Tax – Rs. 9 lakh
June)
Total supply to be made in GST regime Rs. 4 Crores
Value on which GST is payable Rs. 4 Crore
GST payable Rs. 24 lakh (@12%)
Credit to be taken through table 11 of Rs. 11 lakh (VAT 2 lakh

TRAN-1 + Service Tax 9 lakh)
The provisions can be summarised as under:
Sec 142 (11) (a) Sec 142 (11) (b) Sec 142 (11) (c)
Taxes leviable Only VAT Only Service Both VAT as

before GST Tax well as Service
Tax
Supply made GST is not GST is not GST is payable

after 30th June payable on payable on even on that
that portion of that portion of portion of
supply on supply on supply on
which VAT which Service which VAT
was leviable. Tax was and Service
leviable. Tax have been
paid.
391
Sale on Approval: [Sec 140 (12) – Table 12]
Since VAT was payable only when the

Goods sent before 1st July,
sale took place, there was no tax
2017 for Sale on Approval
payable when the goods were sent to
customer for approval. If the customer Goods returned after
approves, the sale was made. specified period – GST
Otherwise, the goods were to be payable by the customer
(one who is returning the
returned back to the seller.
goods).
It is possible that goods sent for
Goods not returned at all –
approval were still lying with the GST payable by the seller
customer as on 1st July and the (one who had sent it).
approval was pending. Rule 120
requires us to declare details of all such goods in table 12 of the form
GST TRAN-1. Tax would not be payable on such goods if:
a. The goods had been sent for approval during the period 1st
January 2017 to 30th June 2017.
b. The goods are rejected or not approved by the buyer and are
returned to the seller during the period from 1st July 2017 to
31st December, 2017.
The above period of six months can be extended by the

Commissioner for a further period of 2 months i.e. till 28th February,
2018.
Where the goods were returned before 1st July, the same would have
been accounted in the pre-GST stock. The 2nd and the 3rd proviso to
sec 142 (12) may please be noted:
Provided further that the tax shall be payable by the person

returning the goods if such goods are liable to tax under this Act,
and are returned after a period specified in this sub-section:
Provided also that tax shall be payable by the person who has sent
the goods on approval basis if such goods are liable to tax under this
Act, and are not returned within a period specified in this sub-
section.
392
Thus, where the goods are returned beyond December 2017 (or
beyond the extended period, if any) then the customer who is
returning the goods would be liable to pay GST. He will have to
prepare Tax Invoice and charge GST. However, if the goods are not
returned at all, then tax would be payable by the seller.
The practical way would be that the seller first raises Tax Invoice,
pays GST and the customer takes credit. Subsequently the customer
can raise another Tax Invoice or debit note and returns the goods to
the seller on payment of GST.
We may note that the concept of sale on approval would also apply
to goods sent under regular GST regime. Section 31 (7) contains the
provision for issuance of invoice in such cases.
Tax deducted at source: [Sec 142 (13)]
Section 51 of the CGST Act provides for deduction of tax at source in

certain cases. Now, VAT Act of several states provided for deduction
of tax at source. It is possible that on certain contracts tax might have
been deducted before 1st July 2017. To take care of the situation, the
section 142 (13) provides that TDS under section 51 shall not be
made. This would apply if:
a. Sale was made and tax was required to be deducted at source

under existing VAT law (of State or Union Territory).
b. Invoice had been issued before 1st July 2017.
c. Payment is made to the seller on or after 1st July 2017.
Thus, TDS will not be deducted again under GST Act merely because
the payment is made under GST regime.
Goods of Principal lying with Agent [Sec 142 (14) of State GST
Acts – Table 10]
This provision allows the agent to avail credit of VAT paid on the
goods lying with him as on 30th June 2017 (opening stock). The
provision is contained in the state GST Acts (not under CGST Act).
393
The credit is allowed on the goods sent for sale as well as on capital
goods. The agent shall be entitled to take credit if the following
conditions are fulfilled:
(i) The agent is a registered taxable person under GST;
(ii) The agent should declare the details of stock lying with
him on behalf of the principal (closing stock of 30th June
2017) in Table 10 (a) of TRAN-1. If the agent is holding
stock of several principals, he should declare the stock for
each of the principal separately. GSTIN of the principal
should be mentioned in the first column of the table.
(iii) The principal should declare the details of stock lying with
his agent (closing stock of 30th June 2017) in Table 10 (b) of
TRAN-1. If the stocks are lying with more than one agent,
he should declare the stock with each of the agents
separately. GSTIN of the agent should be mentioned in the
first column of the table11.
(iv) The invoices (on the basis of which credit is to be claimed)

should not have been issued prior to 1st July 2016 (i.e. it
should not be older than one year).
(v) The principal has either reversed or not availed of the

input tax credit.
11Heading of the first column in the format of table 10 (b) provided under the rule is
“GSTIN of the principal”. It’s a typographical error. It should be “GSTIN of the agent”.
394
Legal Provisions:
Sec 16 to 21: contains the basic provisions governing Input Tax Credit
Sec 139: is about migration of persons registered under existing laws.
Sec 140: allows transfer of credits of C. Excise Duty, Service Tax, VAT
etc. as ITC under GST.
Sec 141 deals with materials sent out for job-work and lying with the
job-workers.
Section 142: deals with miscellaneous issues arising out of transition

to GST, such as rejections, price revision, pending claims for refund,
pending appeals, assessments, on-going contracts etc.
395
Appendices
Index
1. List of Taxes subsumed into GST
2. Understanding the Credit System
3. List of Blocked Credits (i.e. inward supplies on which ITC is

not available)
4. List of goods & Services notified under Reverse Charge
5. Work-Flow: Purchase from Un-registered Persons
6. About registration
7. Sample Documents:
o Tax Invoice
o Bill of Supply
o Tax Invoice of a Service Provider
o Job-Work Challan
o Delivery Challan for returning goods by Job-Worker
o General Purpose Delivery Challan
o Receipt Voucher
o Refund Voucher
o Payment Voucher
8. Format of Bank Guarantee

Appendices
List of Taxes subsumed into GST
Central Taxes
1. Central Excise duty
2. Additional Duties of Customs (commonly known as CVD)
3. Special Additional Duty of Customs (SAD)
4. Service Tax
5. Duties of Excise (Medicinal and Toilet Preparations)
6. Additional Duties of Excise (Goods of Special Importance)
7. Additional Duties of Excise (Textiles and Textile Products)
8. Cesses and surcharges insofar as far as they relate to supply

of goods or services
State Taxes
1. State VAT
2. Central Sales Tax
3. Purchase Tax
4. Luxury Tax
5. Entry Tax
6. Entertainment Tax (Other than those levied by local bodies)
7. Taxes on Advertisements
8. Taxes on lotteries, betting and gambling
9. State Cesses and surcharges (in so far as they related to

supply of goods or services)
397
Appendices
Understanding the Credit System
Every person registered under GST is allocated an electronic credit

Ledger on the GST portal. Whenever the registered person procures
any inward supply, the tax paid on the inward supply is deposited in
this credit Ledger. The credit Ledger functions like a bank account.
The amount held in the credit Ledger is as good as an amount held in
a bank account. But there is a restriction on use of the money lying in
this account. The amount lying in the credit Ledger can be used only
to pay taxes as prescribed in the GST law. The net effect of this
system is that when the registered person makes an outward supply,
he calculates total tax payable on the outward supply; and while
paying the tax, he can use the amount lying in this credit Ledger or
he can use the amount from his cash Ledger.
Now consider a chain of transactions. Suppose certain goods are sold

by A to B and then by B to C. The following table would show the
effect of the credit system.
Person Price Tax Amount Tax paid to Total Tax

charged to Government received by
buyer (Price Govt.
+ Tax)
A 10 1.0 11.00 1.00 1.00
B 14 1.4 15.40 0.40 1.40
C 20 2.0 22.00 0.60 2.00
398
Appendices
Input Tax Credit: List of Blocked Credits

[Section 17 (5) of CGST Act, 2017]
Clauses Credit is not available on But, there are following

of Sec 17
the following exceptions
(5)
(a) Motor vehicles and other The credit would remain

conveyances. available if used for
transportation of goods. It is
also available if the vehicle is
used to make following
taxable supplies:
• further supply of such

vehicles or
conveyances ; or
• transportation of
passengers; or
• imparting training on
driving, flying,
navigating such
vehicles or
conveyances;
(b) (i) • Food and beverages, Credit is available if the

inward supplies are used for
• Outdoor catering, making an outward taxable
supply of the same category.
• Beauty treatment,
• Health services,
• Cosmetic and plastic

surgery
399
Appendices
(b) (ii) • Membership of a club, No exception. Credit is not

and allowed in any situation.
(iv) • Membership of a
health and fitness
centre,
• Travel benefits
extended to
employees on vacation
such as leave or home
travel concession.
(b) (iii) • Rent-a-cab, Credit on these services is

available only in following two
• Life insurance, circumstances:
• Health insurance i. Where the employer is

under legal obligation to
provide the services to the
employees
ii. The inward supply is used:
(a) to provide a taxable

outward supply of the
same category; or
(b) as part of a taxable

composite or mixed
supply.
(c) Works Contract Services Credit is available if:

for construction of an
a. The service is supplied for
immovable property
plant & machinery (please
refer the definition of
‘plant & machinery’’
below)
400
Appendices
b. It is an input service for

further supply of works
contract service;
Here “construction” includes

re-construction, renovation,
additions or alterations or
repairs, to the extent of
capitalisation, to the said
immovable property. It means
if the re-construction etc. is not
capitalised, credit would
remain available.
(d) Goods or services or both The explanation about

received by a taxable ‘capitalisation’ is applicable
person for construction of here also.
an immovable property
(other than plant or
machinery) on his own
account including when
such goods or services or
both are used in the course
or furtherance of business.
(e) Supplies on which tax has

been paid under
composition scheme.
(f) Supplies received by a The non-resident taxable

non-resident taxable person can avail credit on
person. goods imported by him;
(g) Goods or services or both

used for personal
consumption;
(h) Goods lost, stolen, Credit will have to be reversed

destroyed, written off or (i.e. paid back)
401
Appendices
disposed of by way of gift

or free samples;
(i) Any tax paid in

accordance with the
provisions of sections 74,
129 and 130.
Section 74 relates to
demand of tax which was
not paid by recourse to
fraud, or any wilful-
misstatement or
suppression of facts to
evade tax,

payment of tax on
detained or seized goods

payment of tax on
confiscated goods.
Explanation to Sec 17 (6) defines plant & machinery as under:
"Plant and machinery" means apparatus, equipment, and machinery

fixed to earth by foundation or structural support that are used for
making outward supply of goods or services or both and includes
such foundation and structural supports but excludes-
(i) land, building or any other civil structures;
(ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises.
402
Appendices
List of Goods notified under reverse charge

[See notification 4/2017-IT (Rate)]
Sr. HSN Description Supplier of Goods Recipient of

No. Code of supply of supply
Goods
1. 0801 Cashew nuts, Agriculturist Any registered
not shelled person
or peeled
2. 1404 90 Bidi wrapper Agriculturist Any registered
10 leaves person
(tendu)
3. 2401 Tobacco Agriculturist Any registered
leaves person
4. 5004 to Silk yarn Any person who Any registered
5006 manufactures silk person
yarn from raw silk
or silk worm
cocoons for supply
of silk yarn
5. - Supply of State Government, Lottery
lottery. Union Territory or distributor or
any local authority selling agent
403
Appendices
List of Services notified under reverse charge

[See notification 10/2017-IT (Rate). The words used here are not the exact
words of the notification. These have been shortened at a few places]
Sl. Category of Supply of Supplier of Recipient of Service

No Services service
.
1. Any service supplied by Any person Any person located
any person who is located located in a in the taxable
in a non-taxable territory non-taxable territory other than
to any person other than territory non-taxable online
non-taxable online recipient.
recipient.
2. Supply of Services by a Goods (a) Any factory
goods transport agency Transport registered under or
(GTA) in respect of Agency governed by the
transportation of goods (GTA) Factories Act, 1948
by road (to the recipients or
mentioned in the last
(b) any society
column)
registered under the
Societies
Registration Act,
1860 or under any
other law for the
time being in force
in any part of India;
or
(c) any co-operative
society established
by or under any law;
or
(d) any person
registered under
the CGST/ IGST/
SGST/ UT GST Act;
404
Appendices
or
(e) any body
corporate
established, by or
under any law; or
(f) any partnership
firm whether
registered or not
under any law
including
association of
persons; or
(g) any casual
taxable person
located in the
taxable territory
3. Services supplied by an An Any business entity
individual advocate individual located in the
including a senior advocate taxable territory
advocate or by a firm of including a
advocates, by way of legal senior
services, to a business advocate or
entity. firm of
advocates
4. Services supplied by an An arbitral Any business entity
arbitral tribunal to a tribunal located in the
business entity. taxable territory
5. Services provided by way Any person A body corporate or
of sponsorship to a body partnership firm
corporate or partnership located in the
firm. taxable territory.
6. Services supplied by the Central Any business entity
Central Government, Government, located in the
State Government, Union State taxable territory.
405
Appendices
territory or local authority Government,

to a business entity Union
excluding, – territory or
local
(1) renting of immovable
authority
property, and
(2) services specified
below-
(i) services by the
Department of Posts by
way of speed post,
express parcel post, life
insurance, and agency
services provided to a
person other than Central
Government, State
Government or Union
territory or local
authority;
(ii) services in relation to
an aircraft or a vessel,
inside or outside the
precincts of a port or an
airport;
(iii) transport of goods or
passengers
7. Services supplied by a A director of The company or a
director of a company or a a company or body corporate
body corporate to the said a body located in the
company or the body corporate taxable territory.
corporate.
8. Services supplied by an An insurance Any person carrying
insurance agent to any agent on insurance
person carrying on business, located in
insurance business the taxable territory.
406
Appendices
9. Services supplied by a A recovery A banking company

recovery agent to a agent or a financial
banking company or a institution or a non-
financial institution or a banking financial
nonbanking financial company, located in
company. the taxable territory.
10. Services supplied by a A person Importer located in
person located in non- located in the taxable territory
taxable territory by way of non-taxable
transportation of goods territory
by a vessel from a place
outside India up to the
customs station of
clearance in India
11. Supply of services by way Author or Publisher, music
of transfer or permitting music company, producer
the use or enjoyment of a composer, or the like, located in
copyright relating to photographe the taxable territory.
original literary, dramatic, r, artist, or
musical or artistic works the like
Note: Local Authority has been defined vide Sec 2 (69) of the CGST
Act, 2017.
407
Appendices
Work-Flow: Purchase from Un-registered Persons

A registered person is required to pay tax on supplies received from un-
registered persons. Here is a brief note on the work-flow.
• Determine whether such supply is taxable. For example the five

Petroleum Products mentioned in Sec 9 (2) or the 6 activities
mentioned in Schedule III are not taxable.
• Determine the amount of tax. You need to
- Determine HSN Code/ SAC of each item. For this, you have
to describe the goods or the service in question. For example
‘staff welfare’ does not describe whether it was purchase of
food, or a bus was hired for picnic, or a medical camp was
organised for their family members.
- Look at the notification providing rate of tax.
- Look at the exemption notification. If the exemption is

conditional, check whether the condition is fulfilled.
• Determine whether you are eligible to input tax credit. The

supply may fall in the list of ‘blocked credits’. Credit is available
only if the supply is used in the course or furtherance of business.
Credit is not available if the inward supply is used exclusively for
providing exempted outward supply, etc.
• If the inward supply is used partly for taxable and partly for
exempted outward supply (or for business and non-business
purpose), then common credits will have to be apportioned.
• Issue Tax Invoice in respect of procurements from unregistered

persons. We can issue a single invoice at the end of the month.
But issue separate invoices for inter-State and intra-State
supplies. Also, the transaction wise data should be maintained to
support the invoice.
408
Appendices
• Separately identify the cases of ‘notified RCM’1. But remember

that GTA has an option to either pay tax under normal charge or
to shift the liability to the recipient.
• The purchase from un-registered supplier (other than notified

RCM) is entitled to exemption for the days on which the purchase
value does not exceed Rs. 5000/-.
• Issue payment vouchers for each purchase from un-registered

supplier.
• In fact, Payment Voucher is required to be issued for all cases of

RCM (i.e. notified as well un-registered persons).
Compute Tax
What is HSN/
Is it taxable? (rate,
SAC?
exemption)
Credit to be Issue Payment

ITC available?
apportioned? Vouchers
Issue Tax Report in

Invoice GSTR-2
1That is to say the goods and services notified under Sec 9 (3) of the CGST Act or under
Sec 5 (3) of the IGST Act. In these cases, the tax is payable by recipient of the supply
even if the supplier is registered.
409
Appendices
Registration
Some Important Facts
1. While in most states registration is required to be obtained
only if the aggregate turnover exceeds Rs. 20 lakh in a
financial year, there are 11 states where the limit is only Rs. 10
lakh. These are the States of Arunachal Pradesh, Assam,
Jammu and Kashmir, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim, Tripura, Himachal Pradesh and
Uttarakhand.
2. For the purpose of computing turnover of Rs. 20 or 10 lakh,

one has to include turnover of even exempted and non-
taxable supplies; and the turnover is computed against a PAN
on all India basis.
3. If someone is engaged exclusively in supply of non-taxable or

exempted supply, then he need not get registered.
4. There are 12 categories of persons who are compulsorily

required to be registered irrespective of their turnover. These
are:
(i) persons making any inter-State taxable supply;
(ii) casual taxable persons making taxable supply;
(iii) persons who are required to pay tax under reverse

charge;
(iv) person who are required to pay tax under sub-section

(5) of section 9;
(v) non-resident taxable persons making taxable supply;
(vi) persons who are required to deduct tax under section

51, whether or not separately registered under this Act;
(vii) persons who make taxable supply of goods or services

or both on behalf of other taxable persons whether as an
agent or otherwise;
410
Appendices
(viii) Input Service Distributor, whether or not separately

registered under this Act;
(ix) persons who supply goods or services or both, other

than supplies specified under sub-section (5) of section
9, through such electronic commerce operator who is
required to collect tax at source under section 52;
(x) every electronic commerce operator;
(xi) every person supplying online information and

database access or retrieval services from a place
outside India to a person in India, other than a
registered person; and
(xii) such other person or class of persons as may be notified

by the Government on the recommendations of the
Council.
5. Different registrations of the same person are treated as

distinct person. Therefore, supply by a person to his
own branch which has a different registration is treated
as a supply under GST law.
6. Even an un-registered fixed establishment is treated as a

distinct person if it is situated in another state.
411
Appendices
Sample Documents
Rules 46 to 55 provide list of contents of Invoice, Bill of Supply,

Vouchers, and Challans. The format can be designed by us to suit our
convenience. The documents must contain all the information
prescribed under these rules. Of course they can contain any
additional information that we desire. Thus, for instance all delivery
challans must contain HSN Code and Taxable Value irrespective of
whether it is a job-work challan or even a challan not amounting to
supply of goods. Following are some suggested formats. One can
suitably modify them to suit the convenience.
We can have as many series of the documents as required. The serial

number of the documents issued during a tax period is required to be
declared under GSTR-1. The numbers would serve as a good control
to see whether all entries have been made in GST returns or not.
412
Appendices
ABC Limited
_______________________(address)________________________
Tel : ________, Fax: _______Email :_________
Original for Recipient
GSTIN: PAN: CIN: .
TAX INVOICE
Invoice under Section 31 of CGST Act, 2017
Sold To: Delivery at: Invoice No. :

M/s. XYZ Ltd. M/s. PQR Ltd. Date :
16, Piramal Indl. Estate 21, MG Market
Ambernath, Dist. Thane Lucknow - 226 005 Date of Removal:
State State: Location from where the goods are
State Code State Code: removed:
GSTIN/ UIN: GSTIN/ UIN: M/s. AAA Enterprises (job-worker)
Place of Supply: Maharashtra Mode of Transport: 115, Tej Industrial Estate,
State Code: 27 Transporter Adharwadi, Bhiwandi,
PO No. Vehicle No. Dist. Thane 421 308.
PO Date: LR No. GSTIN:
Qu U Rate
Sr. HSN ant Q of IGS
No. Description Code ity C Rate Amount Tax CGST SGST T
k
Item 1 1804 20 g 1000 20,000
Less: Discount 200
Add: Packing Charges 200
Add: Transport Charges 454
Taxable Value 20,454 28% 2,863.56 2,863.56 0.00
Item 2 1107 75 kg 1000 75,000.00

Discount 7,500.00
Packing Charges 500.00
Transport Charges 1,546.00
Taxable Value 69,546.00 18% 9,736.44 9,736.44 0.00
Total 90,000 12,600 12,600 0.00

Grand Total 1,15,200
Rupees in words: One Lakh Fifteen Thousand Two Hundred Only
Amount received in Advance: ___________
Receipt Voucher No. _________, Date ___________ For ABC Ltd.
Whether the tax is payable on reverse charge basis: Yes/ No

Authorised Signatory
Principal Place of Business: 12, Priyadarshini Business Park, GB Pant Road, Mumbai – 400321
Registered Office: 115, Lotus Corporate Park, Lodhi Road, New Delhi - 110 003
413
Appendices
Composition Taxable Person, not eligible to collect tax on supplies

ABC Enterprises
____________________________________________________
Tel : ________, Fax: _______Email :_________
GSTIN:
Bill of Supply
Under Section 31 (3) (c) of CGST Act, 2017, and Rule 49 of CGST Rules, 2017
Sold To Delivery at: Bill No.

M/s. XYZ Ltd. M/s. PQR Ltd. Date
16, Piramal Industrial Estate 21, MG Market
Ambernath, Dist. Thane Dombivali, Thane. Mode of delivery:
GSTIN/ UIN:
Sr. HSN Quant Disco Value of

No. Description Code ity UQC Rate Amount unt Supply
1 Item 1 1804 20 kg 1000 20,000.00 2000 18000

2 Item 2 2109 5 kg 5000 25,000.00 2500 22500
Total Value: Packing Charges 0

Forty two thousand only Freight 1500
Other Charges
Total 42000
For ABC Enterprises
Principal Place of Business: 12, Priyadarshini Business Park, GB Pant Road, Mumbai - 400321
Please see rule 49 of CGST Rules, 2017 for list of the information required to
be contained in a Bill of Supply. Even the following documents would be
treated as a Bill of Supply. But it should contain all the information required
under rule 49.
- A Tax Invoice issued under CGST Act, or
- Any other similar document issued under any other Act.
414
Appendices
Sample Invoice of a Service Provider:

ABC Ltd.
Original for Recipient
_________________
Tel : ________, Fax: _______Email :_________
GSTIN: PAN: CIN:
TAX INVOICE
Invoice under Section 31 of CGST Act, 2017
M/s. XYZ Ltd. Invoice No. : TS-001/2017-18

16, Piramal Industrial Estate Date :
Ambernath, Dist. Thane
GSTIN/ UIN: PO No. Date:
State: Maharashtra; State Code: 27 Place of Supply: Maharashtra
Whether the tax is

Service: Job-Work
payable on reverse
SAC: 9988 charge basis? :NO
Sr. No. Description of the work Quantity UQC Rate Amount
Job-Work Charges in respect of

following production done for you 20 kg 1000 20,000.00
during July, 2017
Total 20,000.00
Total Invoice Amount: CGST @ 9% 1,800.00
SGST @ 9% 1,800.00
Amount received in advance: IGST@ 18%
Receipt Voucher No. Date Total 23,600.00
Amount (Value + Tax):
For ABC Ltd.
Terms: ______________________
Registered Office: __________________________
Note: In general, a service invoice will not have column for quantity. In the
above invoice, the job-worker wanted to show the quantity details. Hence
he has added the column.
415
Appendices
ABC Ltd. ORIGINAL FOR CONSIGNEE
Kavesar, Ghodbunder Road, Thane - 400 615, Maharashtra.

Tel : ___________; Fax : ___________; E-mail : __________
Job Work Challan

Under Section 143(1) of CGST Act 2017 read with Rule 55 of CGST Rules, 2017
GSTIN: CIN: PAN:
Job-Worker: Ch. No.

M/s. Date :
Place of Supply:
GSTIN: Vehicle No.
Description of Inputs/ Semi- HSN Rate of

Sr. No. Value Quantity
Finished Goods/ Capital Goods Code Tax
Purpose: For ABC Ltd.
416
Appendices
PQR Ltd.
ORIGINAL FOR CONSIGNEE
____________________________
Tel : ___________; Fax : ___________; E-mail : __________
Delivery Challan for returning goods by Job-Worker

Under Section 143(1) of CGST Act 2017 read with rule 55 of CGST Rules, 2017
GSTIN: CIN: PAN:
Principal (Customer) Challan No.:
M/s. Date :
Place of Supply:
GSTIN: Vehicle No.:
Goods being delivered under this challan:

HSN Rate of
Sr. No. Description of the Goods Value Quantity
Code Tax
Details of the goods consumed for above job-work
HSN Rate of
Code Tax
Delivery at: For PQR Ltd.
Registered Office: __________________________________________

A general purpose delivery challan
417
Appendices
ABC Ltd.
ORIGINAL FOR CONSIGNEE
____________________________
Tel : ___________; Fax : ___________; E-mail : __________
Delivery Challan
Under rule 55 of CGST Rules, 2017
GSTIN: CIN: PAN:
Consignee: Challan No.:
M/s. Date :
Place of Supply:
GSTIN: Vehicle No.
HSN Rate of
Code Tax
Remarks: For ABC Ltd.
Registered Office: __________________________________________
All the Delivery challans (including job-work challans) shall be prepared in

Triplicate, and should be marked as:
ORIGINAL FOR CONSIGNEE; DUPLICATE FOR TRANSPORTER; and

TRIPLICATE FOR THE CONSIGNOR.
If extra copies are prepared, the same should be marked as EXTRA COPY.
418
Appendices
ABC Ltd.
Principal Place of Business: 12, Priyadarshini Business Park, GB Pant Road, Mumbai -
400321
Tel: __________ Fax: __________ E-mail: __________
GSTIN: __________ PAN: __________ CIN: __________
Receipt Voucher
[Under sec 31 (3) (d) of CGST Act, 2017; and rule 50 of the CGST Rules, 2017]
Received from (Details of the Recipient of the supply to Voucher No.:

be made): Voucher Date:
M/s.
GSTIN: Place of Supply:

State: Code State Code:
Rate Total
Description of Goods/ HSN Taxable of Amount
Service Codes Value Tax CGST SGST IGST paid
Total
Total Amount received (In words)

ABC Ltd.
Whether tax is payable on reverse charge basis:
Yes/ No
Remarks:
419
Appendices
ABC Ltd.
400321
Tel: __________ Fax: __________ E-mail: __________
GSTIN: __________ PAN: __________ CIN: __________
Refund Voucher
[Under sec 31 (3) (d) of CGST Act, 2017; and rule 51 of the CGST Rules, 2017]
Refund to (Details of the Recipient of the supply) Voucher No.:

M/s. Voucher Date:
Corresponding receipt Voucher
GSTIN: No. Date:
State: Code
Rate Total
Total
Total Amount refundable (In words):

ABC Ltd.
Whether tax is payable on reverse charge basis:
Yes/ No
Remarks:
420
Appendices
ABC Ltd.
400321
Tel: __________ Fax: __________ E-mail: __________
GSTIN: __________ PAN: __________ CIN: __________
Payment Voucher
[Under sec 31 (3) (g) of CGST Act, 2017; and rule 52 of the CGST Rules, 2017]
Paid to (Details of the Supplier): Voucher No.:

M/s. Voucher Date:
GSTIN: Place of Supply:

State: Code State Code:
Rate Total
Total
Total Amount paid (In words): ABC Ltd.
421
Appendices
Sample format of Bank Guarantee
GUARANTEE BOND
(To be used by approved Scheduled Banks)
To,
The President of India
Through the Dy. Commissioner …..
In consideration of the President of India (hereinafter called "the

Government") having agreed to exempt M/s. ________________________,
________________________ (address), (hereinafter called "the said exporter")
from the demand under the terms and conditions of an Agreement
dated___________ made between the Assistant/ Deputy Commissioner of
Central GST, ___________, Mumbai and the exporter for export of goods
without payment of duty (hereinafter called "the said Agreement"), of
security deposit for the due fulfilment by the said exporter of the terms and
conditions contained in the said Agreement on production of a Bank
Guarantee for Rs. ______ (Rupees _______only), we ____________Bank
Limited, (hereinafter referred to as "the Bank") do hereby undertake to pay
to the Government an amount not exceeding Rs. ______ (Rupees
_______only) against any loss or damage caused to or suffered or would be
caused to or suffered by the Government by reason of any breach by the
said exporter (s)of any of the terms or conditions contained in the said
Agreement.
2. We ____________Bank Limited, do hereby undertake to pay the amounts

due and payable under this Guarantee without any demur, merely on a
demand from the Government stating that the amount claimed is due by
way of loss or damage caused to or would be caused to or suffered by the
Government by reason of any breach by the said exporter of any of the
terms or conditions contained in the said Agreement or by reason of the
exporter failure to perform the said Agreement. Any such demand made on
the Bank shall be conclusive as regards the amount due and payable by the
Bank under this guarantee.
422
Appendices
However, our liability under this guarantee shall be restricted to any

amount not exceeding Rs. ______ (Rupees _______only).
3. We ____________Bank Limited, further agree that the guarantee herein

contained shall remain in full force until all the conditions of the Agreement
between the Government of India and the said M/s.
________________________,, are fulfilled that it shall continue to be
enforceable till all the dues of the Government by virtue the said Agreement
have been fully paid and its claims satisfied or discharged or till the
Government of India certified that the terms and conditions of the said
Agreement have been fully and properly carried out by the said M/s.
________________________, and accordingly discharges the guarantee. We
shall make the said payment to the Government on demand without demur
notwithstanding that M/s. ________________________, are not upon in the
first instance to pay to the Government the said amount under Agreement.
4. We ____________Bank Limited, further agree with the Government that

the Government shall have the fullest liberty without our consent and
without affecting in any manner our obligations hereunder to vary any of
the terms and conditions of the said Agreement or to extend the time of
performance by the said M/s. ________________________, from time to
time or to postpone for any time of the powers exercisable by the
Government against the said M/s. ________________________, and to
forbear or enforce any of the terms and conditions relating to the said
Agreement and we shall not be relieved from our liability by reason of any
such variation or extension being granted to the said, or for any forbearance
act or omission on the part of the Government or any indulgence by the
Government to the said M/s. ________________________, or by any such
matter or thing whatsoever this provision has effect of so relieving us.
5. We ____________Bank Limited hereby further covenant and declare that

this guarantee shall remain in force for one year and if the Agreement is not
fully discharged within the aforesaid period, the said Bank undertakes to
renew this guarantee from time to time on its own till discharge of the said
Agreement and six month thereafter.
6. We also further covenant and declare that if the said M/s.

________________________, do not obtain and furnish renewal of this
guarantee from time to time for a further period of time to the Government
of India not less than 30 (thirty) days prior to the expiry of this guarantee or
the renewal of the said guarantee so as to keep the same valid and
subsisting till the disposal of the above Agreement and for six months
thereafter, then the entire amount remaining due shall become forthwith
423
Appendices
due and payable and the bank of its own shall pay to the Government of
India notwithstanding (1) that the period of the guarantee or renewal or (2)
the period of the guarantee to the renewal or renewal thereof, has already
expired or (3) that the above Agreement is still pending.
7. It is further declared that this is an unconditional guarantee and in the

event of vacation of Agreement or in the event of the decision adverse to the
said M/s. ________________________, being given by the Government of
India or discharge of the Agreement whichever is earlier we would make
the said payment to the Government of India on demand without demur
notwithstanding that the said M/s. ________________________, are not
called upon in the first instance to pay to the Government of India the said
amount before calling upon us the Bank to pay the said amount under this
guarantee.
8. This guarantee will not be discharged due to the change in the

constitution of the Bank or the Contractor/so
Dated the ______day of_______ 200
For ______________________
(indicate the name of the bank)
424

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To My Parents

Mrs. Shyama Dwivedi and Mr. Ramji Dwivedi

Chamber of Small Industry Associations

© Copyright Sanjay Dwivedi

No part of this publication may be reproduced, stored in a retrieval system or

First Edition 2017

I had met Sanjay Dwivedi decades ago when he was an Inspector of

COSIA, in association with Mr. Sanjay Dwivedi led a near blitzkrieg of 15

The Chamber of Small Industry Associations in keeping with its

Sanjay Dwivedi has authored this book in simple, understandable and

Thane Dr. M.R. Khambete,

To present the tax law in simple language is the basic goal.

This book is outcome of suggestions of members of COSIA in general

This book attempts to bring in conceptual clarity. The goal is two-

How is this book organised?

Every day we face questions such as:

• Whether GST is leviable on a particular transaction? What

• How much tax is payable?

• Who is liable to pay the tax; when and how to pay?

• What is the documentation, record keeping; and what

Thus, on one hand it aims at explaining the scheme of taxation to the

Where to find text of the law:

Throughout this book:

• Instead of using the language “sub-section (3) of section 12” I

• The word ‘supply’ has been used to refer supply of goods or

• The rates of tax in all examples are for illustration purposes

Many people have directly and indirectly helped me in writing this

My office staff has supported me well in this work. In fact, I have

I have just started working on a website which would provide

I would be grateful if you inform me of the errors in the book, and

2. Scope of the Levy: Whether GST is Payable 036 - 077

3. The Reverse charge Mechanism 078 – 093

4. Computation of Tax: Value, Classification, 094 – 126

5. Time of Supply: When does the tax liability 127 – 144

6. Input Tax Credit 145 – 166

7. Nature of Supply: Is the Supply Inter-State or 167 – 186

8. Place of Supply: The second criteria. 187 – 240

9. Documents & Records 241 – 263

10. Payment of Tax 264 – 275

11. GST Returns 276 – 301

12. Job-Work 302 – 312

14. Import, Export & supply to SEZ 327 – 354

15. Transition to GST: While we cross the bridge 355 – 395

Appendices 396 – 415

Out of the seventeen taxes subsumed into GST, three taxes

The manufacturers, traders and service providers have always been

but including medicinal and toilet preparations containing alcohol or any

levy of C. Excise Duty. Similarly VAT was payable on sale of goods;

Tax Taxable Event Government

services and the state government had no powers to impose tax on

Problems in the existing taxation system:

The division of taxing powers on the basis of „taxable events‟ created

 Multiple Laws, Compliances & Authorities – We have

2Manufacturers were, in general, exempted up to value of clearance of Rs. 1.5 crores

 Inter-state transactions – In the previous regime, when the

 Goods vs. Services – In the pre-GST system of taxation, the

difficult to determine whether a particular transaction

 Composite Contracts – Another situation that created

was for execution of the work. As it involves both the

In fact, in some cases the authorities demanded VAT, C.

Governments came up with a solution and prescribed a

independently taxing different aspects of the same transaction

 Whether the process amounts to manufacture? – Yet another