SM - Idt

Inter CA
Strategic Management
&
INDIRECT TAX
Dear Students,
Welcome to the world of knowledge – JK Shah Classes
I have the pleasure of presenting this study material to you. It contains relevant
portions from chapters in indirect taxes. It contains exhaustive theory for
strategic Management. The practical questions are selected so carefully from
wide ranging sources. It is in alignment with the study materials issued by
the ICAI including Practice Manual, Suggested answers. The material is so
exhaustive that it leaves out nothing.
The subject will be taught by eminent professors who are highly experienced
and well versed with the job.
The coaching is very exhaustive and concept based. Also the coaching is very
systematic, well planned and absolutely time bound. I am sure you will feel
that the study is a pleasurable job and not a painful exercise.
I wish you a very happy study time.
Best of Luck
Prof. J. K. Shah
Chartered Accountant
INTER C.A. – STRATEGIC MANAGEMENT
INDEX
INTRODUCTION TO
01 STRATEGIC MANAGEMENT
Page No.
1-21
DYNAMICS OF Page No.

02 COMPETITIVE STRATEGY 22-81
STRATEGIC MANAGEMENT
03 PROCESS
Page No.
82-104
Corporate Level Page No.

04 Strategies 105-129
Page No.
05 BUSINESS LEVEL STRATEGIES
130-148
FUNCTIONAL LEVEL Page No.

06 STRATEGIES 149-184
Organization Structure
07 and Strategic Leadership
Page No.
185-211
Strategy Implementation Page No.

08 and Control 212-240
INTER – INDIRECT TAX
INDEX
Introduction to GST &

01 Page No.
241-258
Supply under GST
Page No.
02 Problems – Time of Supply
259-261
03 Exemptions
Page No.
262-290
Page No.
04 Payment of GST 291-296
Invoice and Other Page No.

05 Documents 297-317
Page No.
06 MCQ’s – Chapter Wise
318-444
Strategic
Management
Introduction to Strategic
Management
Concept 1: Business Policy:
Introduction;
The origin of business policy can be traced back to 1911. When Harvard Business School introduced
an integrative course in management aimed at the creation of general management
capability among business executives. This course was based on interactive case studies
which had been in use at the school for instructional purposes since 1908.
However, the introduction of business policy in the curriculum of business schools or

management institutes came much later. In 1969, the American Assembly of Collegiate
Schools of Business, a regulatory body for business schools, made the course of business
policy, a mandatory requirement for the purpose of recognition of business schools or
management institutes.
During the next few decades, business policy as a course spread to different management
institutes across different nations and became an integral part of management curriculum.
Definition;
Business Policy is “the study of the functions and responsibilities of senior management,
the crucial problems that affect success in the total enterprise and the decisions that
determine the direction of the organization and shape its future.
Utility of Business Policy;
i. Business Policy are the guidelines developed by an organization to govern the actions
of those who are a part of it.
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ii. Business Policy defines the scope within which decisions may be taken by the
subordinates in an organization.
Evolution;
According to William F Glueck, evolution of business policy emerged from the development
in the use of planning techniques by managers.
• Starting from day-to-day planning in earlier times, managers tried to anticipate

the future through preparation of budgets and using control systems like capital
budgeting and management by objectives.
• With the inability of these techniques to adequately emphasize the role of future,
long-range planning came to be used.
• Soon, long-range planning was replaced by strategic planning, and later by strategic
management, a term that is currently used to describe the process of strategy
formulation, implementation and control.
The problems of policy in business, like those of policy in public affairs, have to do with the
choice of purposes, the moulding of organizational identity and character, the continuous
definition of what needs to be done, and the mobilization of resources for the attainment
of goals in the face of competition or adverse circumstance”.
Conclusion; (Importance)
Business Policy tends to emphasize on the rational-analytical aspect of strategic

management. It presents a framework for understanding strategic decision making in
organisations. Such a framework enables a manager to make preparations for handling
general management responsibilities effectively.
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Concept 2: Concept of Management:
To understand the concept of strategic management, we need to have a basic understanding

of the term management. The term ‘management’ is used in two senses, such as:
1. People view;
It is used with reference to a key group in an organisation in-charge of its affairs. In relation
to an organisation, management is the chief organ entrusted with the task of making
it a purposeful and productive entity, by undertaking the task of bringing together and
integrating the disorganised resources of manpower, money, materials, and technology into a
functioning whole.
An organisation becomes a unified functioning system when management systematically

mobilises and utilises the diverse resources efficiently and effectively.
The survival and success of an organisation depends to a large extent on the competence and
character of its management. Management has to also facilitate organisational change and
adaptation for effective interaction with the environment.
2. Functional view;
The term ‘Management’ is also used with reference to a set of interrelated functions
and processes carried out by the management of an organisation to attain its objectives.
These functions include Planning, Organising, Directing, Staffing and Control. The functions
or sub-processes of management are wide-ranging but closely interrelated. They range all
the way from determination of the goals, design of the organisation, mobilisation and
acquisition of resources, allocation of tasks and resources among the personnel and
activity units and installation of control system to ensure that what is planned is achieved.
Management is an influence process to make things happen, to gain command over

phenomena, to induce and direct events and people in a particular manner. Influence
is backed by power, competence, knowledge and resources. Managers formulate
organisational goals, values and strategies, to cope with, to adapt and to adjust
themselves with the behaviour and changes in the environment.
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Concept 3: Strategy:
Introduction;
The term strategy has been derived from the Greek word ‘strategos’ which means
generalship.
Business today is like fighting a war and businessmen have to respond to the dynamic and
hostile (i.e., unfriendly) environment. Every businessman makes use of strategies to face
the tricks of his enemy (i.e., rivals).
Strategy may be defined as a long-range blueprint of an organisation, what it wants to be?

(i.e., desired image), what it wants to do? (i.e., direction) and where it wants to go? (i.e.,
destination).
Policy and Strategy are quite interrelated, but the interesting thing to study is how they
differ. Where a policy is a thought process, it talks about what should be done in a particular
situation, or what should be the reaction to a given circumstance. The strategy part of it
explains the real actions, strategy talks about how the policy would be followed.
For example, the policy of an organisation could be to not drop their prices to fight
competition. The strategy could be to give more quantity for the same price, or give some
other product as a freebie to attract customers without dropping their price.
Strategy is consciously considered and flexibly designed scheme of corporate intent and
action to mobilise resources, to direct human effort and behaviour, to handle events and
problems, to perceive and utilise opportunities, and to meet challenges and threats for
corporate survival and success.
Strategy is the game plan that the management of a business uses to take market position,
conduct its operations, attract and satisfy customers, compete successfully, and achieve
organizational objectives.
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Definition of Strategy;
Strategy is defined by William F. Glueck as, “A unified, comprehensive and integrated plan
designed to assure that the basic objectives of the enterprise are achieved”.
3.1 Classification of Strategy based on approach;
1. Proactive approach (i.e., Proactive strategy), and
2. Reactive approach (i.e., Reactive strategy).
Q. “Strategy is partly proactive and partly reactive.” do you agree?
Answer: Yes,
In Proactive Strategy, organizations will analyse possible environmental scenarios and

create strategic framework after proper planning and set procedures and work on these
strategies in a predetermined manner.
However, in reality no company can forecast both internal and external environment
exactly. Everything cannot be planned in advance. It is not possible to anticipate moves
of rival firms, consumer behaviour, evolving technologies and so on.
There can be significant deviations between what was visualized and what actually
happens. Strategies need to be modified in the light of possible environmental changes.
There can be significant or major strategic changes when the environment demands.
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It is based on unanticipated events such as Competitor’s strategies, Market changes require

changes in planned strategy is known as Reactive Strategy. Reactive strategy is triggered by
the changes in the environment and provides ways and means to cope with the negative
factors or take advantage of emerging opportunities.
Hence, strategy is partly proactive and partly reactive.
3.2 Characteristics of Strategy;
• Ways to win over enemy:
A typical dictionary defines the word ‘strategy’ as something that has to do with war
and ways to win over enemy.
• Forward looking:
Strategy is forward looking it defines in broad terms the action which an organisation
proposes to take in future.
• Designed to move to the desired future position:
Strategy is designed to move an organisation from its current position to the desired
future position.
• Pragmatic and flexible:
Strategy needs to pragmatic (i.e., practical) and flexible as per the situation.
• Strategy is partly proactive and partly reactive:
Proactive refers to actions on the part of managers to improve the company’s market position,
competitive advantage and financial performance by deciding and planning in advance.
However, if a company’s strategy is developed as a response to unanticipated

developments, it is known as reactive strategy. For E.g., Airtel changing its tariff rates
on introduction of JIO.
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• Strategy is not a substitute:
Strategy is not a substitute for sound, alert and responsible management. It provides
a directions and support to the management. Strategy formulation should be
complemented (i.e., supported) with strategy implementation to achieve objectives.
• Strategy can never be perfect, flawless and optimal:
Means strategies may fail if there are loopholes in formulation or implementation of

strategy. Similarly, it may also fail due to changes in environment. In a sound strategy,
allowances are made for possible miscalculations and unanticipated events.
• Strategy is not a bundle of tricks and magics:
Strategic management is not a bundle of tricks and magic. It is a deliberate managerial

process as it involves critical thinking and commitment of resources to action.
• Application of strategy:
Every organisation whether it is large or small requires strategies. These organisations

irrespective of their sizes face similar business environment and face competition. In
large organisations, strategies are formulated at the corporate, business (divisional)
and operational (functional) levels. Corporate strategies are formulated by the top
managers.
Q. “Strategic management is a bundle of tricks and magic. Do you agree?
Answer: No, the term ‘strategic management’ refers to the managerial process of;
• Developing a strategic vision,
• Setting objectives,
• Crafting a strategy,
• Implementing the strategy,
• Evaluating the strategy and
• Initiating corrective adjustments where deemed appropriate.
Hence, strategic management is not a bundle of tricks and magic.
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Concept 4: Strategic Management:
Introduction;
In a hyper competitive marketplace, companies can operate successfully by creating

and delivering superior value to target customers and also learning how to adapt to a
continuously changing business environment. So, to meet changing conditions in their
industries, companies need to be farsighted and visionary, and must develop long-
term strategies. Strategic planning, an important component of strategic management,
involves developing a strategy to meet competition and ensure long-term survival and
growth of the company.
Definition of Strategic Management;
“The art and science of formulating, implementing and evaluating cross-functional decisions
that enable an organization to achieve its objectives.”
4.1 The overall objectives of strategic management are twofold;
i. To create competitive advantage;
So that the company can outperform the competitors in order to have dominance
over the market.
ii. To guide the company successfully through all changes in the environment.
To put the concept in a few words, the term ‘strategic management’ refers to the
managerial process of developing a strategic vision, setting objectives, crafting a
strategy, implementing and evaluating the strategy, and finally initiating corrective
adjustments where deemed appropriate. The process does not end, it keeps going on
in a cyclic manner.
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4.2 Importance (Benefits) of Strategic Management;
Introduction;
Formulation of strategies and their implementation have become essential for all
organizations for their survival and growth in the present turbulent business environment.
‘Survival of fittest ‘as promoted by Charles Darwin is the only principle of survival for
organization, where ‘fittest’ are not the ‘largest’ or ‘strongest’ organizations but those who
can change and adapt successfully to the changes in business environment.
Many business giants have followed the path of extinction failing to manage drastic changes in
the business environment. For E.g., Bajaj Scooters, LML Scooters, Murphy Radio, BPL Television,
Nokia, kodak and so on. Thus, it becomes essential to study Business Strategy.
The major benefits of strategic management are:

• Direction to the company:
The strategic management gives a direction to the company to move ahead. It defines
the goals and mission. It helps management to define realistic objectives and goals which
are in line with the vision of the company.
• Proactive instead of Reactive:
Strategic management helps organisations to be proactive instead of reactive in

shaping its future. Organisations are able to analyse and take actions instead of
being mere spectators. Thereby they are able to control their own destiny in a better
manner. It helps them in working within unpredictable environment and shaping it,
instead of getting carried away by its turbulence or uncertainties.
• Framework for all major decisions:
Strategic management provides framework for all major decisions of an enterprise such
as decisions on businesses, products, markets, manufacturing facilities, investments
and organisational structure. In other words, it provides better guidance to entire
organisation on the crucial point - what it is trying to do.
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• Futuristic:
Strategic management seeks (i.e., attempt) to prepare the organisation to face the
future and act as pathfinder to various business opportunities. Organisations are able
to identify the available opportunities and identify ways and means to reach them.
• Corporate Defence Mechanism:
Strategic management serves as a corporate defence mechanism against mistakes and

pitfalls. It helps organisations to avoid costly mistakes in product market choices or
investments.
• Enhance Longevity:
Strategic management helps to enhance the longevity (i.e., durability) of the business.
With the state of competition and dynamic environment it may not be possible for
organisations to survive in long run. It helps the organization to take a clear stand
in the related industry and makes sure that it is not just surviving on luck.
• Developing Core Competence and Competitive Advantage:
Strategic management helps the organisation to develop certain core competencies

and competitive advantages that would facilitate assist in its fight for survival and
growth.
4.3 Limitations (Drawbacks) of Strategic Management;
Introduction;
The presence of strategic management cannot counter all hindrances and always achieve
success. There are limitations attached to strategic management. These can be explained
in the following lines.
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• Strategic management is a costly process;
Strategic management adds a lot of expenses to an organization. Expert strategic

planners need to be engaged, efforts are made for analysis of external and internal
environments devise strategies and properly implement.
These can be really costly for organisations with limited resources particularly when
small and medium organisation create strategies to compete. Strategic Management
requires experts and these experts are costly resources. Thus, the process as a whole
required good amount of funds to be spent
• Strategic management is a time-consuming process;
Organisations spend a lot of time in preparing, communicating the strategies that may
impede daily operations and negatively impact the routine business.
• Environment is highly complex and turbulent (i.e., unstable);
It is difficult to understand the complex environment and exactly pinpoint how it will
shape-up in future. The organisational estimate about its future shape may awfully
(i.e., inadequately go wrong) and jeopardise (i.e., causing harm to) all strategic plans.
The environment affects as the organisation has to deal with suppliers, customers,
governments and other external factors. Thus, relying on a business strategy blindly
could go absolutely wrong if the environment is turbulent.
• In a competitive scenario;
In a competitive scenario, where all organisations are trying to move strategically, it

is difficult to clearly estimate the competitive responses to a firm’s strategies.
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Concept 5: Strategic levels in Organisations:
Introduction;
A typical large organization is a multi-divisional organisation that competes in several

different businesses. It has separate self-contained divisions to manage each of these.
For example, Patanjali has healthcare, FMCG, Organic Foods, Medicinal Oils and Herbs,
and various different businesses. It has separate divisions which work within themselves
to sustain each of these businesses.
General managers are found at the first two of these levels, but their strategic roles differ
depending on their sphere of responsibility.
5.1 Corporate level of management consists of;
1. The Chief Executive Officer (CEO),

2. Other Senior Executives,
3. The Board of Directors (BOD) and
4. Corporate Staff.
Those individuals are mainly strategic decision-making authority of the organisation.
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Q. What tasks are performed by a strategic Manager? Or, The role of corporate level
management includes.
Answer: The primary task of the strategic manager is conceptualising, designing and
executing company strategy. For this purpose, his tasks include;
• To oversee the development of strategies for the whole organization.
• To set corporate vision, mission and goals,
• Determining what business, it should be in,
• Allocation of resources,
• Formulating strategies and implementing strategies that span (i.e., to cover or to

reach) individual businesses,
• Providing leadership for the organization as a whole, etc...
5.2 Distinction between strategic levels of the organisation;
i. Corporate Level;
Consist of?
Chief executive officer and other top-level executives. These individuals participate
in strategic decision making within the organization.
Role’s;
The role of corporate-level managers is to oversee the development of strategies for

the whole organization.
This role includes defining the mission and goals of the organization, determining
what businesses it should be in, allocating resources among the different businesses,
formulating and implementing strategies that span (i.e., cover or to reach) individual
businesses, and providing leadership for the organization as a whole.
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ii. Business Level;

Consist of?
General Manager or Divisional Manager and Staff.
Role’s;
To translate the general statements (i.e., general strategies) into concrete strategies
of their individual businesses.
The strategic role of business-level manager, head of the division, is to translate

the general statements of direction and intent that come from the corporate level
into concrete strategies for individual businesses. Such divisions are called Strategic
Business Units (SBUs).
In other words, The development of strategies for individual business areas. To

support corporate strategy.
iii. Functional Level;

Consist of?
Functional Manager’s like, Finance Manager’s, HR Manager’s, etc...
Role’s;
Responsible for the specific business functions or operations such as human resources,
purchasing, product development, customer service, and so on.
To develop functional strategies in their area that help fulfil the strategic objectives
set by business and corporate level general managers. Functional managers provide
most of the information to formulate realistic and attainable strategies.
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Concept 6: Strategic Management in Government and Non-Profit Organisations:
Introduction;
Organizations can be classified as commercial and non-commercial on the basis of the

interest (i.e., object) they have. A commercial organization has profit as its main aim. We
can find many organizations around us, which do not have any commercial objective of
making profits. Their formation may be for social, charitable, or educational purposes.
For E.g., ICAI, NGO’s such as Help-Age, Child Relief and You.

Their main aim is to provide services to members, beneficiaries or public at large. A
non-commercial organization comes to existence to meet the needs not met by business
enterprises. These organizations may not have owners in true sense.
The strategic management process is being used effectively by countless non-profit

governmental organizations. Many non-profit and governmental organizations
outperform (meaning it perform better than) private firms and corporations on innovation,
motivation, productivity, and human relations.
Compared to for-profit firms, non-profit and governmental organizations often function

as a monopoly, produce a product or service that offers little or no measurability of
performance, and are totally dependent on outside financing. They thus face a challenge
in getting the right amount of funds to keep functioning because the profits are not the
motive. Especially for these organizations, strategic management provides an excellent
vehicle for developing and justifying requests for financial support.
6.1 Educational Institutions;
Education is considered to be a noble profession. An educational institution often functions

as a not-for-profit organization managed by trusts and societies. They include schools,
colleges and universities.
Being inherently non-commercial in nature, educational organisations do not have cut-

throat competition as in case of their commercial counterparts.
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However, as the number of institutions belonging to both public and private sector are
increasing, the competition is gradually rising. Educational institutions are using strategic
management techniques and concepts more frequently.
The educational delivery system has also undergone considerable changes with the
introduction of computers and internet technologies. The first all-Internet law school,
Concord University School of Law, boasts nearly two hundred students who can access
lectures anytime and chat at fixed times with professors. Online college degrees are
becoming common and represent a threat to traditional Colleges and universities. For E.g.,
Distance learning.
Through the use of strategic management techniques such institutions are expected to
concentrate attention towards:
• Getting better name and recognition.
• Attracting talented students.
• Designing the curriculum in such a way to provide better citizen and ensure
employability.
• Appointing and retaining quality faculty for teaching.
• Preparing students for the future challenges by capacity building. etc...
6.2 Medical Institutions;
Modern hospitals are creating new strategies today as advances in the diagnosis and treatment
of chronic diseases are undercutting that earlier mission. Hospitals are beginning to bring
services to the patient as much as bringing the patient to the hospital. Pathological
laboratories have started collecting door-to-door samples.
Chronic care will require day–treatment facilities, electronic monitoring at home, user-
friendly ambulatory services, decentralized service networks, and laboratory testing.
A successful hospital strategy for the future will require renewed and deepened
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collaboration with physicians. who are central to hospitals’ well-being and a reallocation
of resources from acute to chronic care in home and community settings.
Backward integration strategies that some hospitals are pursuing include acquiring ambulance
services, waste disposal services, and diagnostic services.
The whole strategic landscape (i.e., environment) of healthcare is changing because of

the Internet. Millions of persons research medical ailments (i.e., disease) online, which is
causing a dramatic shift in the balance of power between doctor, patient, and hospitals.
Intel recently began offering a new secure medical service whereby doctors and patients can
conduct sensitive business on the Internet such as sharing results of medical tests and
prescribing medicine.
 The most successful hospital strategies today are:
• Providing free-standing outpatient surgery centres,

• Outpatient surgery and diagnostic centres,
• Physical rehabilitation centres,
• Home health services,
• Cardiac rehabilitation centres,
• Industrial medicine services,
• Women's medicine services,
• Skilled nursing units,
• Psychiatric services, etc...
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6.3 Governmental agencies and departments;
Central, State, Municipal Agencies, Public Sector Units, departments are responsible for
formulating, implementing, and evaluating strategies that use taxpayers’ money in the
most cost-effective way to provide services and programs.
Strategic-management concepts increasingly are being used to enable some organizations

to be more effective and efficient.
Strategists in governmental organizations operate with less strategic autonomy (mean less
flexibility) than their counterparts in private firms. Public enterprises generally cannot
diversify into unrelated businesses or merge with other firms.
Governmental strategists usually enjoy little freedom in altering the organizations’ missions
or redirecting objectives. Legislators and politicians often have direct or indirect control
over major decisions and resources. Issues become politicized, resulting in fewer (i.e., less)
strategic choice alternatives.
But in government agencies and departments are finding that their employees get excited
about the opportunity to participate in the strategic-management process and thereby
have an effect on the organization’s mission, objectives, strategies, and policies.
In addition, government agencies are using a strategic management approach to develop

and substantiate formal requests for additional funding. For E.g., PM Care Fund.
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Question Bank
Q. 1 Enumerate business policy.

Ans. Refer page Concept

Q. 2 “Strategy is partly proactive and partly reactive.” Discuss.


Q. 3 What is strategy? and explain its features (characteristics).


Q. 4 Strategic management is a bundle of tricks and magic? Comment.


Q. 5 Define Strategic management and objectives of strategic management?


Q. 6 What is Strategic Management? What benefits accrue by following a strategic
approach to managing?


Q. 7 Are there any limitations attached to strategic management in organizations?
Discuss.
or
Define Strategic Management. Also discuss the limitations of Strategic Management.
or
“Strategic Management is not a panacea for all the corporate ills, it has its own
pitfalls which can’t counter all hindrances and always achieve success.
Do you agree with this statement?
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Q. 8 What tasks are performed by a strategic Manager?


Q. 9 Explain the difference between three levels of strategy formulation.


Q.10 “Strategic Management concepts are useful for educational institution.” Explain with
reasons.


Q.11 How concept of strategic management is useful in medical organizations? List
successful hospital strategies for today.


Q.12 How concept of strategic management is useful in governmental agencies and
department?


Q.13 How concept of strategic management is useful in Government and medical
organizations? Discuss.


Q.14 Non-Profit organisation do not require strategic management?


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Q.15 Acquiring of ambulance services by a hospital is an example of forward integration

strategy? Do you agree?

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Dynamics of Competitive
Strategy
Concept 1: Competitive Strategy:
Strategy is formed and developed by organisational managers for achieving basic objectives
of management i.e., survival, stability, efficiency, growth, profitability and prosperity. But
along with above mentioned business objectives one of the most important objectives of
framing strategies is to fight competition.
In simple words, strategies formed for fighting and sustaining external competition is known
as Competitive strategies.
Competitive strategy of a firm evolves out of consideration of several factors that are external
to it. The external environment affects the internal environment of the firm.
A continuous change in this environment provides new opportunities and creates new
challenges in terms of threats for the organisation.
The objectives of a competitive strategy are;

• Generate competitive advantage,
• Increase market share, and
• Beat competition.
A competitive strategy consists of moves (steps) to…

 Attract customers.
 Withstand competitive pressures.
 Strengthen market position.
Having a competitive advantage is necessary for a firm to compete in the market. Competitive
advantage comes from a firm’s ability to perform activities more effectively than its rivals. But
what is more important is whether the competitive advantage is sustainable? By knowing if it
is a leader, challenger, or follower, it can adopt appropriate competitive strategy.
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Concept 2: Competitive Landscape:
Introduction;
Competitive landscape is a business analysis which identifies competitors, either direct or indirect.
Competitive landscape is about identifying and understanding the competitors and at the same
time, it permits the comprehension (i.e., knowledge) of their vision, mission, core values,
niche market, strengths and weaknesses.
Understanding of competitive landscape requires an application of “competitive intelligence”.
An in-depth investigation and analysis of a firm’s competition allows it to assess the

competitor’s strengths and weaknesses in the marketplace and helps it to choose and
implement effective strategies that will improve its competitive advantage. Competitive
advantage comes from a firm’s ability to perform activities more effectively than its rivals.
Thus, understanding the competitive landscape is important to build upon a competitive

advantage.

Steps to understand the Competitive Landscape;
1. Identify the competitor,

2. Understand the competitors,
3. Determine the strengths of the competitors,
4. Determine the weaknesses of the competitors,
5. Put all of the information together.
1. Identify the competitor:
The first step to understand the competitive landscape is to identify the competitors
in the firm’s industry and have actual data about their respective market share.

This answers the question:
• Who are the competitors?
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2. Understand the competitors:
Once the competitors have been identified, the strategist can use market research
report, internet, newspapers, social media, industry reports, and various other
sources to understand the products and services offered by them in different markets.
• What are their product and services?
3. Determine the strengths of the competitors:
What is the strength of the competitors? What do they do well? Do they offer great
products? Do they utilize marketing in a way that comparatively reaches out to more
consumers? Why do customers give them their business?
This answers the questions:
• What are their financial positions?

• What gives them cost and price advantage?
• What are they likely to do next?
• How strong is their distribution network?
• What are their human resource strengths?
4. Determine the weaknesses of the competitors:
Weaknesses can be identified by going through consumer reports and reviews

appearing in various media. After all, consumers are often willing to give their
opinions, especially when the products or services are either great or very poor.
• Where are they lacking?
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5. Put all of the information together:
At this stage, the strategist should put together all information about competitors
and draw inference (i.e., conclusion) about what they are not offering and what the
firm can do to fill in the gaps. The strategist can also know the areas which need to
be strengthen by the firm.
This answers the questions:
• What will the business do with this information?

• What improvements does the firm need to make?
• How can the firm exploit the weaknesses of competitors?
Concept 3: Strategic Analysis:
Introduction;
Understanding the business environment before starting the business is known as

strategic analysis. Strategic analysis is conscious efforts made by the business managers in
understanding the internal factors (S & W) and external forces (O & T) which are related to the
business organization.
All business managers should perform situational analysis before they start planning for
the organization.
Strategy formulation is not a task in which managers can get by with intuition, opinions,
instincts, and creative thinking. But it is a judgment about what strategies to pursue need
to flow directly from analysis of;
• A firm’s external environment,

• Its internal resources, and
• Capabilities.
The two most important situational considerations (factors) are:
i. Industry and Competitive Conditions, and
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ii. An organisation’s own competitive capabilities, resources, internal strengths,

weaknesses, and market position.
For developing sound and meaningful long-term strategy strategist must perform
strategic appraisal of the external and internal situation, to evaluation of alternatives,
to the choice of strategy.
Efforts made in formulation of strategies without perceptive analysis of businesses factors

and forces will increase the chance of developing faulty strategy which will decrease the
chance of improving the performance of the organization, will lead to little prospect of
developing competitive advantage and unachieved vision, mission and objectives and
goals.
Issues (limitations) to consider for Strategic Analysis:
a. Strategy evolves over a period of time;
Development of strategy requires detailed analysis of all the aspects of internal and
external factors and forces. This is time consuming process.
An important aspect of strategic analyses is to consider the possible implications of

routine decisions.
Strategy of a firm, at a particular point of time, is result of a series of small decisions

taken over an extended period of time.
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b. Balance of external and internal factors;
The process of strategy formulation is often described as one of the matching the
internal potential of the organization with the environmental opportunities.
In reality, as perfect match between the two may not be feasible. There are constraints
that limit the choice such as existence of a big competitor.
c. Risk;
Competitive markets, liberalization, globalization, booms, recessions, technological

advancements, inter-country relationships all affect businesses and pose risk at
varying degree.
In strategic analysis, the principle of maintaining balance is important. However, the

complexity and intermingling (i.e., inter mix) of variables in the environment reduces
the strategic balance in the organisation.
An important aspect of strategic analysis is to identify potential imbalances or risks

and assess their consequences.
External risk is on account of inconsistencies between strategies and the forces in the
environment.
Internal risk occurs on account of forces that are either within the organization or are
directly interacting with the organization on a routine basis.
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3.1 Types of Risk;

Time
Short Term Long Term
An error in Changes in the
External
interpreting the environment lead to
Strategic Risks
environment, causes obsolescence of strategy.

strategic failure.
Organizational Inconsistencies with the

Internal
capacity is unable to strategy are developed

cope up with strategic on account of changes
demands. in internal capacities &
preferences.
3.2 Framework of Strategic Analysis;
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Concept 4: Methods of Industry and Competitive Analysis:
What is Industry?
Industry is “a group of firms whose products have same and similar attributes such that
they compete for the same buyers.”
For E.g., Telecom Industry.
Introduction;
Industry and competitive analysis can be done using a set of concepts and techniques to
get a clear picture on;
• Key Industry Traits,
• The intensity of competition,
• The drivers of industry change,
• The market positions and strategies of rival companies,
• Competitive success, and
• Profit (i.e., Financial) prospects.
It provides a way of thinking strategically about any industry’s overall situation and
drawing conclusions about whether the industry represents an attractive investment for
organisational funds.
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The analysis involves examining business in the context of a wider environment. Industry
and competitive analysis aim at developing understanding to several issues.
Analysing these issues build understanding of a firm’s surrounding environment and,

collectively, form the basis for matching its strategy to changing industry conditions and
competitive realities.
4.1 Dominant Economic Features of the Industry; (Key Industry Traits)
Introduction;
Industries differ significantly in their basic character and structure. Industry and competitive
analysis begin with an overview of the industry’s dominant economic features.
Industry is “a group of firms whose products have same and similar attributes such that
they compete for the same buyers.”
The factors to be considered in summarising an industry’s economic features are fairly

standard and are given as follows:
• Size and nature of market.
• The number of buyers and their relative sizes.
• Number of rivals and their relative market share.
• Market growth rate and position in the business life. (Such as, early development,
rapid growth and take-off, early maturity, saturation and stagnation, decline).
• Scope of competitive rivalry. (i.e., local, regional, national, international, or global).
• The types of distribution channels used to access consumers.
• The pace of technological change in both production process innovation and new
product introductions.
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• Whether the products and services of rival firms are highly differentiated, weakly
differentiated, or essentially identical?
• Whether organisation can realize economies of scale in purchasing, manufacturing,

transportation, marketing, or advertising?
• Whether key industry participants are assembled in a particular location?
For E.g., Lock industry in Aligarh, Saris and diamonds in Surat, information technology
in Bangalore, etc...
• Whether certain industry activities are characterized by strong learning and experience
effects (“learning by doing”) such that unit costs decline as cumulative output grows?
• Whether high rates of capacity utilization are crucial to achieving low-cost production efficiency?
• Capital requirements and the ease of entry and exit.
• Whether industry profitability is above or below par?
Conclusion;
All of these considerations from economic perspective, help the management to decide on
various factors of strategy like viability of their product, location of production, consumer
preferences, cost of production, beneficial government support, etc...
4.2 Nature and Strength of Competition;
Introduction;
An important component of industry and competitive analysis involves study of the

industry’s competitive process to discover what the main sources of competitive pressure are
and how strong each competitive force is?
This analytical step is essential because managers cannot frame a successful strategy
without in-depth understanding of the industry’s competitive character.
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Even though competitive pressures in various industries are never precisely the same, the
competitive process works similarly enough to use a common analytical framework in
gauging the nature and intensity of competitive forces.
Porter’s five (5) forces model is useful in understanding the competition. It is a powerful tool
for systematically diagnosing the main competitive pressures in a market and assessing how
strong and important each one is. Not only is it the widely used technique of competition
analysis, but it is also relatively easy to understand and apply.
4.3 Triggers of Change; (Driving Forces)
Introduction;
Triggers of change;
All industries are characterized by trends and new developments that gradually produce
changes important enough to require a strategic response from participating firms. Like
desktop computers slowly got beaten by portable laptops
These changes force strategist to change their business plan to adjust to the changes in the
business environment. This change either individual or group is understood as triggers of
change.
The life-cycle stages are strongly linked to changes in the overall industry growth rate.
For E.g., Introduction of Smart TV or Android TV.
All triggers sometimes are not powerful enough but those which powerful are known as
Drivers to change.
Driving Forces;
Industry and competitive conditions change because forces are in motion that creates
incentives or pressures for changes. The most dominant forces are called driving forces
because they have the biggest influence what kinds of changes will take place in the industry’s
structure and competitive environment.
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Most common driving forces;
Many events can affect an industry powerfully enough to qualify as driving forces. Some
are unique and specific to a particular industry situation, but many drivers of change fall into
general category affecting different industries simultaneously. Some of the examples of
general drivers are follows:
• Increasing globalization, more FDI and global competition.
• Product innovation.
• Changes in cost and efficiency, due to technology and consumer behaviour.
• Changes in the long-term industry growth rate, slowing GDP.
• Marketing innovation, Digital marketing.
• Entry or exit of major firms, should be watched closely.
• The internet and e-commerce opportunities and threats it reproduces in the industry.
Analysing driving forces has two steps:
i. Identifying what the driving forces are? and
ii. Assessing the impact, they will have on the industry.

(Can creates an opportunity or introduce threats).
4.4 Identifying the Strongest–Weakest Companies; (Strategic Group Mapping)
Introduction;
The next step in examining the industry’s competitive structure is to study the market
positions of rival companies. Identifying the strongest and weakest companies help
understand what techniques can be implemented and which ones are to be avoided.
One technique for revealing the competitive positions of industry participants is strategic
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group mapping, which is useful analytical tool for comparing the market positions of each
firm separately or for grouping them into like positions when an industry has so many
competitors that it is not practical to examine each one in-depth.
For example, Smart Phone industry has numerous options to select from. Thus, grouping
them into categories based on various parameters can be really insightful and time saving
A strategic group consists of those rival firms which have similar competitive approaches
and positions in the market.
Companies in the same strategic group can resemble one another in any of the several ways:
• They may have comparable product-line breadth,

• Sell in the same price or quality range,
• Emphasize the same distribution channels,
• Depend on identical technological approaches,
• Use essentially the same product attributes to appeal to similar types of buyers, or
• Offer buyers similar services and technical assistance.
An industry may contain only one strategic group when all sellers pursue essentially
identical strategies and have comparable market positions. At the other extreme, there are
as many strategic groups as there are competitors when each rival pursues a distinctively
different competitive approach and occupies a substantially different competitive position
in the marketplace.
The procedure for constructing a Strategic Group Mapping;
1. Identify the competitive characteristics that differentiate firms in the industry.
Typical variables are (mean competitive characteristics can be based on)

• price or/and quality range (high, medium, low),
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• geographic coverage (local, regional, national, global),

• degree of vertical integration (none, partial, full),
• product-line breadth (wide, narrow),
• use of distribution channels (one, some, all), and
• degree of service offered (no-frills, limited, full).
2. Plot the firms on a two-variable map using pairs of these differentiating

characteristics.
3. Assign firms that fall in about the same strategy space to the same strategic group.
4. Draw circles around each strategic group, making the circles proportional to the size
of the group’s respective share of total industry sales revenues.
4.5 Likely Strategic Moves of Rivals;
Introduction;
Unless a business organisation pays attention to what competitors are doing, it ends up flying
blind into competitive battle. A company can’t expect to bypass its rivals without monitoring
their actions, understanding their strategies, and anticipating what moves they are likely
to make next.
Competitive intelligence about the strategies rivals are deploying, their latest moves, their
resource strengths and weaknesses, and the plans they have announced is essential to
anticipating the actions they are likely to take next and what bearing i.e., impact their moves
might have on a company’s own best strategic moves.
Competitive intelligence can help a company determine whether it needs to defend against
specific moves taken by rivals or whether those moves provide an opening for a new
offensive force.
This analysis should be on regular basis as competitors react to changes way quicker than
a business can imagine. Dedicated review of competitors actions gives unmatched
advantage to any business.
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4.6 Key Success Factors; (KSF’s)
Introduction;
These are the key elements that affect the ability of a firm or industry to prosper in the
market. KSFs are those things that most affect industry members’ ability to prosper in the
marketplace between competitive success or failure.
For E.g., JIO Cost efficient i.e., Economical for customers is a KSF’s in telecom industry at
present.
Some of the successful key factors are;
• Core competitions,
• Business outcome (Result),
• Competitive capabilities,
• Internal & External recourses,
• Strategy in production, marketing, etc...
KSFs by their very nature are so important that all firms in the industry must pay close
attention to them. They are the prerequisites for industry success and they form (i.e., create)
the rule that figure whether a company will be financially or competitively successful.
Misdiagnosing the industry factors critical to long-term competitive success greatly raises
the risk of a misdirected strategy. In contrast, an organisation with perceptive understanding
of industry KSFs can gain sustainable competitive advantage by training its strategy on
industry KSFs and devoting its energies to being distinctively better than rivals on one or
more of these factors. Indeed, business organisations that stand out on a particular KSF
enjoy a stronger market position for their, efforts-being distinctively better than rivals on one
or more key success factors presents a golden opportunity for gaining competitive advantage.
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How to find out or identify the KSF’s of an industry?
1. On what basis do customer select between the competing brands of sellers? What
product attributes are crucial? Such as quality, durability, etc...
2. What competitive capabilities does a seller need to have to be competitively successful,

better human capital, quality of product or quantity of product, cost of service,
etc...?
3. What does it take for seller to achieve a sustainable competitive advantage, something
that can be sustained for long term?
For E.g., in apparel i.e., outfit manufacturing, the KSFs are;
• Appealing designs and colour combinations (to create buyer interest)

and
• Low-cost manufacturing efficiency (to permit attractive retail pricing and ample profit
margins).

Conclusion;
Key success factors vary from industry to industry and even from time to time within the
same industry as driving forces and competitive conditions change.
The purpose of identifying KSFs is to make judgments about what things are more important
to competitive success and what things are less important.
4.7 Prospects and Financial Attractiveness of Industry;
Introduction;
The final step of industry and competitive analysis is to use the results of analysis of previous
six issues to draw conclusions about the relative attractiveness or unattractiveness of the
industry, both near-term and long-term.
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Company strategists are obligated to assess the industry outlook carefully, deciding whether
industry and competitive conditions present an attractive business opportunity for the
organisation or not.
The important factors on which to base such conclusions include:
• The industry’s growth potential, is it futuristically viable?
• Whether competition currently permits adequate profitability and whether competitive

forces will become stronger or weaker?
• Whether industry profitability will be favourably or unfavourably affected by the

prevailing driving forces?
• The competitive position of an organisation in the industry and whether its position is
likely to grow stronger or weaker.
• Whether the company is able to defend against or counteract the factors that make the
industry unattractive?
• The degrees of risk and uncertainty in the industry’s future.
• Whether continued participation in this industry adds importantly to the firm’s ability
to be successful in other industries in which it may have business interests?
As a general proposition, if an industry’s overall profit prospects are above average,

the industry can be considered attractive; if its profit prospects are below average, it is
unattractive.
However, it is a mistake to think of industries as being attractive or unattractive to all

firms in the industry and all potential entrants.
Attractiveness is relative, not absolute. Industry environments unattractive to weak

competitors may be attractive to strong competitors.
If the industry and competitive situation is judged relatively unattractive, more successful
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industry participants may choose to invest cautiously, look for ways to protect their long-
term competitiveness and profitability, and perhaps acquire smaller firms if the price is right;
over the longer term, strong companies may consider diversification into more attractive
businesses.
Weak companies in unattractive industries may consider merging with a rival to increase
market share and profitability or, alternatively, begin looking outside the industry for
attractive diversification opportunities.
Concept 5: Core Competence:

Introduction;
Core competencies are capabilities that serve as a source of competitive advantage for a
firm over its rivals.
An organization’s combination of technological and managerial know-how, wisdom and

experience are a complex set of capabilities and resources that can lead to a competitive
advantage compared to a competitor.
C.K. Prahalad and Gary Hamel have advocated a concept of core competency, which is a
widely-used concept in management theories.
Competency is defined as a;
“Combination of skills and techniques rather than individual skill or separate technique.”
Core Competency is defined as a;
“The collective learning in the organization, especially coordinating diverse production

skills and integrating multiple streams of technologies.”
For core competencies, it is characteristic to have a combination of skills and techniques,

which makes the whole organization utilize these several separate individual capabilities.
The optimal way to define core competence is to consider it as sum of 5 – 15 areas of

developed expertise.
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Therefore, core competencies cannot be built on one capability or single technological knowhow,
instead, it has to be the integration of many resources.
5.1 According to C.K. Prahalad and Gary Hamel, Major core competencies are identified in
three (3) areas;
i. Competitor differentiation,
ii. Customer value, and
iii. Application to other markets (i.e., Application of competencies within the

organisation).
i. Competitor Differentiation,
The company can consider having a core competence if the competence is unique and it
is difficult for competitors to imitate (i.e., Copy or Follow). This can provide a company
an edge (i.e., advantage) compared to competitors. It allows the company to provide
better products or services to market with no fear that competitors can copy it.
The company has to keep on improving these skills in order to sustain its competitive
position. Companies operating in the same market would have the equal skills and
resources, if one company can perform this significantly better; the company has
obtained a core competence.

ii. Customer Value,
When purchasing a product or service it has to deliver a fundamental benefit for the end
customer in order to be a core competence. It will include all the skills needed to
provide fundamental benefits. The service or the product must have real impact on the
customer as the reason to choose to purchase them.
iii. Application to other markets (i.e., Application of competencies within the organisation).
Core competence must be applicable to the whole organization; it cannot be only one
particular skill or specified area of expertise.
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Therefore, although some special capability would be essential or crucial for the
success of business activity, it will not be considered as core competence, if it is not
fundamental from the whole organization’s point of view.
Thus, a core competence is a unique set of skills and expertise, which will be used
throughout the organisation to open up potential markets to be exploited.
Examples
Hindustan Unilever Limited (HUL)
Marketing and Sales is a core competence.

Wal-Mart
Focused on lowering its operating costs.

Conclusion;
If the three above-mentioned conditions are achieved, then the company can regard it
competence as core competency.
Core competencies are the knowledge, skills, and facilities necessary to design and produce
core products. Core competencies are created by superior integration of technological, physical
and human resources. They represent distinctive skills as well as intangible, invisible,
intellectual assets and cultural capabilities.
Core Competence-based diversification reduces risk and investment and increases the
opportunities for transferring learning and best practice across business units.
5.2 Why to identify and develop a core competency? (Core competency fulfils three criteria);
Introduction;
Core competencies distinguish a company competitively and reflect its personality. These
41
competencies emerge over time through an organizational process of accumulating and

learning how to deploy different resources and capabilities.
It is important to identify core competencies because it is difficult to retain those competencies

in a price war and cost-cutting environment.
Failing to identify core competencies is a kind of opportunity loss for a company. That
failure is due to the inability of management to conceive of a company as other than a mere
collection of discrete businesses. A Core competency fulfils three criteria:
i. It should provide potential access to a wide variety of markets.
ii. It should make a significant contribution to the perceived (i.e., to see) customer benefits
of the end product.
iii. It should be difficult to imitate for competitors i.e., rivals.
For E.g., *Note; Only for understanding purpose.

Small retail shops Big retail stores Supermarkets
Core Competencies
Extended working Securing supplies at lower Locational advantage,

hours, Easy credit, cost, In-house activity Quality assurance,
as to;
Free home deliveries, management, Computerized Customer ease in

Amicable style of the stock ordering, Computerized shopping, Etc...
owner, Etc... billing systems, Own brand
labels, Etc...
5.3 How to build Core Competencies?
Introduction;
Four specific criteria of sustainable competitive advantage that firms can use to determine
those capabilities that are core competencies. Capabilities that are;
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i. Valuable,
ii. Rare,
iii. Costly to Imitate (i.e., copy or follow), and
iv. Non – Substitutable
i. Valuable,
Valuable capabilities are the ones that allow the firm to exploit opportunities or
avert i.e., prevent the threats in its external environment. A firm created value for
customers by effectively using capabilities to exploit opportunities.
For E.g., Finance companies build a valuable competence in financial services. In

addition, to make such competencies as financial services highly successful require
placing the right people in the right jobs. Human capital is important in creating
value for customers.
ii. Rare,
Core competencies are very rare capabilities and very few of the competitors possess
this.
Capabilities possessed by many rivals are unlikely to be sources of competitive advantage

for any one of them. Competitive advantage results only when firms develop and exploit
valuable capabilities that differ from those shared with competitors.
iii. Costly to imitate (copy or follow),
Costly to imitate means such capabilities that competing firms are unable to develop
easily.
For E.g., intel has enjoyed a first mover advantage more than once because of its rare
fast R&D cycle time capability that brought SRAM (Static Random-Access Memory)
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and DRAM (Dynamic Random-Access Memory) integrated circuit technology, and

brought microprocessors to market well ahead of the competitor. The product could
be imitated in due course of time, but it was much more difficult to imitate the R&D
cycle time capability.
iv. Non – Substitutable,
Capabilities that do not have strategic equivalents are called non-substitutable

capabilities.

This final criterion for a capability to be a source of competitive advantage is that
there must be no strategically equivalent valuable resources that are themselves
either not rare or imitable.
For E.g., Tata and Apple,
Firms tried to imitate Tata’s low-cost strategy but most have been unable to
duplicate Tata’s success. The culture and excellent human capital worked
together in implementing Tata’s strategy and are the basis for its competitive
advantage.
Competitors are deeply aware about Apple’s operating system’s (iOS) successful
model. However, to date, no competitor has been able to imitate Apple’s
capabilities. These are also protected through copyrights.
Conclusion;
To sum up, we can say that only when a capability is valuable, rare, costly to imitate,
and non-substitutable, it is a core competence and a source of competitive advantage.
Over a time, core competencies must be supported. Core competencies are a source
of competitive advantage only when they allow the firm to create value by exploiting
opportunities in its external environment.
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5.4 A core competence is identified by the following tests;
i. Leverage Test: Does it provide potential access to a wide variety of markets?
ii. Value Enhancement Test: Does it make a significant contribution to the perceived (i.e.,
to see) customer benefits of the end product?
iii. Imitability Test: can it be imitated? Does it reduce the threat of imitation by competitors?
5.5 Advantages of identifying core competencies;
• Provide competitive advantage,

• Ensure profits,
• Helps firm stretches into new opportunities,
• Help in maintaining progress, etc...
Conclusion;
Thus, a core competence is a unique set of skills and expertise, which will be used
throughout the organisation to open up potential markets to be exploited.
If the three above-mentioned conditions are met, then the company can regard it
competence as core competency.
It is important to identify core competencies because it is difficult to retain those

competencies in a price war and cost-cutting environment.
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Concept 6: Value Chain Analysis:
Introduction;
A value chain is a set of activities that a firm operating in a specific industry performs in
order to deliver a valuable product or service for the market.
Value chain analysis has been widely used as a means of describing the activities within and
around an organization, and relating them to an assessment of the competitive strength
of an organization. In other words, its ability to provide value-for-money products or
services.
Value chain analysis was originally introduced as an accounting analysis to shed light (i.e.,
to reveal information) on the ‘value added’ of separate steps in complex manufacturing
processes, in order to determine where cost improvements could be made, value creation
improved.
The two basic steps of identifying separate activities and assessing the value added from each
were linked to an analysis of an organization’s competitive advantage by Michael Porter.
One of the key aspects of value chain analysis is the recognition that organizations are
much more than a random collection of Man (people), Machines, Material, and Money.
These resources are of no value unless deployed into activities and organised into systems
and routines which ensure that products or services are produced which are valued by the
final consumer i.e., user.
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In other words, it is these competences to perform particular activities and the ability to
manage linkages between activities which are the source of competitive advantage for
organizations. Porter argued that an understanding of strategic capability must start with
an identification of these separate value activities.
The primary activities of the organization are grouped into five main areas:
• Inbound logistics; These are the activities concerned with receiving, storing and
distributing the inputs to the product/service. This includes materials handling,
warehousing, inventory control, transport etc...
• Operations; It comprise the transformation of the inputs into the final product form.
This includes production, machining, assembly, packaging, testing, etc...
• Outbound logistics; It involve the collecting, storing, and distributing the product to
the buyers.
For tangible products this would be processing of orders, warehousing of finished

goods, materials handling, transport, etc...
In the case of services, it may be more concerned with arrangements for bringing
customers to the service, if it is a fixed location, for example sports events.
• Marketing and sales; It deals with how buyers can be convinced to purchase the
product. Provides the means whereby users are made aware of the product or service
and are able to purchase it. This would include sales administration, advertising,
promotion, distribution, etc...
• Service; It involves how to maintain the value of the product or service after it is
purchased. Through installation, repair, maintenance, training, etc..
Each of these groups of primary activities are linked to support activities. These can be divided
into four areas:
• Procurement; It concerned with the tasks of purchasing inputs such as raw materials,
equipment, and even labour.
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• Technology Development; These activities are intended to improve the product (through
R&D in product design) and the process (through process development), or with a
particular resource (e.g., raw materials improvements).
• Human Resource Management; This is a particularly important area which to reach

all primary activities. It is concerned with those activities involved in recruiting,
managing, training, developing and rewarding people within the organization.
• Firm Infrastructure; The activities which are not specific to any activity area. The
systems of planning, finance, quality control, information management, etc…. are
crucially important to an organization’s performance in its primary activities.
Infrastructure also consists of the structures and routines of the organization which
sustain its culture.
6.1 Use of Value Chain Analysis for Identifying Core Competences:
Introduction;
Value chain analysis is useful in describing the separate activities which are necessary to support
an organization’s strategies and how they link together both inside and outside the organization.
Although a threshold competence in all of these activities is necessary to the organization’s

successful operation, it is important to identify those competences which critically support the
organization’s competitive advantage. These are known as the core competences and will
differ from one organization to another depending on how the company is positioned and
the strategies it is pursuing.
For E.g., Japanese manufacturers were developing competences in defect-free manufacture.

Which became critical success factors in allowing them to achieve global sales.
Value chain analysis is a reminder that the long-term competitive position of an organization
is concerned with its ability to sustain value for-money products or services, and it can be
helpful in identifying those activities which the organization must undertake at a threshold
level of competence and those which represent the core competences of the organization.
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Core competences may also be the basis on which the organization stretches into new
opportunities. So, in deciding which competences are core, this is another criterion which
should be used - the ability to exploit the competence in more than one market or arena.
However, in order to do this, it is necessary to identify the basis on which an organization

has gained competitive advantage and hence which are the core competences in sustaining
this advantage.
6.2 Managing linkages:
Introduction;
Core competences in separate activities may provide competitive advantage for an

organization, but nevertheless over time it may be imitated by competitors.
Core competences are likely to be stronger and more difficult to imitate if they relate to the
management of linkages within the organization’s value chain (i.e., internal linkages) and
linkages into the supply and distribution chains (i.e., external linkages).
It is the management of these linkages which provides ‘leverage’ and levels of performance
which are difficult to match by the competitors.
The ability to co-ordinate the activities of specialist teams or departments may create
competitive advantage through improving value for money in the product or service.
Specialization of roles and responsibilities is common in most organizations and is one
way in which high levels of competence in separate activities is achieved. However, it often
results in a set of activities which are incompatible - different departments pulling in
different directions - adding overall cost, diminishing value in the product or service.
This management of internal linkages in the value chain could create competitive advantage in
a number of ways:
• There may be important linkages between the primary activities.
For E.g., a decision to hold high levels of finished stock might ease production
scheduling problems and provide for a faster response time to the customer.
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• Linkages between different support activities may also be the basis of core competences.
For E.g., the extent to which human resource development is in tune with new
technologies has been a key feature in the implementation of new production and
office technologies.
• The management of the linkages between a primary activity and a support activity
may be the basis of a core competence.
For E.g., Computer-based systems provides better infrastructure to facilitate quick

sales and service especially in transport (Ola, Uber, etc...) & hotel (Oyo, Make My
Trip, etc...) business.
External Linkages;
In addition to the management of internal linkage, competitive advantage may also

be gained by the ability to co-ordinate the organization’s own activities with those of
suppliers, channels or customers i.e., external linkage.
Again, this could occur in a number of different ways:
• Vertical integration;
Firm attempts to improve performance through ownership of more parts of the value
system, making more linkages internal to the organization. However, the practical
difficulties and costs of coordinating a wider range of internal activities can outweigh
the theoretical benefits.
• Closely monitoring the suppliers;
Within manufacturing industry, the competence in closely specifying requirements

and controlling the performance of suppliers (sometimes linked to quality checking
and/or penalties for poor performance) can be critical to both quality enhancement
and cost reduction.
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• By applying concept of TQM;
A more recent philosophy has been total quality management, which seeks to
improve performance through closer working relationships between the specialists
within the value system. For example, many manufacturers will now involve their
suppliers and distributors at the design stage of a product or project.
Concept 7: Competitive Advantage:
Introduction;
Competitive advantage allows a firm to gain an edge over rivals when competing. ‘It is a set
of unique features of a company and its products that are perceived by the target market as
significant and superior to the competition.’
Companies, achieving superior performance relative to rivals is the ultimate challenge. If a

company’s strategies result in superior performance, it is said to have a competitive advantage.
“If you don’t have a competitive advantage, don’t compete”

- Jack Welch
Competitive advantages and the differences they create in the firm’s performance are
often strongly related to the resource’s firms hold and how they are managed.
Resources are the foundation for strategy and unique bundles of resources generate
competitive advantages leading to wealth creation.
Resources and capabilities are not inherently valuable, but they create value when the firm
can use them to perform certain activities that result in a competitive advantage.
7.1 Benefits of competitive advantage;
• Competitive advantage is the position of a firm to maintain and sustain a favourable

market position when compared to the competitors.
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• Competitive advantage is ability to offer buyers something different and thereby

providing more value for the money.
• It is achieved advantage over rivals when a company’s profitability is greater than

average profitability of firms in its industry. It is the result of a successful strategy.
• This position gets translated into higher market share, higher profits when compared to
those that are obtained by competitors operating in the same industry.
• Competitive advantage may also be in the form of low-cost relationship in the

industry or being unique in the industry along dimensions that are widely valued by
the customers in particular and the society at large.
All competitive advantages have a limited life. The question of duplication is not if it
will happen, but when the sustainability of competitive advantage and a firm’s ability
to earn profits from its competitive advantage depends upon four major characteristics
of resources and capabilities:
7.2 Competitive Advantage depends upon four (4) major characteristics of resources and
capabilities:
i. Durability: The period over which a competitive advantage is sustained depends in

part on the rate at which a firm’s resources and capabilities deteriorate (i.e., decline). For
example, in industries where the rate of product innovation is fast, product patents
are quite likely to become obsolete.
ii. Transferability: Even if the resources and capabilities on which a competitive advantage
is based are durable, it is likely to be eroded by competition from rivals.
The ability of rivals to attack position of competitive advantage relies on their gaining
access to the necessary resources and capabilities. The easier it is to transfer resources
and capabilities between companies, the less sustainable will be the competitive
advantage which is based on them.
iii. Imitability: If resources and capabilities cannot be purchased by a would-be imitator,

then they must be built from scratch. How easily and quickly can the competitors
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build the resources and capabilities on which a firm’s competitive advantage is

based? This is the true test of imitability.
For Example, in financial services, innovations lack legal protection and are easily
copied.
iv. Appropriability: It refers to the ability of the firm’s owners to appropriate the returns
on its resource base. Even where resources and capabilities are capable of offering
sustainable advantage, there is an issue as to who receives the returns on these
resources. This means, that rewards are directed to from where the funds were
invested, rather than creating an advantage with no actual reward to people to
invested capital.
Concept 8: What is Value Creation?
Introduction;
The concept of value creation was introduced primarily for providing products and services
to the customers with more worth.
Value is measured by a product’s, features, quality, availability, durability, performance, by

its services for which customers are willing to pay. Further, the concept took more space in the
business and organizations started discussing about the value creation for stakeholders.
Many businesses now focus on value creation both in the context of creating better value for
customers purchasing its products and services, as well as for stakeholders in the business
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who want to see their investment in business appreciate in value.
Ultimately, this concept gives business a competitive advantage in the industry and helps
them earn above average profits/returns.
Competitive advantage leads to superior profitability. At the most basic level, how
profitable a company becomes depends on three factors:
i. The value customers place on the company’s products;
ii. The price that a company charges for its products; and
iii. The costs of creating those products.
The value customers place on a product reflects the utility they get from a product the
happiness or satisfaction gained from consuming or owning the product.
Utility must be distinguished from price. Utility is something that customers get from a
product. It is a function of the attributes of the product, such as its performance, design,
quality, and point-of-sale and after-sale service.
Thus, we can say that the value creation is an activity or performance by the firm to
create value that increases the worth of goods, services, business processes or even the
whole business system.
Ultimately, this concept gives business a competitive advantage in the industry and helps
them earn above average profits or returns.
For E.g.,
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Concept 9: Portfolio Analysis:
Introduction;
In business terms, a portfolio is a group of businesses, brands, products, services offered

by an organisation.
In order to analyse the current business portfolio, the company must conduct portfolio
analysis (a tool by which management identifies and evaluates the various businesses
that make up the company).
In portfolio analysis top management views its product lines and business units as a series of
investments from which it expects returns. A business portfolio is a collection of businesses and
products that make up the company. The best business portfolio is the one that best fits the
company’s strengths and weaknesses to opportunities in the environment.
Portfolio analysis can be defined as a set of techniques that help strategists in taking strategic
decisions with regard to individual products or businesses in a firm’s portfolio.
It is primarily used for competitive analysis and corporate strategic planning in multi-product
and multi business firms. They may also be used in less-diversified firms, if these consist
of a main business and other minor complementary interests.
The main advantage in adopting a portfolio approach in a multi-product, multi-business

firm is that resources could be channelised at the corporate level to those businesses that
possess the greatest potential. For instance, a diversified company may decide to divert
resources from its cash-rich businesses to more prospective ones that hold promise of a
faster growth so that the company achieves its corporate level objectives efficiently.
In order to design the business portfolio, the management must;
• Analyse: It’s current business portfolio and decide which businesses should receive
more or less investment, and
• Develop Growth Strategies: For adding new products or businesses to the portfolio, whilst
at the same time deciding when products and businesses should no longer be retained.
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There are three (3) important concepts and the knowledge of which is a prerequisite to understand
different models of portfolio analysis:
• Strategic Business Unit,

• Experience Curve, and
• Product Life Cycle.
9.1 Strategic Business Unit (SBU):
Introduction;
Analysing portfolio may begin with identifying key businesses also termed as strategic
business unit (SBU). SBU is a unit of the company that has a separate mission and objectives
and which can be run independently from other company businesses.
The SBU can be;
• A company division,
• A product line within a division,
• Even a single product, or
• Brand.
SBUs are common in organisations that are located in multiple countries with independent
manufacturing and marketing setups.
Characteristics of SBU’s;
• SBU is a single business or collection of related businesses that can be planned for
separately,
• SBU has its own set of competitors. E.g., Realme, Vivo and Oppo.
• SBU has a manager who is responsible for strategic planning & profit.
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• SBU helps in comparisons between divisions.
• Improving the allocation of resources.
After identifying SBU’s, the management will assess their respective attractiveness and
decide how much support each SBU’s deserves. For example, Reliance Industries has
different SBUs for petroleum, Internet services, clothing, retail, etc. headed by different
individuals responsible for that line of business.
9.2 Experience Curve:
Introduction;

Experience curve is an important concept used for applying a
portfolio approach.
The concept is akin (similar) to a learning curve which explains

the efficiency increase gained by workers through repetitive
productive work.
Experience curve is based on the commonly observed phenomenon (i.e., situation) that
unit costs decline as a firm accumulates experience in terms of a cumulative volume of
production. It is based on the concept, “we learn as we grow”.
The implication (i.e., assumption) is that larger firms in an industry would tend to have lower
unit costs as compared to those for smaller companies, thereby gaining a competitive
cost advantage.
Experience curve results from a variety of factors such as learning effects, economies
of scale, product redesign and technological improvements in production. For example,
in the contemporary (i.e., present) Indian automobile industry, the experience curve
phenomenon (i.e., situation) seems to be working in Maruti Suzuki.
The concept of experience curve is relevant for a number of areas in strategic management.
• Considered a barrier for new firms,
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• Used to build market share,

• Discourage competition.
Experience Curve has following features:
• As business organisation grow, they gain experience.

• Experience may provide an advantage over the competition.
• Experience is a key barrier to entry.
• Large and successful organisation possess stronger “experience effect”.
9.3 Product Life Cycle: (PLC)
Introduction;
PLC indicate S-shaped curve. PLC, which exhibits (i.e., indicate) the relationship of sales with
respect to time for a product that passes through the four successive stages of product
life cycle.
The different stages in a product life cycle are:
 Introduction (Slow sales growth),

 Growth (Rapid market acceptance),
 Maturity (Slowdown in growth), and

 Decline (Sharp downward fall).
Product life cycle (PLC) has to do with the life of a product in the market with respect to
business/commercial costs and sales measures. PLC is a useful concept for guiding strategic
choice.
i. Introduction Stage;
At the introduction stage in which competition is almost negligible, prices are relatively
high and markets are limited. The growth in sales is at a lower rate because of lack of
knowledge on the part of customers.
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ii. Growth Stage;
The demand expands rapidly, prices fall, competition increases and market expands.
The customer has knowledge about the product and shows interest in purchasing it.
iii. Maturity Stage;
In this stage, the competition gets tough and market gets stabilised. Profit comes down
because of stiff competition. At this stage, organisations have to work for maintaining
stability.
iv. Decline Stage;
The sales and profits fall down sharply due to some new product replaces the existing
product. So, a combination of strategies can be implemented to stay in the market
either by diversification or retrenchment.
The main advantage of PLC:
• It can be used to diagnose a portfolio of products (or businesses).
• Particular attention is to be paid on the businesses that are in the declining stage.
• A combination of strategies can be implemented on various SBU’s.
Conclusion;
In this way, a balanced portfolio of businesses may be built up by exercising a strategic

choice based on the PLC concept.
9.4 Igor Ansoff’s Product Market Growth Matrix:
Introduction;
The Ansoff’s product market growth matrix (proposed by Igor Ansoff) is a useful tool that
helps businesses decide their product and market growth strategy. With the use of this
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matrix a business can get a fair idea about how its growth depends upon it markets (i.e.,
offers) in new or existing products in both new and existing markets.
Companies should always be looking to the future. One useful device for identifying growth
opportunities for the future is the product/market expansion grid. The product/market
growth matrix is a portfolio-planning tool for identifying growth opportunities for the company.

Market Penetration:
 Market penetration refers to a growth strategy where the business focuses on selling
existing products into existing markets.
 It is achieved by making more sales to present customers without changing products in

any major way.

 Penetration might require greater spending on advertising or personal selling.
 Risk involved in this strategy is less as compared to other strategies.
 For E.g. A leading producer of tooth paste, advises its customers to brush teeth twice
a day to keep breath fresh.
Market Development:
 Market development refers to a growth strategy where the business seeks (i.e.,
attempts) to sell its existing products into new markets.
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 It is a strategy for company growth by identifying and developing new markets for
current company products.
 This strategy may be achieved through new geographical markets, new product
dimensions or packaging, new distribution channels or different pricing policies to
attract different customers or create new market segments.
 Risk involved in this strategy is moderate as compared to other strategies.
 For E.g. One of India’s premier utility vehicles manufacturing company ventures to
foray (i.e., attempt to enter) into foreign markets.
Product Development:
 Product development refers to a growth strategy where business aims to introduce new
products into existing markets.
 It is a strategy for company growth by offering modified or new products to current

markets.
 This strategy may require the development of new competencies and requires the
business to develop modified products which can appeal to existing markets.
 Risk involved in this strategy is moderate as compared to other strategies.
 For E.g. A renowned geared scooters manufacturing company launches ungeared

scooters in the market.
Diversification:
 Diversification refers to a growth strategy where a business markets new product in

new markets.
 It is a strategy by starting up or acquiring businesses outside the company’s current

products and markets.
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 Typically, the business is moving into markets in which it has little or no experience.
 Risk involved in this strategy is high as compared to other strategies.
 For E.g. A business giant in hotel industry decides to enter into dairy business.
9.5 ADL Matrix:
Introduction;
The ADL matrix (derived its name from Arthur D. Little) is a portfolio analysis technique
that is based on product life cycle.
The approach forms a two-dimensional matrix;
• Where on ‘X’ Axis it represents life cycle of the industry. (Environmental assessment)
Stage of industry maturity is an environmental measure that represents a position in

industry’s life cycle.
• Where on ‘Y’ Axis it represents competitive position of the firm. (Business strength
assessment)
Competitive position is a measure of business strengths that helps in categorization of

products or SBU’s into one of five competitive positions.
The competitive position of a firm is based on an assessment of the following criteria:
1. Dominant:
This is a comparatively rare position and in many cases is attributable either to a

monopoly or a strong and protected technological leadership.
2. Strong:
By virtue of this position, the firm has a considerable degree of freedom over its choice
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of strategies and is often able to act without its market position being unduly
threatened by its competitions.
3. Favourable:
This position, which generally comes about when the industry is fragmented (break
into pieces) and no one competitor stand out clearly, results in the market leaders a
reasonable degree of freedom.
4. Tenable:
Although the firms within this category are able to perform satisfactorily and can
justify staying in the industry, they are generally helpless (vulnerable) in the face of
increased competition from stronger and more proactive companies in the market.
5. Weak:
The performance of firms in this category is generally unsatisfactory although the

opportunities for improvement do exist.
 Limitations of ADL Matrix;
• There is no standard life cycle length.
• Determining the current industry life cycle phase is difficult.
• Competitors may influence the length of the life cycle.
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It is four by five matrix as follows;
9.6 SWOT Analysis;
Introduction;
The identification and analysis of strengths, weaknesses, opportunities, and threats is

normally referred to as SWOT analysis. SWOT Analysis is quite helpful in formulating a
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company’s strategy” Concept of SWOT identify by Kurt Levin in 1950’s.
For the generation of a series of strategic alternatives or choices, it is necessary to analyse

the firm’s internal strengths and weaknesses and its external opportunities and threats.
The major purpose of SWOT analysis is to enable the management to create a firm–
specific business model that will best align, fit, or match an organisational resources and
capabilities to the demands of the environment in which it operates.
 Strength: Strength is an inherent capability of the organization which it can use to gain
strategic advantage over its competitors.
 Weakness: A weakness is an inherent limitation or constraint of the organization which

creates strategic disadvantage to it.
 Opportunity: An opportunity is a favourable condition in the organisation’s environment

which enables it to strengthen its position.
 Threat: A threat is an unfavourable condition in the organisation’s environment which

causes a risk for, or damage to, the organisation’s position.

The organization’s performance in the marketplace is significantly influenced by the three factors:
i. The organization’s correct market position.
ii. The nature of environmental opportunities and threat.
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iii. The organization’s resource capability to capitalize the opportunities and to protect
against the threats.
The significance of SWOT analysis lies in the following points:
 It provides a logical framework of analysis.
 It guides the strategist in strategy identification.
 It presents a comparative account.
Conclusion;
SWOT analysis helps managers to craft a business model that will allow a company to
gain a competitive advantage in its industry.
Competitive advantage leads to increased profitability, and this maximizes a company’s

chances of surviving in the fast-changing, global competitive environment that
characterizes most industries today.
9.7 TOWS Matrix;
Introduction;
Through SWOT analysis organisations identify their strengths, weaknesses, opportunities

and threats. While conducting the SWOT Analysis managers are often not able to come to
terms with the strategic choices that the outcomes demand.
Heinz Weihrich developed a matrix called TOWS matrix by matching strengths and weaknesses
of an organization with the external opportunities and threats.
The incremental benefit of the TOWS matrix lies in systematically identifying relationships
between these factors and selecting strategies on their basis. Thus, TOWS matrix has a
wider scope when compared to SWOT analysis. TOWS analysis is an action tool whereas
SWOT analysis is a planning tool.
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The TOWS Matrix is tool for generating strategic options. Through TOWS matrix four distinct
alternative kinds of strategic choices can be identified.
• SO (Maxi-Maxi): Aggressive Strategy
SO is a position that any firm would like to achieve. The strengths can be used to
capitalize or build upon existing or emerging opportunities. Such firms can take lead
from their strengths and utilize the resources to build up the competitive advantage.
• ST (Maxi - Mini): Conservative Strategy
ST is a position in which a firm strives to minimize existing or emerging threats

through its strengths.
• WO (Mini - Maxi): Competitive Strategy
The firm needs to overcome internal weaknesses and make attempts to exploit
opportunities to maximum.
• WT (Mini-Mini): Defensive Strategy
WT is a position that any firm will try to avoid. A firm facing external threats and
internal weaknesses may have to struggle for its survival. WT strategy is a strategy
which is pursued to minimize or overcome weaknesses and as far as possible, cope
with existing or emerging threats.
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Conclusion;
By using TOWS Matrix, a strategist can look intelligently at how he can best take advantage
of the opportunities open to him, at the same time that he can minimize the impact of
weaknesses and protect himself against threats.
TOWS used after detailed analysis of threats, opportunities, strength and weaknesses,
it helps the strategist to consider how to use the external environment to his strategic
advantage, and so he can identify some of the strategic options available to him.
9.8 BCG Growth-Share Matrix:
Introduction;
The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce Henderson
of the Boston Consulting Group in the early 1970's.
Using the BCG approach, a company classifies its different businesses on a two-dimensional
growth - share matrix;
• The Vertical Axis (‘y’ Axis) represents market growth rate and provides a measure of
market attractiveness.
• The Horizontal Axis (‘x’ Axis) represents relative market share and serves as a measure
of company strength in the market.
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Growth share matrix also known for its cow and dog metaphors is popularly used for resource
allocation in a diversified company.
Using the matrix, organisations can identify four different types of products or SBU as follows:
Stars; (high growth, high market share businesses or products)
• They are products or SBUs that are growing rapidly.
• They also need heavy investment to maintain their position and need finance their
rapid growth potential.
• They represent best opportunities for expansion.
Cash Cows; (low growth, high market share businesses or products)
• Cash Cows are products which give high returns at low investment. Excess revenue
generated by such products, will be milked (i.e., invested) into another product or
business.
• They generate cash and have low costs.
• They are established, successful, and need less investment to maintain their market
share.
• In long run when the growth rate slows down, stars become cash cows.
Question Marks; (high growth potential, low market share businesses or products)
• Question marks are products which may give high returns but at the same time
may also flop and may have to be taken out of the market. This uncertainty gives the
quadrant the name “Question Mark”.
• Sometimes called problem children or wildcats.
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• They require a lot of cash to hold their share. They need heavy investments with low
potential to generate cash.
• Question marks if left unattended are capable of becoming cash traps.
• Since growth rate is high, increasing it should be relatively easier.
• It is for business organisations to turn them stars and then to cash cows when the
growth rate reduces.
Dogs; (low growth, low market share businesses or products)
• They may generate enough cash to maintain themselves, but do not have much
future.
• Sometimes they may need cash to survive. Dogs should be minimised by means of
divestment or liquidation.
9.8.1 After a firm, has classified its products or SBUs, it must determine what role each
will play in the future. The four strategies that can be pursued are:
1. Build: (Suitable for turning a "question mark" into a star)
Here the objective is to increase market share, even by forgoing short-term earnings
in favour of building a strong future with large market share.
2. Hold: (Suitable for Star)
Here the objective is to preserve market share. In other words, here the company
invests just enough to keep the SBU in its present position.
3. Harvest: (Suitable for Cash Cow)
Here the objective is to increase short-term cash flow regardless of long-term effect.
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4. Divest: (Suitable for Dog’s)
Here the objective is to sell or liquidate the business because resources can be better
used elsewhere.
9.8.2 Limitations of BCG Matrix;
The growth-share matrix has done much to help strategic planning; however, there are
some problems and limitations with the technique.
• BCG matrix can be difficult, time-consuming, and costly to implement.
• Management may find it difficult to define SBUs and measure market share and
growth.
• BCG matrix focuses on classifying current businesses but provide little advice for
future planning.
• BCG matrix led the company to placing too much emphasis on market-share growth or
growth through entry into attractive new markets. This can cause unwise (i.e., faulty)
expansion into hot, new, risky ventures or divesting established units too quickly.
9.9 General Electric Matrix [“Stop – Light” Strategy Model];
Introduction;
This model has been used by General Electric Company (developed by GE with the assistance
of the consulting firm McKinsey & Company). This model is also known as Business Planning
Matrix. GE Nine-Cell Matrix and GE Model.
The strategic planning approach in this model has been inspired from traffic control lights.
The lights that are used at crossings to manage traffic are:

Green Go
Yellow Caution
Red Stop
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This model is similar to the BCG growth-share matrix. However, there are differences.
Firstly, market attractiveness replaces market growth as the dimension of industry
attractiveness, and includes a broader range of factors other than just the market growth
rate. Secondly, competitive strength replaces market share as the dimension by which the
competitive position of each SBU is assessed.
This model uses two factors while taking strategic decisions:
Axis’s Factors

‘x’ axis Business Strength
‘y’ axis Market Attractiveness
The Market attractiveness is measured by a number of factors like:

 Size of the market,  Competitive intensity,
 Market growth rate,  Availability of Technology,
 Industry profitability,  Pricing trends,
 Overall risk of returns in the industry,  Distribution structure,
Etc...
The Business strength is measured by a number of factors like:

 Market share,  Distribution efficiency,
 Market share growth rate,  Brand image,
 Profit margin,  Customer loyalty,
 Production capacity,  Technological capability,
Etc...

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Strategy to be opt;
 If a product falls in the green section, the business is at advantageous position. To

reap (i.e., acquire) the benefits, the strategic decision can be to expand, to invest and
grow.
 If a product is in the amber or yellow zone, it needs caution and managerial discretion
(i.e., preference) is called (meaning required) for making the strategic choices.
In other words, Firm will look forward to protect existing business or product. Here,
no fresh investment is willing to have, rather firm is willing to have the security of
the given investment. So that does not result in losses.
 If a product is in the red zone, it will eventually lead to losses that would make
things difficult for organisations. In such cases, the appropriate strategy should be
retrenchment, divestment or liquidation.
Concept 10: Globalization:
Meaning;
The process by which businesses or other organizations develop international influence or

start operating on an international scale.
It means integration with the world economy. In simple economic terms, globalization
refers to the process of integration of the world into one huge market.
The global company views the world as one market, minimises the importance of national
boundaries.
For E.g., Intel, HUL, IBM, Tata, Vodafone, Mc’D, etc...
At the company level, globalization means two things:
a) The company commits itself heavily with several manufacturing locations around
the world and offers products in several diversified industries, and
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b) The company’s ability to compete in domestic markets with foreign competitors.
A company which has gone global is called a multinational (MNC) or a transnational

(TNC). An MNC is, therefore, one that, by operating in more than one country gains R&D,
production, marketing and financial advantages in its costs and reputation that are not
available to purely domestic competitors.
10.1 Distinguished between MNC vs. TNC vs. SNC;
A Multinational Company (MNC): MNC is a corporation enterprise that manages production

or delivers services in more than one country. It can also be referred to as an international
corporation. It owns a home company and its subsidiaries. It has a centralized management
system. It will face a barrier in decision making due to its centralized management system.
For Instance; PEPSICO, NOKIA, etc...
A Transnational Company (TNC): TNC is a corporation enterprise that manages production

or delivers services in more than one country. It can also be referred to as an international
corporation. Transnational companies do not have subsidiaries but just many companies.
It has a decentralized management system. Transnational companies are able to gain
more interest in the local market since they maintain their own systems.
For Instance; TATA Communication, ONGC, etc...
Super – National Enterprise (i.e., SNC): It is a worldwide enterprise chartered (i.e., established)
by a substantially non-political international body such as WTO, IMF or World Bank.
It operates as a private business without direct obligations. Its function is international

business service, and it remains viable only by performing that service adequately for
nations which permit its entry.
With its integrative view, it should be able to draw the economic world closer together. It
could serve all nations without being especially attached to anyone of them.
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10.2 To be specific, a global company has three characteristics:
1. It is a conglomerate of multiple units (i.e., located in different parts of the globe) but
all linked by common ownership.
2. Multiple units draw (i.e., utilised) on a common pool of resources, such as money, credit,
information, patents, trade names and control systems.
3. The units respond to some common strategy. Besides, its managers and shareholders
are also based in different nations.
10.3 Why do companies go global?
There are several reasons why companies go global. These are discussed as follows:
• The first and foremost reason is need to grow. It is basic need of organisations. Often
finding opportunities in the other parts of the globe organisation extend their businesses
and globalise.
• There is rapid shrinking of time and distance across the globe thanks to faster
communication, speedier transportation, growing financial flows and rapid
technological changes.
• It is being realised that the domestic markets are no longer adequate and rich.

For instance, Japanese have flooded the U.S. market with automobiles and electronics
because the home market was not large enough to absorb whatever was produced.
• Companies often set up overseas plants to reduce high transportation costs.
For instance, making a car in Korea and exporting it in Europe and America is expensive
and time consuming therefore India as a manufacturing hub for Hyundai proved to
be better place.
• There can be varied other reasons such as need for reliable or cheaper source of raw-
materials, cheap labour, etc...
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For instance, Hyundai got competent engineers at lower cost, industry friendly
Maharashtra Govt. which allowed them to setup a unit in India which supplies spare
parts for all Hyundai Cars across the world.
• The rise of services to constitute the largest single sector in the world economy:
and regional economic integration, which has involved both the world’s largest
economies as well as certain developing economies.
For instance, Manufacturing of Hyundai cars in India will help to improve Indian
economy by generating more and more employment.
• The trend is towards increased privatization of manufacturing and services sectors,

less government interference in business decisions and more dependence on the
value-added sector to gain market place competitiveness.
• The trade tariffs and custom barriers are getting lowered, resulting in increased flow of
business.
• Globalization has made companies in different countries to form strategic alliances

to ward off economic and technological threats (i.e., to avoid being hit by economic
and technological threats) and leverage their respective comparative and competitive
advantages.
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Question Bank
Q. 1 Explain competitive strategy.


Q. 2 What do you understand by ‘Competitive Landscape’? What are the steps to
understand the competitive landscape?


Q. 3 Explain strategic analysis and issues to consider for strategic analysis.


Q. 4 “Industry and competitive analysis begin with an overview of the industry’s dominant
economic features.” Explain and also narrate the factors to be considered in profiling
in industry’s economic features.


Q. 5 Explain nature and strength of competition.


Q. 6 Explain triggers of change or driving forces.


Q. 7 Explain Strategic Group Mapping and procedure to construct.
or
Identifying the Strongest – Weakest Companies.


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Q. 8 Explain likely strategic moves of rivals.


Q. 9 Explain the significance of KSF’s for competitive success.


Q.10 Explain prospects and financial attractiveness of industry.


Q.11 Explain core competencies and major areas in which core competencies are identified?


Q.12 Explain core competencies and criteria of core competencies?


Q.13 Explain core competencies and how to build core competencies?


Q.14 Explain core competencies and test of core competencies?


Q.15 Explain core competencies and advantages of identifying core competencies.


Q.16 Explain Value chain analysis.

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Q.17 “Management of internal linkages in the value chain could create competitive
advantage in a number of ways”. Briefly explain.


Q.18 Explain competitive advantage and its major characteristics.


Q.19 What is Value Creation.


Q.20 Explain strategic business unit and its features.


Q.21 Explain the concept of Experience Curve and highlight its relevance in strategic
management.


Q.22 Write a short note on Product Life Cycle (PLC) and its significance in portfolio diagnosis.


Q.23 Write a short note on Ansoff’s Growth Matrix.


Q.24 Write a short note on ADL Matrix.


Q.25 What is the purpose of SWOT analysis? Why is it necessary to do a SWOT analysis
before selecting a particular strategy for a business organization?
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Q.26 How is TOWS Matrix an improvement over the SWOT Analysis? Describe the
construction of TOWS Matrix.


Q.27 Describe the construction of BCG matrix and discuss its utility in strategic management.


Q.28 Write short note on GE Matrix.


Q.29 Explain difference between MNC and TNC and SNC.


Q.30 Explain globalization and its characteristics.


Q.31 Explain globalization and why companies go global?


Q.32 Aurobindo, the pharmaceutical company wants to grow its business. Draw Ansoff’s
Product Market Growth Matrix to advise them of the available options.
or
In the context of Ansoff’s Product-Market Growth Matrix, identify with reasons, the
type of growth strategies followed in the following cases:
i. A leading producer of tooth paste, advises its customers to brush teeth twice a
day to keep breath fresh.
ii. A business giant in hotel industry decides to enter into dairy business.
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iii. One of India’s premier utility vehicles manufacturing company ventures to foray
into foreign markets.
iv. A renowned auto manufacturing company launches ungeared scooters in the

market.
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Strategic Management Process
Concept 1: Strategic Planning:
Planning means deciding what needs to done in the future (today, next week, next month,
next year, over the next couple of years, etc...) and generating blueprints for action. Good
planning is an important constituent of good management. Planning involves determination
of the course of action to attain the predetermined objectives. It bridges the gap between
where we are to where we want to go. Thus, planning is future oriented in nature.
1.1 Types of Planning’s;
1. Strategic Planning,
2. Operational Planning.
1. Strategic Planning;
Strategic plans are made by the senior management for the entire organization after taking
into account the organization’s strength and weaknesses in the light of opportunities and
threats in the external environment.
Strategic planning is the game plan that actually steers (i.e., drive) the firm towards
success. The degree of aptness (i.e., correctness) of this game plan decides the extent of
the firm’s success. That is why formulation of corporate strategy forms the crux of the
strategic planning process.
Strategic planning determines where an organization is going over the next year or more
and the ways for going there.
It is the process of determining the objectives of the firm, resources required to attain
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these objectives and formulation of policies to govern the acquisition, use of resources.
In other words, they involve acquisition and allocation of resources for the attainment of
organisational objectives.
2. Operational Planning;
Operational plans on the other hand are made at the middle and lower-level management.
They specify details on how the resources are to be utilized efficiently for the attainment
of objectives.

Conversion of virtual goals in to actual are the prime responsibility of the operational
level managers.
Operational level managers should be efficient enough to understand the overall vision
of the organisation and work accordingly to fulfil it within the allocated time.
1.2 A major functions (task) of planning’s;
1. Dealing with uncertainty;

• Through scenario analysis.
2. Impact of uncertainty;
• Positive → represent opportunity,
• Negative → represent threat.
1. Dealing with uncertainty;
Uncertainty in business is been developed because of continuous changes in the business

environment. These changes force business organisation to change their strategies and
to create a fit between newly happened change and its new plan to achieve the same
objective.
As discussed above these changes in the business environment develops uncertainty and
connected risk associated with it.
Strategic uncertainty, which has far reaching implications, is a key construct in strategy formulation.
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A typical external analysis will emerge with dozens of strategic uncertainties. To be

manageable, they need to be grouped into logical clusters or themes. It is then useful to
assess the importance of each cluster in order to set priorities with respect to Information
gathering and analysis.
Sometimes, Strategic uncertainty is represented by a future trend or event that has inherent
unpredictability. Information gathering and additional analysis will not be able to reduce
the uncertainty.
In that case, scenario analysis can be employed. Scenario analysis basically accepts the
uncertainty as given and uses it to drive a description of two or more future scenarios.
Strategies are then developed for each. One outcome could be a decision to create
organisational and strategic flexibility so that as the business context changes the
strategy will adapt.
2. Impact with uncertainty;
Each element of strategic uncertainty involves potential trends or events that could have an
impact on present, proposed, and even potential businesses.
For E.g., a trend toward Aayurvedic Products may present opportunities for a firm producing
or manufacturing herbal product on the basis of a strategic uncertainty.
Similarly, a trend toward natural foods may present opportunities for a firm producing or
manufacturing juices on the basis of a strategic uncertainty.
The impact of a strategic uncertainty will depend on the importance of the impacted SBU
to a firm. Some SBUs are more important than others. The importance of established
SBUs may be indicated by their associated sales, profits, or costs. However, such measures
might need to be supplemented for potential growth as present sales, profits, or costs
may not reflect the true value.
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Concept 2: Strategic Decision Making:
Introduction;
Decision making is a managerial process of selecting the best course of action out of
several alternative courses for the purpose of accomplishment of the organizational
goals.
 They may also be strategic in nature.

 Decisions may be operational, i.e., which relate to general day-to-day operations.
According to Jauch and Glueck,
“Strategic decisions encompass the definition of the business, products to be handled, markets
to be served, functions to be performed and major policies needed for the organisation to
execute these decisions to achieve the strategic objectives.”
The major dimensions (characteristics) of strategic decisions are as follows;
• Strategic decisions require top-management involvement:
Strategic decisions involve thinking in totality of the organisation. Hence, problems

calling for strategic decisions require to be considered by the top management.
• Strategic decisions involve commitment of organisational resources:
Strategic decisions to launch a new project by a firm requires allocation of huge

funds and assignment of a large number of employees.
• Strategic decisions necessitate consideration of factors in the firm’s external environment:
Strategic focus in organisation involves building its internal environment to the

changes of external environment.
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• Strategic decisions are likely to have a significant impact on the long-term prosperity of the firm:
Generally, the results of strategic implementation are seen on a long-term basis

and not immediately.
• Strategic decisions are future oriented:
Strategic thinking involves predicting the future environmental conditions and how
to build for the changed conditions.
• Strategic decisions usually have major multifunctional or multi–business consequences:
As they involve organisation in totality, they affect different sections of the

organisation at various levels.
Concept 3: Strategic Intent;
Definition;
Strategic Management is defined as a dynamic process of; formulation, implementation,

evaluation, and control of strategies to realise the organization’s strategic intent.
Introduction;
The intentions with which organisational manager’s plans the future course of action, that
intention is known as strategic intent. Strategic intent is the base of all the activities every
manager at all levels is doing to achieve organisational goals.
It is the fire within the organisational officers which keeps them moving more closer to the
objectives and goals instead they face the hardest challenge and unfriendly business
environment.
As a name suggesting that “intent” related to future. Clarity in strategic intent is extremely
important for the future success and growth of the enterprise, irrespective of its nature and size.
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Senior managers must define “what they want to do” and “why they want to do”. This “why
they want to do” underlies the end result that is likely to be achieved through “what they
want to do”. This end result is referred to as “strategic intent”
Strategic intent can be understood as the philosophical base of strategic management.
Strategic intent provides the framework within which the firm would adopt a predetermined
direction and would operate to achieve strategic objectives. Strategic intent could be in the
form of vision and mission statements for the organisation at the corporate level. It could
be expressed as the business definition and business model at the business level of the
organisation.
3.1 Element of Strategic Intent;

 Vision:
Vision implies the blueprint of the company’s future position. It describes where the
organisation wants to land. It represents the organisation’s aspirations and provides a
glance of what the organization would like to become in future.
Every sub system (meaning every unit, division, etc...) of the organization is required to
follow its vision.
For E.g., Google – “to provide access to the world’s information in one click.”
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 Mission:
Mission describes the firm’s business, its goals and ways to reach the goals. It explains the
reason for the existence of the firm in the society. It is designed to help potential shareholders
and investors understand the purpose of the company.
A mission statement helps to identify, ‘what business the company undertakes.’ It defines
the present capabilities, activities, customer focus and role in society.
For E.g., Google – “to organize the world’s information and make it universally accessible
and useful.”
 Business Definition:
It tries to explain the business undertaken by the firm, with respect to the customer needs,
target markets, and alternative technologies. With the help of business definition, one
can ascertain the strategic business choices.
Organisational restructuring also depends upon the business definition.
For E.g., Companies should shift from Functional structure to Divisional structure in order
to manage different products and services in different markets.
Note: The concept of organizational structure will be covered in chapter no. 7.
 Business Model:
Business model, as the name implies is a strategy for the effective operation of the
business, ascertaining sources of income, desired customer base, and financial details.
Rival firms, operating in the same industry rely on the different business model due to their
strategic choice.
For E.g., i-Ball opt for low-cost strategy for tablet, whereas Apple opt for differentiation
strategy for iPad.
Note: Business level strategies will be covered in chapter no. 5.
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 Goals and Objectives:

These are the base of measurement. Goals are the end results, that the organization
attempts to achieve. On the other hand, objectives are time-based measurable targets,
which help in the accomplishment of goals.
These are the end results which are to be attained with the help of an overall plan, over
the particular period. However, in practice, no distinction is made between goals and
objectives and both the terms are used interchangeably.
Conclusion;
The vision, mission, business definition, and business model explain the philosophy of the
organisation but the goals and objectives represent the results to be achieved in multiple
areas of business.
Concept 4: Vision:
Introduction;
The most important issue organisational managers need to work on is clarity of destination
i.e., where they want the organisation to be in specified time period. Where to go is the
most important question and should be always asked before planning how to go.
Strategic vision thus points out a particular direction, charts a strategic path to be followed
in future, and moulding organizational identity.
Definition;
A Strategic vision is a road map of a company’s future – providing specifics about technology
and customer focus, the geographic and product markets to be pursued, the capabilities
it plans to develop, and the kind of company that management is trying to create.
 Vision implies the blueprint of the company’s future position.
 A strategic vision shows management’s aspirations for the business, providing a

view of “where we are going”.
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 It describes where the organisation wants to land.
 Every sub system of the organization is required to follow its vision.
Some examples of Vision are

ICAI;
“To be World’s leading accounting body, A regulator and developer of

trusted and independent professionals, with world class competencies
in accounting, assurance, taxation, finance and business advisory
services.”
Tesla;
“to create the most compelling car company of the 21st century by
driving the world's transition to electric vehicles.”
Walt Disney
“to make people happy.”
Amazon;
“to be earth's most customer-centric company; to build a place where people

can come to find and discover anything they might want to buy online.”
4.1 The three elements of a strategic vision are;
1. Coming up with a mission statement that defines what business the company is
presently in and conveys the essence of “Who we are and where we are now?”
2. Using the mission statement as basis for deciding on a long-term course making
choices about “Where we are going?”
3. Communicating the strategic vision in clear, exciting terms that inspire organization
wide commitment.
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4.2 Essentials of a strategic vision;
• The entrepreneurial challenge in developing a strategic vision is to think creatively

about how to prepare a company for the future.
• Forming a strategic vision is an exercise in intelligent entrepreneurship.
• A well-articulated strategic vision creates enthusiasm among the members of the

organisation.
• The best-worded vision statement clearly enhances the direction in which organization
is headed.
Concept 5: Mission:
Introduction;
A company’s mission statement is typically focused on its present business and answer to the
basic question scope – i.e., “who we are? And what we do?”
Mission statements broadly describe organizations;
• Present capabilities, • Customer focus,

• Activities, and • Business makeup.
It has been observed that many firms fail to conceptualise and articulate the mission and
business definition with the required clarity. Such firms are seen to fumble in the identification
of opportunities and fail in formulating strategies to make use of opportunities.
Firms working to manage their organisation strategically cannot be lax (meaning cannot
be careless i.e., लापरवाह or बेपरवाह) in the matter of mission and business definition, as the
two ideas are absolutely central to strategic planning.
 Mission statement should reflect the philosophy of the organizations that is perceived
by the senior managers.
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 A good mission statement should be precise, clear, feasible, distinctive and motivating.
 The mission is a statement which defines the role that an organization plays in the
society.
Some examples of Mission are

ICAI will leverage technology and infrastructure and partner with its
stakeholders to:
• Impart world class education, training and professional development

opportunities to create global professionals.
• Develop an independent and transparent regulatory mechanism that

keeps pace with the changing times.
• Ensure adherence to highest ethical standards.
• Conduct cutting edge research and development in the areas of

accounting, assurance, taxation, finance and business advisory
services.
• Establish ICAI members and firms as Indian multi-national service

providers.
Tesla;
“to accelerate the world’s transition to sustainable energy.”
Walt Disney
“to entertain, inform and inspire people.”

Amazon;
“We strive to offer our customers the lowest possible prices, the best
available selection, and the utmost convenience.”
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5.1 Why an organization should have a mission?
• To ensure unanimity of purpose within the organization.
• To develop a basis, or standard, for allocating organizational resources.
• To provide a basis for motivating the use of the organization’s resources.
• To establish a general tone or organizational climate.
• To serve as a focal point for those who can identify with the organisation’s purpose
and direction.
• To facilitate the translation of objective and goals into a work structure involving the
assignment of tasks to responsible elements within the organisation.
• To specify organizational purposes and the translation of these purposes into goals
in such a way that cost, time, and performance parameters can be assessed and
controlled.
5.2 Points (tips) to be considered (or useful) while writing mission statement;
 One of the roles of a mission statement is to give the organisation its own special
identity, business emphasis and path for development – one that typically sets it
apart from other similarly positioned companies.
 A company’s business is defined by what needs it is trying to satisfy, which customer

groups it is targeting and the technologies and competencies it uses and the activities
it performs.
 Good mission statements should be unique to the organisation for which they are
developed.
 The mission of a company should not be to make profit. Surpluses may be required for
survival and growth, but cannot be mission of a company.
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5.3 What is our mission? And what business are we in?
The well-known management experts, Peter Drucker and Theodore Levitt were among the
first to agitate (i.e., concern) these issues through their writings. They emphasised that
as the first step in the business planning endeavour (i.e., effort), every business firm must
clarify the corporate mission and define accurately the business the firm is engaged in.
They also explained that towards facilitating this task, the firm should raise and answer
certain basic questions concerning its business, such as:
• What is our mission?

• What is our ultimate purpose?
• What do we want to become?
• What kind of growth do we seek?
• What business are we in?
• Do we understand our business correctly and define it accurately in its broadest
connotation?
• Whom do we intend to serve?
• What human need do we intend to serve through our offer?
• What brings us to this particular business?
• What would be the nature of this business in the future?
• In what business would we like to be in, in the future?
At the time these two experts raised this issue, the business managers of the world did
not fully appreciate the importance of these questions; those were the days when business
management was still a relatively simple process even in industrially advanced countries
like the US. It was only in subsequent years that captains of industry all over the world
understood the significance of the seemingly simple questions raised by Drucker and
Levitt.
Corporate mission;
The corporate mission is an expression of the growth ambition of the firm. It is, in fact,
the firm’s future visualised. It provides a dramatic picture of what the company wants to
become. It is the corporation’s dream crystallised. It is a colourful sketch of how the firm
wants its future to look, irrespective of the current position. In other words, the mission is a
grand design of the firm’s future.
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Mission amplifies what brings the firm to this business or why it is there, what existence
it seeks and what purpose it seeks to achieve as a business firm. In other words, the
mission serves as a justification for the firm’s very presence and existence; it legitimises the
firm’s presence.
Mission is also an expression of the vision of the corporation, its founder/ leader. To make the
vision come alive and become relevant, it needs to be spelt out. It is through the mission
that the firm spells out its vision.
It represents the common purpose, which the entire firm shares and pursues. A mission is not
a confidential affair to be confined at the top; it has to be open to the entire company. All
people are supposed to draw meaning and direction from it. It adds zeal to the firm and its
people. A mission is not a fad-it is a tool to build and sustain commitment of the people
to the corporation’s policies. A mission is not rhetoric - it is the corporation’s guiding
principle.
Every organisation function through a network of goals and objectives. Mission statement is the
foundation from which the network of goals is built. The mission serves as a proclamation
to insiders and outsiders on what the corporation stands for. A mission, however, is not a
PR document; while it legitimises the corporation’s existence and role in society, its main
purpose is to give internal direction for the future of the corporation.
According to Peter Drucker, every organisation must ask an important question “What
business are we in?” and get the correct and meaningful answer. The answer should have
marketing or external perspective and should not be restated to the production or generic
activities of business. The table given below will clarify and highlight the importance of
external perspective.
Company Production-oriented answer Marketing-oriented answer

Indian Oil We produce oil and gasoline We provide various types of safe
products. and cost-effective energy.
Indian Railways We run a railroad. We offer a transportation and
material-handling system.
Revlon In the factory, we make cosmetics In the retail outlet, we sell hope.
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Concept 6: Goals and Objectives:
Introduction;
Business organisation translates their vision and mission into goals and objectives.
Goals and Objectives are the base of measurement. As such the term objectives are
synonymous with goals, however, some authors make an attempt to distinguish the two.
• Goals are the end results, that the organization attempts to achieve. Goals are open-
ended attributes that denote the future states or outcomes.
• Objectives are time-based measurable targets, which help in the accomplishment of

goals. Objectives are close-ended attributes which are precise and expressed in specific
terms.
Thus, the Objectives are more specific and translate the goals to both long term and
short-term perspective.
However, in practice, no distinction is made between goals and objectives and both the terms
are used interchangeably.
Objectives are organization’s performance targets. The results and outcomes it wants to
achieve. Objective function as yardsticks for tracking an organization’s performance and
progress.
6.1 Characteristics of Objectives;
All organisations have objectives. The pursuit of objectives is a never-ending process such
that organisation sustain themselves. Objectives provide meaning and sense of direction to
organisational endeavour.
Organisational structure and activities are designed and resources are allocated around
the objectives to facilitate their achievement. They also act as benchmarks for guiding
organisational activity and for evaluating how the organisation is performing.
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Objectives with strategic focus relate to outcomes that strengthen an organisation’s overall
business position and competitive vitality.
Objectives, to be meaningful to serve the intended role, must possess the following
characteristics.
• Objectives should define the organization’s relationship with its environment.
• Objectives should be facilitative towards achievement of mission and purpose.
• Objectives should be measurable and controllable.
• Objectives should provide the basis for strategic decision-making.
• Objectives should provide standards for performance appraisal.
• Objectives should be concrete and specific.
• Objectives should be related to a time frame.
• Objectives should be challenging.
• Different objectives should correlate with each other.
• Objectives should be set within the constraints (i.e., scope) of organisational resources
and external environment.
6.2 Long-term Objectives;
Introduction;
As a rule, a company’s set of financial and strategic objectives ought to include both
short-term and long-term performance targets.
Long-term objectives represent the results expected from pursuing certain strategies,
Strategies represent the actions to be taken to accomplish long-term objectives. The time
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frame for objectives and strategies should be consistent, usually from two to five years.
To achieve long-term prosperity, strategic planners commonly establish long-term
objectives in seven areas.
1.
Profitability. 2. Productivity.
3. Competitive Position. 4. Employee Development.
5. Employee Relations. 6. Technological Leadership.
7. Public Responsibility.
Objectives should be quantitative, measurable, realistic, understandable, challenging,

hierarchical, and obtainable among organizational units. Each objective should also be
associated with a time line.
Objectives are commonly stated in terms such as growth in assets, growth in sales,
profitability, market share, degree and nature of diversification, degree and nature of
vertical integration, earnings per share, and social responsibility.
6.3 Short-range objectives then serve as steps toward achieving long term objective?
Short-range objectives can be identical to long-range objectives if an organisation is

already performing at the targeted long-term level. For instance, if a company has an
ongoing objective of 15 percent profit growth every year and is currently achieving this
objective, then the company’s long range and short-range objectives for increasing profits
coincide.
The most important situation in which short-range objectives differ from long-range
objectives occurs when managers are trying to elevate organisational performance and
cannot reach the long-range target in just one year.
Hence, short-range objectives then serve as steps toward achieving long term objective.
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Concept 7: Strategic Management Model:
Introduction;
Identifying an organization’s vision, mission, goals and objectives, is the starting point for
strategic management process.
The strategic management process is dynamic and continuous. A change in any one of the
major components in the model can necessitate a change in any or all of the other components.
Therefore, strategy formulation, implementation, and evaluation activities should be

performed on a continual basis, not just at the end of the year or semi-annually. The
strategic management process never really ends.
The strategic management process can best be studied and applied using a model. Every
model represents some kind of process. Strategic Management Model (Fred R David) is a
widely accepted, comprehensive.
This model like any other model of management does not guarantee sure-shot success, but it does
represent a clear and practical approach for formulating, implementing, and evaluating
strategies. Relationships among major components of the strategic management process
are shown in the model.
Strategists do not go through the process in lockstep fashion. Generally, there is give-and-take
among hierarchical levels of an organization.
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Many organizations conduct formal meetings semi-annually to discuss and update the
firm’s vision & mission, opportunities & threats, strengths & weaknesses, strategies, objectives,
policies, and performance.
Creativity (i.e., response) from participants is encouraged in meeting. Good communication

and feedback are needed throughout the strategic management process.
7.1 Stages in Strategic Management;
Crafting and executing strategy are the heart and soul of managing a business enterprise.
1. Developing a strategic vision and formulation of statement of mission, goals and objectives,
First a company must determine what directional path the company should take
and what changes in the company’s product – market – customer – technology –
focus would improve its current market position and its future prospect.
2. Environmental and organizational analysis,

This stage is the diagnostic phase of strategic analysis. It entails two types of
analysis:
i. Environmental scanning;
External environment of a firm consists of economic, social, technological,
market and other forces which affect its functioning. The firm’s external
environment is dynamic and uncertain.
ii. Organisational analysis;

Organisational analysis involved a review of financial resources, technological
resources, productive capacity, marketing and distribution effectiveness,
research and development, human resource skills and so on.
3. Formulation of strategy,
The strategic alternatives may be designated as stability strategy, growth/ expansion
strategy and retrenchment strategy. A company may also follow a combination
these alternatives called combination strategy.
Note: The above all are corporate level strategies will be covered in chapter no. 4.
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4. Implementation of strategy,
Implementation and execution are an operations-oriented, activity aimed at shaping
the performance of core business activities in a strategy-supportive manner. It is the
most demanding and time-consuming part of the strategy-management process.
5. Strategic evaluation and control.

The final stage of strategic management process – evaluating the company’s
progress, assessing the impact of new external developments, and making corrective
adjustments – is the trigger point for deciding whether to continue or change the
company’s vision, objectives, strategy, and/or strategy-execution methods.
7.2 Principal aspects of strategy-execution process;
Introduction;
Good strategy execution involves creating strong “fits” between strategy and organizational
capabilities, between strategy and the reward structure, between strategy and internal
operating systems, and between strategy and the organization’s work climate and culture.
In most situations, strategy–execution process includes the following principal aspects;
 Developing budgets that steer (i.e., direct) ample (i.e., adequate) resources into those
activities critical (i.e., important) to strategic success.
 Staffing the organization with the needed skills and expertise, carefully building and
strengthening strategy-supportive competencies and competitive capabilities, and
organizing the work effort.
 Ensuring that policies and operating procedures facilitate rather than restrain or
slowdown effective execution.
 Using the best-known practices to perform core business activities and pushing for
continuous improvement.
 Installing information and operating systems that enable company personnel to better
carry out their strategic roles day in and day out.
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 Motivating people to pursue the target objectives energetically.
 Creating a company culture and work climate helpful to successful strategy

implementation and execution.
 Exerting (i.e., look for) the internal leadership needed to drive implementation forward
and keep improving strategy execution.
 When the organization encounters barrier or weaknesses, management has to see

that they are addressed and rectified quickly.
 Distinction between Vision and Mission;
Vision Mission
Meaning;
A short statement that depicts the company's A statement that describes the company's
aspiration for the future position of the objectives and its approach to reach those
company. objectives.
Talks about;
A vision statement talks about organisation’s A mission statement talks about the present
future. leading to its future.
Shows;
Where we want to be? Where we are at present?
Answer;
It answers the question, “Where do we aim to It answers the question, “What do we do?
be?” and What makes us different?”
Term;
Long term Short term
Purpose;
To inspire To inform
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Question Bank
Q. 1 Explain planning or strategic planning and its types.


Q. 2 Explain planning major functions of planning.


Q. 3 What is strategic decision making? What tasks are performed by a strategic Manager?
or
Briefly explain the major dimensions of strategic decisions.


Q. 4 Briefly explain elements of strategic intent.


Q. 5 Explain vision and elements of a strategic vision.


Q. 6 Explain vision and essentials of a strategic vision.


Q. 7 Explain mission statement and why an organization should have a mission?


Q. 8 What is a mission statement? State the points that may be considered while writing
a mission statement of a company.

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Q. 9 What are the characteristics which must be possess by objectives, to be meaningful
to serve the intended role?
or
Explain goals and objectives and its characteristics?


Q.10 Explain Long-term objectives?


Q.11 Explain strategic management model and Briefly explain stages in strategic
management model.


Q.12 Explain the principal aspects of strategy-execution process.


Q.13 Briefly discuss the difference between vision and mission.


Q.14 Why an organisation should have a mission? What considerations are to be kept in
mind while writing a good mission statement of a company?


Q.15 Present a diagrammatic representation of a Strategic Management Model.

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Corporate Level Strategies
Concept 1: Typologies of Strategies:
Introduction;
 Businesses follow different types of strategies; to enter the market and to stay and
grow in the market.
 A large number of strategies with different nomenclatures (i.e., combination) have been
employed by different businesses and also suggested by different authors on strategy.
 William F Glueck and Lawrence R Jauch discussed four generic strategies
1. Stability,
2. Expansion (Growth),
3. Retrenchment and
4. Combination.
 These strategies have also been called Grand Strategies, Directional Strategies and
Corporate Strategies by many other authors.
 Michael E. Porter suggested competitive strategies (which is also known as Porter’s

Three Generic strategies) including; Cost Leadership, Differentiation, Focus Cost
Leadership and Focus Differentiation which could be used by the corporates for their
different business units. (We’ll learn in chapter 5)
 Besides these, we come across Functional Strategies are meant for strategic
management of distinct functions such as Marketing, Financial, Human Resource,
Logistics, Production etc. (We’ll learn in chapter 6)
 In fact, big corporates follow an elaborate system of strategy formulation, implementation

and control at different levels in the company to survive and grow in the turbulent
business environment.
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 For E.g., a start-ups or a new enterprise might follow either a competitive strategy
i.e., entering the market where a number of rivals are already operating, or a
collaborative strategy, i.e., enter into a joint venture with an established company.
However, majority of start-ups are launched on a small scale and their main strategy
is to penetrate the market and to reach the breakeven stage at the earliest and later
pursue growth strategy.
 While a going concern can continue with the competitive strategy or resort to
collaborative strategy to ensure business growth.
Concept 2: Overview of Corporate Strategies;
Strategy Basic Feature

Stability The firm stays with its current businesses and product markets;
maintains the existing level of effort; and is satisfied with incremental
growth.
Expansion Here, the firm seeks (attempt) significant growth-maybe within the
current businesses; maybe by entering new business that are related to
existing businesses; or by entering new businesses that are unrelated
to existing businesses.
Retrenchment The firm retrenches some of the activities in some business(es), or drops
the business as such through sell-out or liquidation.
Combination The firm combines the above (Stability, Growth and Retrenchment)
strategic alternatives in some permutation or combination so as to
suit the specific requirements of the firm.
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Concept 3: Stability Strategy:

Introduction;
 A firm opting for stability strategy stays with the same business, same product market
posture and functions, maintaining same level of effort as at present.
 One of the important goals of a business enterprise is stability, strategy is to stabilise
- it may be opted to safeguard its existing interests and strengths, to pursue well
established and tested objectives, to continue in the chosen business path, to
maintain operational efficiency on a sustained basis, to consolidate the commanding
position already reached, and to optimise returns on the resources committed in the
business.
Stability strategy applied when?

• This strategy is typical for those firms whose product has reached the maturity stage
of product life cycle.
• Those firms who have a sufficient market share but need to retain that.
• Small organizations may also follow stability strategy to consolidate their market
position and prepare for the launch of growth strategies.
• After rapid expansion, a firm might want to stabilize and consolidate itself.
 Stability strategy should not be confused with ‘do nothing’ strategy (it mean “do-
nothing new strategy”). It involves keeping track of new developments to ensure that
the strategy continues to make sense.
3.1 Characteristics of Stability Strategy;

• A firm opting for stability strategy stays with the same business, same product-
market posture and functions, maintaining same level of effort as at present.
• The attempt is to enhance functional efficiencies in an incremental way, through
better deployment and utilization of resources.
• Stability strategy does not involve a redefinition of the business of the corporation.
• It is basically a safety-oriented, status quo (i.e., to maintain same state of affairs)
oriented strategy.
• It does not warrant much of fresh investments.
• It involves minor improvements in the product and its packaging.
• The risk is also less.
• The firms with modest (i.e., limited) growth objective choose stability strategy.
• While opting for stability strategy, the organization can concentrate on its
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resources and existing businesses or products and markets, thus leading to

building of core competencies.
3.2 Major Reasons for Stability Strategy;

• A product has reached the maturity stage of the product life cycle.
• The environment faced is relatively stable.
• Where it is not advisable to expand as it may be perceived as threatening.
• The staff feels comfortable with the status quo as it involves less changes and
less risks.
• After rapid expansion, a firm might want to stabilize and consolidate itself.
Concept 4: Growth/ Expansion Strategy:
Introduction;
 The firm attempt significant growth-maybe within the current businesses; maybe by
entering new business that are related to existing businesses; or by entering new
businesses that are unrelated to existing businesses.
 Growth/ Expansion strategy is implemented by redefining the business by enlarging the
scope of business and substantially increasing investment in the business.
 It is often characterised by significant reformulation of goals and directions, major
initiatives and moves involving investments, exploration and onslaught (i.e., attack)
into new products, new technology and new markets, innovative decisions and
action programmes and so on.
 Expansion also includes diversifying, acquiring and merging businesses. This strategy
may take the enterprise along relatively unknown and risky paths, full of promises and
pitfalls.
4.1 Characteristics of Growth/Expansion Strategy;

• Expansion strategy involves a redefinition of the business of the corporation.
• Expansion strategy is the opposite of stability strategy. While in stability strategy,
rewards are limited, in expansion strategy they are very high. In the matter of
risks, too, the two are the opposites of each other.
• Expansion strategy leads to business growth. A firm with a huge growth ambition
can meet its objective only through the expansion strategy.
• The process of renewal of the firm through fresh investments and new
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businesses/products/markets is facilitated only by expansion strategy.

• Expansion strategy is a highly versatile strategy; it offers several permutations
and combinations for growth. A firm opting for the expansion strategy can
generate many alternatives within the strategy by altering its propositions
regarding products, markets and functions and pick the one that suits it most.
• Expansion strategy holds within its fold two major strategy routes: Meaning
There are two routes for expansion strategy;
1. Intensification,
2. Diversification.
4.2 Major Reasons for Stability Strategy;

• It may become essential when environment demands increase in pace of activity.
• Expansion may lead to greater control over the market vis-a-vis (w.r.t.) competitors.
• Advantages from the experience curve and scale of operations may accrue.
• Psychologically, Strategists may feel more satisfied with the prospects of growth
from expansion; Chief executives may take pride in presiding over organizations
perceived to be growth-oriented.
A. Internal Growth Strategies
Concept 5: Expansion through Intensification;
Introduction;
 Expansion or growth through intensification means that the organisation tries to
grow internally by intensifying its operations either by market penetration or by market
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development or by product development are emphasised to develop new products,

enter new markets and embracing new technology.
 In other words, an internal growth strategy involves re-defining of business definition
by substantially scaling the level of operations through internal development. Firm
tries to cash on its internal capabilities and internal resources. The firm can intensify by
adopting any of the following strategies
 Market Penetration: Highly common expansion strategy is market penetration/
concentration on the current business. The firm directs its resources to the profitable
growth of its existing product in the existing market.
 Market Development: It consists of marketing present products, to customers in related
market areas by adding different channels of distribution or by changing the content
of advertising or the promotional media.
 Product Development: Product development involves substantial modification of existing
products or creation of new but related items that can be marketed to current customers
through establish channels.
Concept 6: Expansion through Diversification;

Introduction;
 Diversification is defined as entry into new products or product lines, new services
or new markets, involving substantially different skills, technology and knowledge.
This is also an internal growth strategy.
 Innovative and creative firms always look for opportunities and challenges to grow,
to venture into new areas of activity and to break new frontiers with the zeal of
entrepreneurship. Entrepreneur feel that diversification offers greater prospects of
growth and profitability than expansion.
 For some firms, diversification is a means of utilising their existing facilities and
capabilities in a more effective and efficient manner. They may have excess capacity in
manufacturing facilities, investible funds, marketing channels, competitive standing,
market prestige, managerial and other manpower, research and development, raw
material sources and so forth.
 Another reason for diversification lies in its synergistic advantage. It may be possible
to improve the sales and profits of existing products by adding suitably related or
new products, because of linkages in technology and/or in markets.
 Diversification can be related or unrelated to existing businesses of the firm. Based on
the nature and extent of their relationship to existing businesses, diversifications
have been classified into four broad categories:
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i. Vertically integrated diversification,

a. Forward Integration, and
b. Backward Integration.
ii. Horizontally integrated diversification,
iii. Concentric diversification, and
iv. Conglomerate diversification.
i. Vertically Integrated Diversification:

 In vertically integrated diversification, firms opt to engage in businesses that
are related to the existing business of the firm. The firm remains vertically within
the same process sequence moves forward or backward in the chain and enters
specific product/process steps with the intention of making them into new
businesses for the firm.
 The characteristic feature of vertically integrated diversification is that here, the
firm does not jump outside the vertically linked product-process chain.
Forward and Backward Integration:

 Forward and backward integration forms part of vertically integrated diversification.
In vertically integrated diversification, firms opt to engage in businesses that are
vertically related to the existing business of the firm. The firm remains vertically
within the same process. While diversifying, firms opt to engage in businesses that
are linked forward or backward in the chain.
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 BACKWARD INTEGRATION;
• It is a step towards, creation of effective supply by entering business of input
providers.
• Strategy employed to expand profits and gain greater control over production of
a product.
• Whereby a company will purchase or build a business that will increase its own
supply capability or lessen its cost of production.
• For E.g., a large supermarket chain considers to purchase a number of farms
that would provide it a significant amount of fresh produce.
 FORWARD INTEGRATION:
• It is moving forward in the value chain and entering business lines that use existing
products.
• Forward integration will also take place where organizations enter into businesses
of distribution channels.
• For E.g., a coffee bean manufacture may choose to collaborate with a coffee
cafe.
ii. Horizontal Integrated Diversification:

 It is a type of integration strategies pursued by a company in order to strengthen
its position in the industry. A corporate that implements this type of strategy
usually collaborate with another company that is in the same production stage.
 A firm gets horizontally diversified by integrating through the acquisition of one
or more similar business operating at the same stage of the production-marketing
chain. They can also integrate with the firms producing or manufacturing
complementary products, by-products or taking over competitors’ products.
 In other words, Horizontal integration is the process of a company increasing
production of goods or services at the same part of the supply chain.

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For E.g., offering ‘AKG’ earphone (complementary product) with Samsung premium device.
iii. Concentric Diversification:

 Concentric diversification too amounts to related diversification. In concentric
diversification, the new business is linked to the existing businesses through process,
technology or marketing.
 The new product is a spin-off from the existing facilities and products/processes.
This means that in concentric diversification too, there are benefits of synergy
with the current operations.
 However, concentric diversification differs from vertically integrated diversification
in the nature of the linkage the new product has with the existing ones. While
in vertically integrated diversification, the new product falls within the firm’s
current process-product chain, in concentric diversification, there is a departure
from this vertical linkage. The new product is only connected in a loop-like manner
at one or more points in the firm’s existing process/technology/ product chain.
For E.g., One Plus, Nokia, Xiaomi, other cell phone manufacturing companies have
started manufacturing Smart TV, Android TV.
iv. Conglomerate Diversification:

 In conglomerate diversification, no linkages related to product, market or
technology exist; the new businesses/products are disjointed from the existing
businesses/products in every way; it is a totally unrelated diversification.
 In process/technology/function, there is no connection between the new products
and the existing ones. Conglomerate diversification has no common thread at all
with the firm’s present position.
For E.g., a cement manufacturer diversifies into the manufacture of steel and rubber
products.
B. External Growth Strategies
Concept 7: Expansion through Mergers and Acquisitions;

Introduction;
 Acquisition or merger with an existing concern is an instant means of
achieving the expansion.
 Merger and acquisition in simple words are defined as a process of
combining two or more organizations together.
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 It is an attractive and tempting proposition in the sense that it circumvents (i.e., bypass
or avoid) the time, risks and skills involved in screening internal growth opportunities,
seizing them and building up the necessary resource base required to materialise
growth.
 Organizations consider merger and acquisition proposals in a systematic manner, so
that the marriage will be mutually beneficial, a happy and lasting affair.
 Apart from the urge (i.e., wish) to grow, acquisitions and mergers are resorted (i.e., opted)
to for purposes of achieving a measure of synergy between the parent and the acquired
enterprises. Synergy may result from such bases as physical facilities, technical
and managerial skills, distribution channels, general administration, research and
development and so on. Only positive synergistic effects are relevant in this connection
which denotes that the positive effects of the merged resources are greater than the
effects of the individual resources before merger or acquisition.
 There is a thin line of difference between these terms but the impact of combination is
completely different in all the cases. Some organizations prefer to grow through;
• Mergers,
• Acquisition, or
• Takeover.
Merger is considered to be a process when two or more
companies come together to expand their business operations.
In such a case the deal gets finalized on friendly terms and both
the organizations share profits in the newly created entity.
For Instance, Formation of Brook Bond Lipton India Ltd. through
the merger of Brook Bond and Lipton India.
Acquisition, when one organization takes over the other organization

and controls all its business operations, it is known as acquisitions.
In this process of acquisition, one financially strong organization

overpowers the weaker one.
For Instance, WalMart acquired Flipkart of India.
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Takeover, A deal in case of an acquisition is often done in an

unfriendly manner, it is more or less a forced association where the
powerful organization either consumes the operation or a company
in a weaker position is forced to sell its entity.
For Instance, in 2000, Tata Tea took over Tetley Tea.
7.1 Types of Mergers;

1. Horizontal Merger;
 Horizontal merger is a combination of firms engaged in the same industry. It is a
merger with a direct competitor.
 The principal objective behind this type of merger is to achieve economies of scale in
the production process by shedding (i.e., removing) duplication of installations
and functions, widening the line of products, decrease in working capital and
fixed assets investment, getting rid of competition and so on.
For Instance, formation of Brook Bond Lipton India Ltd. through the merger of Brook
Bond and Lipton India.
2. Vertical Merger:
 It is a merger of two organizations that are operating in the same industry but
at different stages of production or distribution system. This often leads to increased
synergies with the merging firms.
 If an organization takes over its supplier/producers of raw material, then it
leads to backward integration.
 On the other hand, forward integration happens when an organization decides
to take over its buyer organizations or distribution channels.
 Vertical merger results in many operating and financial economies. Vertical
mergers help to create an advantageous position by restricting the supply of
inputs to other players, or by providing the inputs at a higher cost.
For Instance, Disney acquired Pixar for approximately $7.4 billion in 2006.
3. Co-generic Merger:
 In Co-generic merger two or more merging organizations are associated in some
way or the other related to the production processes, business markets, or basic
required technologies.
 Such merger includes the extension of the product line or acquiring components
that are required in the daily operations.
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 It offers great opportunities to businesses to diversify around a common set of

resources and strategic requirements.
For Instance, an organization in the white goods category such as refrigerators can
diversify by merging with another organization having business in kitchen appliances.
4. Conglomerate Merger:
 A conglomerate merger is the combination of firm’s operating in different
industries". Conglomerate mergers can serve various purposes, including
extending corporate portfolio and extending a product range.
 Conglomerate mergers are the combination of organizations that are unrelated
to each other. There are no linkages with respect to customer groups, customer
functions and technologies being used.
 There are no important common factors between the organizations in production,
marketing, research and development and technology. In practice, however,
there is some degree of overlap in one or more of these factors.
For Instance, Reliance Brands a subsidiary of RIL acquires Hamleys Toys of UK for
`620 crore.
Concept 8: Expansion through Strategic Alliance;
Introduction;
 A strategic alliance is a relationship between two or more
businesses that enables each to achieve certain strategic
objectives which neither would be able to achieve on its
own.
 The strategic partners maintain their status as independent and separate entities, share
the benefits and control over the partnership, and continue to make contributions to
the alliance until it is terminated.
 Strategic alliances are often formed in the global marketplace between businesses that
are based in different regions of the world.
8.1 Advantages of Strategic Alliance;

Strategic alliances usually are only formed if they provide an advantage to all the
parties in the alliance. These advantages can be broadly categorised as follows:
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1. Organizational:
 Strategic alliance helps to learn necessary skills and obtain certain capabilities from
strategic partners.
 Strategic partners may also help to enhance productive capacity, provide a
distribution system, or extend supply chain.
 Strategic partners may provide a goods or service that complements thereby
creating a synergy.
 Having a strategic partner who is well-known and respected also helps add
legitimacy (i.e., sincerity) and creditability (i.e., trustworthiness) to a new
venture.
2. Economic:
 There can be reduction in costs and risks by distributing them across the members
of the alliance.
 Greater economies of scale can be obtained in an alliance, as production volume
can increase, causing the cost per unit to decline.
 Partners can take advantage of co-specialization, creating additional value, such
as when a leading computer manufacturer bundles its desktop with a leading
monitor manufacturer’s monitor.
3. Strategic:
 Rivals can join together to cooperate instead of compete. Vertical integration can
be created where partners are part of supply chain.
 Strategic alliances may also be useful to create a competitive advantage by the
pooling of resources and skills.
 This may also help with future business opportunities and the development of
new products and technologies.
4. Political:
 Sometimes strategic alliances are formed with a local foreign business to gain
entry into a foreign market either because of legal barriers to entry.
 Forming strategic alliances with politically-influential partners may also help
improve your own influence and position.
8.2 Disadvantages of Strategic Alliance;

Strategic alliances do come with some disadvantages and risks;
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• The major disadvantage is sharing.

 sharing of resources and profits,
 sharing of knowledge and skills.
• Strategic alliances may also create a potential competitor.
1. The major disadvantage is sharing.

 Strategic alliances require sharing of resources & profits and also sharing knowledge
& skills that otherwise organisations may not like to share. Sharing knowledge
and skills can be problematic if they involve trade secrets.
 Agreements can be executed to protect trade secrets, but they are only as good as
the willingness of parties to abide by the agreements or the courts willingness
to enforce them.
2. Strategic alliances may also create a potential competitor.

 An ally (i.e., group) may become a competitor in future when it decides to
separate out.
Concept 9: Retrenchment Strategy:
Introduction;
 It is followed when an organization substantially reduces the scope of its activity. In
other words, the strategy followed, when a firm decides to eliminate its activities
through a considerable reduction in its business operations.
 This is done through an attempt to find out the problem areas and diagnose the causes
of the problems. Next, steps are taken to solve the problems. These steps result in
different kinds of retrenchment strategies.
Retrenchment Strategy can be;

 Turnaround Strategy; If the organization chooses to focus on ways and means to reverse
the process of decline, it adopts at turnaround strategy.
For E.g., Idea Cellular decided to merged with Vodafone in order to stay in the market.
 Divestment Strategy; If it cuts off the loss - making units, divisions, or SBUs, curtails
its product line, or reduces the functions performed, it adopts a divestment (or
divestiture) strategy.
For E.g., In 2013, BSNL decided to discontinue the Telegram Service.
 Liquidation Strategy; If none of these actions work (i.e., turnaround or divestment),
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then it may choose to abandon the activities totally, resulting in a liquidation strategy.
For E.g., Subhiksha was an Indian retail chain with 1600 outlets selling groceries,
fruits, vegetables, medicines and mobile phones. It began operations in 1997, and
was closed down in 2009 owing to financial mismanagement and a severe cash
crunch.
9.1 Characteristics of Retrenchment Strategy:

• The management no longer wishes to remain in business either partly or wholly due
to continuous losses and unviability.
• The management feels that business could be made viable by divesting some of the
activities or liquidation of unprofitable activities.
• A business that had been acquired proves to be a mismatch and cannot be integrated
within the company.
• Persistent (i.e., constant) negative cash flows from a particular business create
financial problems for the whole company, creating the need for divestment of
that business.
• Severity (i.e., intensity) of competition and the inability of a firm to cope with it may
cause it to divest.
• Technological upgradation is required if the business is to survive but where it is
not possible for the firm to invest in it, a preferable option would be to divest.
• A better alternative may be available for investment, causing a firm to divest a
part of its unprofitable businesses.
Concept 10: Turnaround Strategy;
Introduction;
 If the organization chooses to focus on ways and means to reverse the process of decline,
it adopts at turnaround strategy.
 Retrenchment may be done either internally or externally. For internal retrenchment
to take place, emphasis is laid on improving internal efficiency, known as turnaround
strategy.
 There are certain conditions or indicators which point out that a turnaround is needed
if the company has to survive.
 These danger signals are:
• Persistent (i.e., constant) negative cash flow from business(es),
• Uncompetitive products or services,
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• Declining market share,

• Deterioration in physical facilities,
• Over-staffing, high turnover of employees, and low morale,
• Mismanagement, etc.
10.1 Action Plan for Turnaround;

For turnaround strategies to be successful, it is important to focus on the short and
long-term financing needs as well as on strategic issues. A workable action plan for
turnaround would involve the following stages.
1. Assessment of current problems:

 The first step is to assess the current problems and get to the root causes and the
extent of damage the problem has caused.
 Once the problems are identified, the resources should be focused toward those
areas essential to efficiently work on correcting and repairing any immediate
issues.
2. Analyze the situation and develop a strategic plan:

 Before you make any major changes; determine the chances of the business’s survival.
Identify appropriate strategies and develop a preliminary action plan. For this
one should look for the viable core businesses, adequate bridge financing and
available organizational resources.
 Analyze the strengths and weaknesses in the areas of competitive position.
Once major problems (i.e., threats) and opportunities are identified, develop a
strategic plan with specific goals and detailed functional actions.
3. Implementing an emergency action plan:

 If the organization is in a critical stage, an appropriate action plan must be developed
to stop the bleeding and enable the organization to survive.
 The plan typically includes human resource, financial, marketing and operations
actions to restructure debts, improve working capital, reduce costs, improve
budgeting practices, prune (i.e., to cut) product lines and accelerate high
potential products.
 A positive operating cash flow must be established as quickly as possible and
enough funds to implement the turnaround strategies must be raised.
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4. Restructuring the business:

 The financial state (i.e., condition) of the organization’s core business is particularly
important. If the core business is irreparably damaged, then the outlook for the
entire organization may be bleak (i.e., unprotected).
 Prepare cash forecasts, analyze assets and debts, review profits and analyze
other key financial functions to position the organization for rapid improvement.
 During the turnaround, the ‘product mix’ may be changed, requiring the
organization to do some repositioning. Core products neglected over time may
require immediate attention to remain competitive.
 Some facilities might be closed; the organization may even withdraw from certain
markets to make organization leaner or target its products toward a different
niche.
 The ‘people mix’ or morale building is another important ingredient in the
organization’s competitive effectiveness. Reward and compensation systems
that encourage dedication and creativity encourage employees to think profits
and return on investments.
5. Returning to normal:
 In the final stage of turnaround strategy process, the organization should begin
to show signs of profitability, return on investments and enhancing economic
value-added.
 Emphasis is placed on a number of strategic efforts such as carefully adding
new products and improving customer service, creating alliances with other
organizations, increasing the market share, etc.
10.2 The important elements of turnaround strategy are as follows:

• Identifying quick payoff activities,
• Revenue generation,
• Quick cost reductions,
• Neutralising external pressures,
• Asset liquidation for generating cash,
• Better internal coordination,
• Initial credibility-building actions,
• Changes in the top management.
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10.3 Major Reasons for Turnaround Strategy; (MTP May 2020)

 Turnaround is needed when an enterprise's performance decline to a point that it
needs a radical change of direction in strategy, and possibly in structure and
culture as well.
 It requires a highly targeted effort to return an organization to profitability and
increase positive cash flows to a sufficient level.
 It is used when both threats and weaknesses adversely affect the health of an
organization so much that its basic survival is difficult.
 The overall goal of turnaround strategy is to return an underperforming or
distressed company to normalcy in terms of acceptable levels of profitability,
solvency, liquidity and cash flow.
 To achieve its objectives, turnaround strategy must reverse causes of distress,
resolve the financial crisis, achieve a rapid improvement in financial performance,
regain stakeholder support, and overcome internal constraints and unfavourable
industry characteristics.
Concept 11: Divestment Strategy;
Introduction;
 Divestment strategy involves the sale or liquidation of a portion of business, or a major
division, profit centre or SBU. It cuts off the loss-making units, divisions, or SBUs,
curtails its product line, or reduces the functions performed, it adopts a divestment
(or divestiture) strategy.
 Divestment is usually a part of rehabilitation or restructuring plan and is adopted when
a turnaround has been attempted but has proved to be unsuccessful. The option of
a turnaround may even be ignored if it is obvious that divestment is the only answer.
11.1 A divestment strategy may be adopted due to various reasons:

• A business that had been acquired proves to be a mismatch and cannot be
integrated within the company.
• Persistent (i.e., constant) negative cash flows from a particular business create
financial problems for the whole company, creating the need for divestment of
that business.
• Severity (i.e., intensity) of competition and the inability of a firm to cope with it
may cause it to divest.
• It is not possible for the business to do Technological upgradation that is
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required for the business to survive, a preferable option would be to divest.

• A better alternative may be available for investment, causing a firm to divest
a part of its unprofitable business.
11.2 Characteristics of Divestment Strategy;

• This strategy involves divestment of some of the activities in a given business
of the firm or sell-out of some of the businesses as such.
• Divestment is to be viewed as an integral part of corporate strategy without
any stigma attached.
• Like expansion strategy, divestment strategy, too, involves a redefinition of the
business of the corporation.
• Compulsions for divestment can be many and varied, such as;
a) Obsolescence of product/process
b) Business becoming unprofitable and unviable
c) Inability to cope up with cut throat competition
d) Industry overcapacity
e) Failure of existing strategy.
Concept 12: Liquidation Strategy;
Introduction;
 A retrenchment strategy considered the most extreme and unattractive is liquidation
strategy, which involves closing down a firm and selling its assets.
 If none of these actions work i.e., turnaround or divestment, then it may choose to
abandon the activities totally, resulting in a liquidation strategy.
 It is considered as the last resort because it leads to serious consequences such as
loss of employment for workers and other employees, termination of opportunities,
etc...
 Many small-scale units, proprietorship firms, and partnership ventures liquidate
frequently but medium-and large-sized companies rarely liquidate in India. The company
management, government, banks and financial institutions, trade unions, suppliers
and creditors, and other agencies are extremely reluctant to take a decision, or ask,
for liquidation.
 Selling assets for implementing a liquidation strategy may also be difficult as buyers
are difficult to find. Moreover, the firm cannot expect adequate compensation as most
assets, being unusable, are considered as scrap.
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 Liquidation strategy may be unpleasant as a strategic alternative but when a “dead

business is worth more than alive”, it is a good proposition.
For instance, the real estate owned by a firm may fetch it more money than the
actual returns of doing business.
 When liquidation is evident an abandonment plan is desirable. Planned liquidation would
involve a systematic plan to reap (i.e., to obtain or realize) the maximum benefits
for the firm and its shareholders through the process of liquidation.
12.1 Major Reasons for Liquidation Strategy;

• The management no longer wishes to remain in business wholly due to continuous
losses and unviability.
• The management feels that business could be made viable by liquidation of
unprofitable activities.
• A business that had been acquired proves to be a mismatch and cannot be
integrated within the company.
• Intensity of competition and the inability of a firm to cope with it may cause it to
liquidate.
• A better alternative may be available for investment.
• Technological up-gradation is required if the business is to survive but where it
is not possible for the firm to invest in it, a preferable option would be to
liquidate.
• Constant negative cash flow from business(es),
Concept 13: Combination Strategy:
Introduction;
 The above strategies (i.e., Stability, Growth, and Retrenchment) are not mutually
exclusive.
 It is possible to adopt a mix of the above to suit particular situations. An enterprise
may seek (i.e., attempt) stability in some areas of activity, expansion in some and
retrenchment in the others.
 For some organizations, a strategy by diversification and/or acquisition may call (i.e.,
required) for a retrenchment in some obsolete product lines, production facilities
and plant locations.
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 Major Reasons for Combination Strategy;

• The organization is large and faces complex environment.
• The organization is composed of different businesses, each of which lies in a different
industry requiring a different response.
Concept 14: Distinction between;
1. Concentric Diversification Conglomerate Diversification

Meaning;
It occurs when a firm diversifies into areas It occurs when a firm diversifies into areas
that are related products or markets. that are unrelated to its current line of
business.
Linkage;
The new business is linked to the existing No such linkages exist; the new business/
businesses through process, technology or product is unrelated from the existing
marketing. businesses/products.
Reasons;
The most common reasons for pursuing Common reasons for pursuing are that
a concentric diversification are that opportunities in a firm’s current line of
opportunities in a firm’s existing line of business are limited or opportunities
business are available. outside are highly profitable.
Example;
Cell phone manufacturing companies have A cement manufacturer diversifies into the
started manufacturing Smart TV, Android manufacture of steel and rubber products.
TV.
2. Divestment strategy Liquidation strategy

Meaning;
It involves the sale or liquidation of a It involves closing down a firm and selling
portion of business, or a major division, its assets.
profit centre or SBU.
Approach;
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It is usually a part of rehabilitation or Liquidation becomes only option in case of

restructuring plan and is adopted when severe and critical conditions where either
a turnaround has been attempted but turnaround, divestment are not seen as
has proved to be unsuccessful. Option of solution or have been attempted but
a turnaround may even be ignored if it is failed.
obvious that divestment is the only answer.
Purpose;
Efforts are made for the survival of It is considered as the most extreme and
organization. unattractive.
Consequences;
Survival of organization helps in retaining There is loss of employment for workers
personnel, at least to some extent. and other employees, termination of
opportunities, etc...
Example;
In 2013, BSNL decided to discontinue the Subhiksha was an Indian retail chain was
Telegram Service. closed down in 2009 owing to financial
mismanagement and a severe cash crunch.
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Question Bank
Q. 1 Enumerate typologies of strategies.
Q. 2 Explain stability strategy and its characteristics or major reasons.
Q. 3 Explain growth (expansion) strategy and its characteristics or major reasons.
Q. 4 Write short note on expansion through intensification.
Q. 5 Write short note on expansion through diversification.
Q. 6 Write short note on types of diversification.
Q. 7 Explain difference between backward and forward integration.
Q. 8 Distinguish between concentric and conglomerate diversification.
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Q. 9 Write short note on expansion through acquisitions and mergers.
Q. 10 Write short note on types of mergers.

or
What are acquisitions? Discuss with example of two companies resorting to this strategy?
Q. 11 Write short note on expansion through strategic alliance and its advantages,
disadvantages.
Q. 12 Explain retrenchment strategy and its characteristics or major reasons.
Q. 13 Write short note on turnaround strategy and major reasons.
Q. 14 Write short note on turnaround strategy and provide Action Plan for Turnaround.
or
Under what conditions would you recommend the use of Turnaround strategy in an
organization? What could be a suitable work plan for this?
Q. 15 Write the important elements of turnaround strategy.
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Q. 16 Explain divestment strategy and its characteristics or major reasons.
Q. 17 Explain liquidation strategy and its characteristics or major reasons.
Q. 18 Distinguish between divestment and liquidation.
Q. 19 Explain combination strategy and its major reasons.
Q. 20 Explain liquidation strategy and its characteristics or major reasons.
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Business Level Strategies
Concept 1: Porter’s Five Forces Model-Competitive Analysis;
Introduction;
 Every business operates in the competitive environment. Competitive state (i.e.,

condition or circumstance) of an industry applies a strong influence on how firms
develop their strategies.
 Michael Porter believed that the basic unit (i.e., parameter) for analysis, is a group
of competitors producing goods or services, that compete directly with each other.
Competitive advantage is industry specific. The character, mix, and intricacies (i.e.,
complexity) of competitive forces differ from one industry to another. An organisation
attempts to adopt an approach to win over competitors in the same industry.
 To gain a deep understanding of a company’s industry and competitive environment,
managers do not need to gather all the information they can find and waste a lot of time
digesting it. Rather, the task is much more focused.
 A powerful and widely used tool for systematically diagnosing the significant
competitive pressures in a market and assessing the strength and importance of each is
the Porter’s five-force model of competition.
 This model holds that the state of competition in an industry is a composite of
competitive pressures operating in five areas of the overall market.
1.1 Five competitive forces in an industry as identified by Michael Porter;
1. Threat of new entrants:

 New entrants can reduce an industry’s profitability, because they add new production
capacity, leading to increase in supply of the product, sometimes even at a lower
price and can substantially erode (i.e., diminish) existing firm’s market share position.
 However, New entrants are always a powerful source of competition. The new capacity
and product range they bring in throws up a new competitive pressure. The bigger the
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new entrant, the more severe the competitive effect. New entrants also place a limit
on prices and affect the profitability of existing players, which is known as Price War.
For E.g., Reliance Jio offered economical services when it entered the telecom industry
in 2016, thus limiting the prices for existing players like Airtel, Vodafone, Idea, etc…
2. Bargaining power of customers (buyers):

 The bargaining power of the buyers influences not only the prices that the producer
can charge but also influences costs and investments of the producer. This is because
powerful buyers usually bargain for better services which involves more investment
on the part of the producer.
 This force becomes heavier depending on the possibility of buyers forming groups or cartels.
Mostly, this is a phenomenon (i.e., situation) seen in industrial products. Quite often,
users of industrial products come together formally or even informally, and exert
(i.e., apply) pressure on the producer.
For E.g., Car manufacturer companies can exert (i.e., apply) pressure on the tyre
manufacturer.
 Buyers can sometimes apply considerable pressure on existing firms to secure lower
prices or better services. This leverage is particularly evident when;
• Buyers have full knowledge of the sources of products and their substitutes. Thus,
challenging the price being charged by producer.
• They spend a lot of money on the industry’s products i.e., they are big buyers. Thus,
in a position to demand favourable terms of contract.
• The industry’s product is not perceived (i.e., recognised) as critical to the buyer’s
needs and buyers are more concentrated than firms supplying the product.
They can easily switch to the substitutes available.
3. Bargaining power of suppliers:

 Quite often, suppliers too, exercise considerable bargaining power over purchasing
companies. The more specialised the offering from the supplier, greater may be its
effect. Further, when the suppliers are limited in number, they may openly display
their bargaining power.
 The bargaining power of suppliers determines the cost of raw materials and other inputs
of the industry, and therefore, an industry’s attractiveness and profitability.
For E.g., increase in cost of fuel, such as petrol, diesel etc… will impact input cost of
many industries.
 Suppliers can influence the profitability of an industry in a number of ways. Suppliers
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can command bargaining power over a firm when:

• Their products are crucial to the buyer and substitutes are not available.
• They can erect high switching costs.
• They are more concentrated than their buyers. Meaning less suppliers, more
buyers.
4. Rivalry among current players (competitors):
 Rivalry between existing players is quite obvious. This is what is normally understood
as competition. For any player, the competitors influence strategic decisions at different
strategic levels. The impact is more evident at functional level, like in the prices being
charged, more aggressive advertising, and building pressures on costs, product and
so on.
 The intensity of rivalry in an industry is a significant determinant of an industry’s
attractiveness and profitability. The intensity of rivalry can influence the costs of
suppliers, distribution, and of attracting customers and thus, can directly affect the
profitability.
 “The more intensive the rivalry, the less attractive is the industry”. Rivalry among
competitors tends to be cutthroat and industry profitability low when;
• An industry has no clear leader.
• Competitors in the industry are numerous.
• Competitors operate with high fixed costs.
• Competitors face high exit barriers.
• Competitors have little opportunity to differentiate their offerings.
• The industry faces slow or diminished growth.
Note: For detail explanation of above-mentioned points refer concept 1.5
5. Threats from substitutes:

 Substitute products are a latent (hidden, indirect) but existing source of competition in
an industry. In many cases they grow to become a major constituent of competition.
Substitute products that offer a price advantage and/or performance improvement to the
consumers, can drastically alter the competitive character of an industry. Surprisingly,
they can bring it about all of a sudden.
 As per Michael Porter, a final force that can influence an industry’s profitability, is the
availability of substitutes for that industry’s products. To predict profit pressure from this
source of competition, firms must search for products that can perform the same, or
nearly the same, functionalities as their own products.
For E.g., Real estate, insurance, bonds and bank deposits for example are clear
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substitutes for common stocks, because they represent alternate ways to invest
funds.
For E.g., the threat of substitutes is great in many high-tech industries as well.
Introduction of digital film-less cameras virtually replaces the film cameras and
threatened the existence of Eastman Kodak and Fuji Film.
Further, the introduction of smart phones has replaced cameras to a great extent.
For E.g., the rapidly changing education landscape, with the emergence of online
courses and degrees, is a perfect example of a substitute to the existing educational
system, with better approachability and access.
*Study Note: Write any 1 out of 3 examples illustrated above in exam
Conclusion: The above discussed five forces together determine an industry’s
attractiveness/profitability. This is so because these forces influence the causes, that
underlie industry attractiveness/profitability.
1.2 Steps to implementing Porter’s Five Forces Model;
1. Identify the specific competitive pressures associated with each of the five (5) forces.
2. Evaluate how strong the pressures comprising each of the five (5) forces (it could be
intense, strong, moderate to normal, or weak). and
3. Determine whether the collective strength of the five (5) competitive forces is conducive
beneficial to earning attractive profits.
1.3 How business can deal with the competition?
• Competitive pressures associated with the threat of new entrants into the market.
• Competitive pressures originate from buyer bargaining power and seller - buyer
Collaboration.
• Competitive pressures originate from supplier bargaining power and supplier - seller
collaboration.
• Competitive pressures coming from the attempts of companies in other industries to
win buyers over to their own substitute products.
• Competitive pressures associated with the market to direct and to compete for buyer
betterment that goes on among rival sellers in the industry.
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1.4 Barriers to Entry;
Introduction;
 A firm’s profitability tends to be higher when other firms are blocked from entering
into the industry. This achieved through barriers to entry.
 New entrants can reduce industry profitability because they add new production
capacity leading to increase supply of the product even at a lower price and can
substantially destroy existing firm’s market share position.
 Porter’s five forces model considers new entrants as a powerful source of competition.
 To discourage new entrants, existing firms can try to raise barriers to entry. Barriers
(restrictions) to entry represent economic forces (or ‘hurdles’) that slow down or
delay or prevent entry by other firms.
Common barriers to entry include:

1. Capital Requirements: When a large amount of capital is required to enter an
industry, firms lacking funds are effectively barred from the industry, thus enhancing the
profitability of existing firms in the industry. This makes the entry of new companies
into this sector very difficult.
For E.g., huge investments are required to build production facilities and establish
brand awareness amongst people for entry into the pharmaceutical industry. This
makes entry of new companies into this sector very difficult.
2. Economies of Scale: Many industries are characterized by economic activities driven

by economies of scale. Economies of scale refer to the decline in the per-unit cost of
production as volume grows. A large firm that enjoys economies of scale can produce
high volumes of goods at successively lower costs. This tends to discourage new
entrants. This acts as a barrier for new entrants.
For E.g., in the semiconductor industry, large companies, such as IBM, Intel, and Samsung
enjoy substantial economies of scale in the production of advanced microprocessors,
communication chips and integrated circuits that power most consumer electronics,
personal computers (PCs) and cellular phones. This acts as a barrier for new entrants.
3. Product Differentiation: Product differentiation refers to the physical or perceptual

differences, or enhancements, that make a product special or unique in the eyes of
customers.
For E.g., Firms in the personal care products and cosmetics industries actively engage
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in product differentiation to enhance their products’ features. Differentiation works

to reinforce (i.e., prevent) entry barriers because the cost of creating genuine product
differences may be too high for the new entrants.
4. Switching Costs: To succeed in an industry, new entrant must be able to persuade (i.e.,
influence) existing customers of other companies to switch to its products.
To make a switch, buyers may need to test a new firm’s product, negotiate new
purchase contracts, and train personnel to use the equipment, or modify facilities
for product use. Buyers often incur substantial financial costs in switching between
firms. When such switching costs are high, buyers are often reluctant to change.
For E.g., high switching costs in moving away from Microsoft’s Windows operating
systems used in personal computers and corporate servers powered the company’s
stunning growth over the past decade in the software industry. In other words, Microsoft
has marketed its operating system in such a manner that it almost impossible for
companies to sell a new operating system and break into the customer loyalty of
Microsoft.
5. Brand Identity: The brand identity of products or services offered by existing firms
can serve as another entry barrier. Brand identity is particularly important for
infrequently purchased products (i.e., non FMCG products) that carry a high unit cost
to the buyer. New entrants often encounter significant difficulties in building up the brand
identity, because to do so they must commit substantial resources over a long period
of time. The gestation (i.e., development) period of customer loyalty is quite high,
when customers identify themselves with existing brands.
For E.g., During the 1970s, Japanese companies such as Toyota, Nissan, and Honda
had to spend huge sums on new product development and promotional activities to
overcome the American consumer’s preference for domestic cars.
In India, it was a huge challenge for foreign car makers to break into the customer
base of Maruti Suzuki in the affordable family car segment, because people identified
Maruti Suzuki as India’s own family car company.
6. Access to Distribution Channels: The unavailability of distribution channels for new entrants
poses (i.e., create) another significant entry barrier. Despite the growing power of the
internet, many firms may continue to rely on their control of physical distribution
channels to create a barrier to entry to rivals.
Often, existing firms have significant influence over the distribution channels and can
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delay or restrict their use by new firms.

For E.g., Because of control over distribution channels in India by HUL, Godrej and
P&G etc., small entrepreneurs find it very difficult to sell their products through
the existing channels. Similarly, with advent (i.e., emergence) of Patanjali and its
strong nation-wide distribution channel, new Ayurvedic FMCG companies are facing
a challenge.
7. Possibility of Aggressive Retaliation (counter-attack): Sometimes the mere threat of

aggressive retaliation (counter-attack) by existing firm can discourage entry by other
firms into an existing industry.
For E.g., Introduction of products by a new firm may lead existing firms to reduce
their product prices and increase their advertising budgets. The same way Hindustan
Unilever and Colgate Palmolive spent huge sums of money in advertisement to fight
Patanjali’s Dant Kanti Toothpaste.
1.5 The intensity of rivalry, its impact on industry profitability;
Introduction;
 The rivalry among existing players is quite obvious. This is what is normally understood
as competition. For any player, the competitors influence strategic decisions at different
strategic levels.
 “The more intensive the rivalry, the less attractive is the industry”. Rivalry among
competitors tends to be cutthroat and industry profitability low when;
1. Industry Leader:
A strong industry leader can discourage price wars by disciplining initiators of such
activity. Because of its greater financial resources, a leader can generally withstand
in a price war. Knowing this, smaller rivals often avoid initiating such a contest.
For E.g., India’s domestic air travel industry has no definite leader, and hence, we
often see cut throat price wars.
2. Number of Competitors:
Even when an industry leader exists, the leader’s ability to apply pricing discipline
diminishes with the increased number of rivals in the industry as communicating
expectations to players becomes more difficult.
For E.g., majorly in unorganised sectors like handicrafts, due to huge number of
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producers, the internal rivalry is immense.
3. Fixed Costs:
When organisations operate with high fixed costs, they feel strong motivation to
utilize their capacity and therefore are inclined (i.e., ready) to cut prices when they
have excess capacity. Price cutting causes profitability to fall for all firms in the
industry as firms attempt to produce more to cover costs that must be paid regardless
of industry demand. For this reason, profitability tends to be lower in industries.
For E.g., Airline, Telecommunications, etc... characterized by high fixed costs.
4. Exit Barriers:
Rivalry among competitors declines, if some competitors leave an industry. Profitability
therefore tends to be higher in industries with few exit barriers. When barriers to exit are
powerful, competitors desiring exit may refrain from leaving. Their continued presence
in an industry exerts downward pressure on the profitability of all competitors. The
crux is, if an organisation cannot exit, it would fight for its survival, and thus, intensify
competition.
For E.g., Assets of a firm considering exit may be highly specialized and therefore of
little value to any other firm. Therefore, such firm may not be able to find a buyer
for its assets. This discourages exit.
5. Product Differentiation:
Firms can sometimes insulate (i.e., isolate or separate) themselves from price wars by
differentiating their products from those of rivals. As a consequence, profitability tends
to be higher in industries that offer opportunity for differentiation.
Profitability tends to be lower in industries involving undifferentiated commodities
such as, memory chips, natural resources, processed metals and railroads.
For E.g., ONGC and Indian Oil, cannot offer major product differentiation in their
products. Hence, the level of competition would always be high.
6. Slow Growth:
Industries whose growth is slowing down tend to face more intense rivalry. As industry
growth slows, rivals must often fight harder to grow or even to keep their existing market
share. The resulting intensive rivalry tends to reduce profitability for all.
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Concept 2: Business Level Strategies:
Introduction;
 An organization’s core competencies should be focused on satisfying customer needs or

wants in order to achieve above average returns. This is done through Business-level
strategies.
 Business level strategies are the courses of action adopted by an organisation to provide
value to customers and gain a competitive advantage by exploiting core competencies in
specific, individual product or service markets (i.e., offers).
 Business-level strategy is concerned with a firm’s position in an industry, in relation to
its competitors and to the five forces of competition.
 “Customers are the foundation of an organization’s business-level strategies”. Who will
be served, what needs have to be met, and how those needs will be satisfied are
determined by the senior management, while drafting Business Level Strategies.
• Who will be served? (i.e., Who are the customers?)

Knowing one’s customers is very important in obtaining and sustaining a
competitive advantage. It may be price sensitive customer or price insensitive
customer.
• What needs have to be met?

Being able to successfully predict and satisfy future customer needs is important.
In case of price insensitive customer, they always look for innovative and reliable
product therefore company must fulfil their requirements.
• How those needs will be satisfied?

Organizations must determine how to bundle (i.e., utilise) resources and
capabilities, to form core competencies, and then use these to satisfy customer
needs or create value for them. By providing value to customers and gain a
competitive advantage by exploiting core competencies in specific, individual
product markets.
 Having selected a market, the organization must develop a plan to be successful in that
market. Business strategy therefore looks at how the organization can compete
successfully in the individual markets that it chooses to operate in.
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 Business level strategy is concerned with issues (problems) such as:

• Identifying and Meeting the needs of key customers.
• Achieving advantage over competitors.
• Avoiding competitive disadvantage.
Concept 3: Michael Porter’s Generic Strategies;
Introduction;
 According to Porter, strategies allow organizations to gain competitive advantage from
three different bases: Focus, Differentiation, and Cost leadership Porter called these
base generic strategies.
 These strategies have been termed generic because they can be pursued by any type or
size of business firm and even by not-for-profit organisations.
Cost leadership;
It emphasizes producing standardized products at a very low per-unit cost for consumers who
are price-sensitive.
For E.g., Air Asia, the low cost in airline industry.
Differentiation;
It is a strategy aimed at producing products and services considered unique industry wide
and directed at consumers who are relatively price-insensitive.
For E.g., Apple Inc. (iPhone, iMac, etc.)
Focus;
It means producing products and services that fulfil the needs of small groups of consumers
with very specific requirements.
For E.g., Rolls-Royce sells limited number of high-end, custom-built cars.
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Porter’s strategies imply different organizational arrangements, control procedures, and

incentive systems. Larger firms with greater access to resources typically compete on a
cost leadership and/or differentiation basis, whereas smaller firms often compete on a
focus basis.
3.1 Cost Leadership Strategy;
Meaning;
 It is emphasizes producing standardized products at a very low per-unit cost for
consumers who are price-sensitive. It is a low-cost competitive strategy that aims at
broad mass market.
 It requires aggressive attempt of cost reduction in the areas of procurement, production,
storage and distribution of product or service and also economies in overhead costs.
 Because of its lower costs, the cost leader is able to charge a lower price for its
products than its competitors and still make satisfactory profits.
 A primary reason for pursuing forward, backward, and horizontal integration strategies
is to gain cost leadership benefits.
 A number of cost elements affect the relative attractiveness of generic strategies,
including economies or diseconomies of scale achieved, learning and experience
curve effects, the percentage of capacity utilization achieved, and linkages with
suppliers and distributors. Other cost elements such as R&D costs associated with
new product development or modification of existing products, labour costs, tax
rates, energy costs, and shipping costs.
Striving to be a low-cost producer in an industry can especially be effective,

• when the market is composed of many price-sensitive buyers,
• when there are few ways to achieve product differentiation,
• when buyers do not care much about differences from brand to brand,
• when there are a large number of buyers with significant bargaining power.
The basic idea is to under-price competitors and thereby gain market share driving some
of the competitors out of the market.
 A successful cost leadership strategy usually permeates the entire firm, as evidenced by
high efficiency, low overhead, limited perks, intolerance of waste, intensive screening
of budget requests, wide spans of control, rewards linked to cost containment, and
broad employee participation in cost control efforts.
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For E.g., McDonald’s fast-food restaurants have successfully followed low-cost

leadership strategy.
3.1.1 Achieving Cost Leadership Strategy;

To achieve cost leadership, following are the actions that could be taken:
• Prompt forecasting of demand of a product or service.
• Optimum utilization of the resources to get cost advantages.
• Achieving economies of scale; leads to lower per unit cost of product/service.
• Standardisation of products for mass production to yield lower cost per unit.
• Invest in cost saving technologies and try using advance technology for smart working.
• Resistance to differentiation till it becomes essential.
3.1.2. Advantages of Cost Leadership Strategy;

• Entrants – Low-cost leaders create barriers to market entry through its continuous
focus on efficiency and reducing costs.
• Buyers – Powerful buyers/customers would not be able to exploit the cost leader firm
and will continue to buy its product.
• Suppliers – Cost leaders are able to absorb greater price increases before it must raise
price to customers.
• Rivalry - Competitors are likely to avoid a price war, since the low-cost firm will
continue to earn profits after competitors compete away their profits.
• Substitutes – Low-cost leaders are more likely to lower costs to induce customers to
stay with their product, invest to develop substitutes, purchase patents.
3.1.3. Disadvantages of Cost Leadership Strategy;

• Cost advantage may not last long as competitors may imitate (i.e., follow) cost reduction
techniques.
• Cost leadership can succeed only if the firm can achieve higher sales volume.
• Cost leaders tend to keep their costs low by minimizing advertising, market research,
and research & development, but this approach can prove to be expensive in the long run.
• Technological advancement is a great threat to the cost leader.
3.2 Differentiation Strategy;
Meaning;
 It is a strategy aimed at producing products and services considered unique industry
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wide and directed at consumers who are relatively price-insensitive.

 This strategy is aimed at broad mass market and involves the creation of a product or
service that is perceived (i.e., recognised) by the customers as unique. The uniqueness
can be associated with product design, brand image, features, technology, and dealer
network or customer service. Because of differentiation, the business can charge a
premium for its product.
 Differentiation does not guarantee competitive advantage, especially if standard
products sufficiently meet customer needs or if rapid imitation (i.e., copy) by
competitors is possible.
 Differentiation strategy should be pursued only after a careful study of buyers’
needs and preferences to determine the feasibility of incorporating one or more
differentiating features into a unique product that features the customers’ desired
attributes. A successful differentiation strategy allows a firm to charge a higher
price for its product and to gain customer loyalty, because consumers may become
strongly attached to the differentiated features.
For E.g., Lexus, the luxury vehicle division of the Japanese automaker Toyota.
 Basis of Differentiation
• Product; Innovative products that meet customer needs can be an area where a
company has an advantage over competitors. For E.g., Motorola Razr (2019, Folding
device).
• Pricing; It can fluctuate based on its supply and demand, and also be influence by
the customer’s ideal value for the product. For E.g., Movie ticket during weekends or
of premier show.
• Organization; Maximizing the power of a brand, or using the specific advantages that
an organization possesses can be instrumental to a company’s success. For E.g.,
Apple Inc.
3.2.1 Achieving Differentiation Strategy;

To achieve differentiation, following are the measures that could be adopted by an
organization to incorporate:
• Offer utility to the customers and match the products with their tastes and preferences.
• Elevate (i.e., improve) the performance of the product.
• Offer the high-quality product/service for buyer satisfaction.
• Rapid product innovation to keep up with dynamic environment.
• Taking steps for enhancing brand image and its brand value.
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• Fixing product prices based on the unique features of the product and buying capacity
of the customer.
3.2.2 Advantages of Differentiation Strategy;

• Entrants – Innovative features are an expensive offer. So, new entrants generally avoid
these features because it is tough for them to provide the same product with special
features at a comparable price.
• Buyers – They do not negotiate for price as they get special features and also, they
have fewer options in the market.
• Suppliers – Because differentiators charge a premium price, they can afford to absorb
higher costs of supplies and customers are willing to pay extra too.
• Rivalry - Brand loyalty acts as a safeguard against competitors. It means that customers
will be less sensitive to price increases, as long as the firm can satisfy the needs of
its customers.
• Substitutes – Substitute products can’t replace differentiated products which have high
brand value and enjoy customer loyalty.
3.2.3 Disadvantages of Differentiation Strategy;

• In long term, uniqueness is difficult to sustain.
• Charging too high a price for differentiated features may cause the customer to switch-
off to another alternative.
For E.g., As we see a shift of iPhone users to other android flagship smart phones.
• Differentiation fails to work if its basis is something that is not valued by the
customers.
For E.g., Home delivery of packed snacks in 30 minutes would not even be a
differentiator as the consumer wouldn’t value such an offer.
3.3 Focus Strategy;

Meaning;
 It means producing products and services that fulfil the needs of small groups of
consumers.
 A successful focus strategy depends on an industry segment that is of sufficient size, has
good growth potential, and is not crucial to the success of other major competitors.
Strategies such as market penetration and market development offer substantial
focusing advantages.
 Focus strategies are most effective when consumers have distinctive preferences or
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requirements and when rival firms are not attempting to specialize in the same target
segment.
 An organization using a focus strategy may concentrate on a particular group of
customers, geographic markets, or on particular product-line segments in order
to serve a well-defined but narrow market better than competitors who serve a
broader market.
For E.g., within the market for women’s shoes are many different segments such as
shoes for vegan women would be a niche market.
 Focused cost leadership;

A focused cost leadership strategy requires competing based on price to target a
narrow market. A firm that follows this strategy does not necessarily charge the
lowest prices in the industry. Instead, it charges low prices relative to other firms that
compete within the target market.
 Focused differentiation;
A focused differentiation strategy requires offering unique features that fulfil the
demands of a narrow market. Some firms using a focused differentiation strategy
concentrate their efforts on a particular sales channel, such as selling over the
internet only. Firms that compete based on uniqueness and target a narrow market
are following a focused differentiations strategy.
For E.g., Rolls-Royce sells limited number of high-end, custom-built cars.
3.3.1 Achieving Focused Strategy;

To achieve focused cost leadership/differentiation, following are the measures that could
be adopted by an organization:
• Selecting specific niches (slot) which are not covered by cost leaders and differentiators.
• Creating superior skills for catering to such niche markets.
• Generating high efficiencies for serving such niche markets.
• Developing innovative ways in managing the value chain.
3.3.2 Advantages of Focused Strategy;

• Premium prices can be charged by the organisations for their focused product/ services.
• Due to the tremendous expertise about the goods and services that organisations
following focus strategy offer, rivals and new entrants may find it difficult to compete.
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3.3.3 Disadvantages of Focused Strategy;

• The firms lacking in distinctive competencies may not be able to pursue focus strategy.
• Due to the limited demand of product/services, costs are high which can cause problems.
• In long run, the niche (slot) could disappear or be taken over by larger competitors by
acquiring the same distinctive competencies.
Concept 4: Best-Cost Provider Strategy;
Introduction;
 The new model of best cost provider strategy is a further development of three
generic strategies.
 It is directed towards giving customers more value for the money by emphasizing both
low cost and upscale differences.
 The objective is to keep costs and prices lower than those of other sellers of comparable
products.
 Best-cost provider strategy involves providing customers more value for the money by
emphasizing low cost and better-quality difference. It can be done through:
 Offering products at lower price than what is being offered by rivals for products
with comparable quality and features.
or
 Charging similar price as by the rivals for products with much higher quality and
better features.
For E.g., android flagship phones from OnePlus, Xiaomi, Oppo, Vivo, etc, are all
rooting for giving better quality at lowest prices to the customers. They are following
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the best-cost provider strategy to penetrate market.
Concept 5: Distinction between;
Cost Leadership strategy Differentiation strategy

Meaning;
Cost Leadership strategy emphasizes Differentiation a strategy aimed at
producing standardized products at a very producing products and services considered
low per-unit cost for consumers who are unique industry wide and directed at
price-sensitive. consumers who are relatively price-
insensitive.
Basis of competitive advantage;
Lower costs than competitors. An ability to offer buyers something
different from competitors.
Approach;
It requires aggressive attempt of cost It requires innovative product or service
reduction. which is valued by the customers.
Example;
McDonald’s fast-food restaurants. Apple Inc. (iPhone, iMac, etc…)
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Question Bank
Q. 1 What are the five competitive forces in an industry as identified by Michael Porter?
or
Explain briefly the competitive forces in any industry identified by Michael Porter?
Q. 2 Briefly explain Porter’s five forces model and steps to implementing five force model.
Q. 3 Explain Porter’s five forces model as to how businesses can deal with the competition.
Q. 4 Explain threat of new entrants and barriers to entry.
Q. 5 When buyers can exert considerable pressure on existing firms to secure lower prices
or better services?
Q. 6 When suppliers can influence the profitability of an industry?
Q. 7 Rivalry among competitors tends to be cutthroat and an industry’s profitability is

low when?
or
Discuss in what conditions rivalry among competitors tends to be cut throat and
profitability of the industry goes down.
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Q. 8 Write short note on business level strategies.
Q. 9 Briefly explain Michael Porter’s generic strategies.
Q. 10 Explain Cost Leadership Strategy and how to achieve or advantages or disadvantages.
Q. 11 Explain Differentiation Strategy and how to achieve or advantages or disadvantages.
Q. 12 Explain Focus Strategy and how to achieve or advantages or disadvantages.
Q. 13 Write short note on Best-Cost Provider Strategy.
Q. 14 Economies of scale discourages new entrants. Comment.
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Functional Level Strategies
Concept 1: Functional Level Strategies:
Introduction;
 Once corporate level and business level strategies have been developed, management
need to formulate and implement strategy for each of the functional areas of
business.
 Strategy of one functional area cannot be looked at in isolation. Different functional
areas of the business are interlinked (i.e., interlinked) together and how a functional
strategy is synergised (i.e., combined) with other functional strategies determines its
effectiveness.
 Functional strategies are designed to help in the implementation of corporate and
business unit level strategies. For effective implementation, the strategists have to
provide direction to the functional managers regarding the plans and policies to be
adopted. In fact, the effectiveness of strategic management depends critically on the
manner in which strategies are implemented.
 Functional strategies provide details to business strategy and govern as to how key
activities of the business are to be managed. Functional strategies play two important
roles;
• Firstly, they provide support to the overall business strategy.
• Secondly, they spell out (i.e., indicate) as to how functional managers will work
so as to ensure better performance in their respective functional areas.
 Strategies in functional areas including marketing, financial, production, R&D and human
resource management are based on the functional capabilities of an organisation.
 For each functional area, first the major sub areas are identified and then for each
of these sub areas, content of functional strategies, important factors, and their
importance in the process of strategy implementation are identified.
 In terms of the levels of strategy formulation, functional strategies operate below
the SBU or business-level strategies. Within functional strategies there might be
several sub-functional areas.
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 Functional strategies are made within the framework (i.e., order) of corporate level
strategies and guidelines therein that are set at higher levels of the organization.
Operational plans at the SBU level tell the functional managers what has to be done while
policies state how the plans are to be implemented.
1.1 The reasons why functional strategies are needed can be enumerated as follows; (Importance
or Needs)
• Functional strategies lay down clearly what is to be done at the functional level.
• Functional strategies provide a sense of direction to the functional staff.
• Functional strategies are aimed at facilitating the implementation of corporate
strategies and the business strategies formulation at the business level.
• Functional strategies act as basis for controlling activities in the different
functional areas of business.
• Functional strategies help in bringing harmony (i.e., stability) and coordination as
they are formulated to achieve major strategies.
• Functional strategies help the functional managers in handling similar situations
occurring in different functional areas in a consistent manner.
Conclusion;
 Thus, top level strategies need to be segregated (i.e., separated) into viable (i.e.,
possible) functional plans and policies that are compatible with each other.
 In this way, strategies can be implemented by the functional managers.
Environmental factors relevant to each functional and the corporate strategies
influence the formulation of functional strategies.
Concept 2: Marketing strategy;

Introduction;
 Marketing is a social and managerial process by which individuals and groups obtain
what they need and want through creating, offering and exchanging products of
value with others.
 Marketing is an activity performed by all business organizations. It is an activity that
creates and sustains exchange relationships among those who are willing and able
to buy and sell products, services, satisfaction and even ideas.
 In the present-day business, marketing encompasses (i.e., includes) all the activities
related to identifying the needs of customers and taking such actions to satisfy them in
return of some consideration. In marketing it is more important to do what is strategically
right than what is immediately profitable.
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 The term marketing constitutes different processes, functions, exchanges and activities
that create perceived value by satisfying needs of individuals. Marketing induces or helps
in moving people closer to making a decision to purchase and facilitate a sale.
 Marketing in recent decades has gained a lot of importance because of a number of
factors. Such as rapid economic growth, globalization, technological upgradation,
ever–increasing human wants and increasing purchasing power of people.
2.1 Issues in Marketing Strategy; (factors affect the success or failure)

• The amount and the extent of advertising?
 Whether to use heavy or light advertising?
• What should be the amount of advertising in print media, television or internet?
• The kind of distribution network to be used?
 Whether to use exclusive dealerships or multiple channels of distribution?
• Whether to be a price leader or a price follower?
• Whether to offer a complete or limited warranty?
• Whether to limit or enhance the share of business done with a single or a few
customers?
• Whether to reward sales people based on straight salary, straight commission, or
on a combination of salary and commission?
2.2 Objectives of Marketing Strategy;

Introduction;
 Marketing is a social and managerial process. The marketing process is the process of;
analysing market opportunities, selecting target markets, developing the marketing
mix and managing the marketing effort.
 Target customers stand at the centre of the marketing process. Once the corporate
strategy has defined the company’s overall mission and objectives, marketing plays
a role in carrying out these objectives;
1. Delivering Value to Customers,

 Marketing alone cannot produce superior value for the customers. It needs to
work in coordination with other departments to accomplish this. Marketing acts
as part of the organizational chain of activities.
 Marketers are challenged to find ways to get all departments to think with focus on
customer. In its search for competitive advantage, the firm needs to look beyond
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its own chain of activities and into the chains of its suppliers, distributors, and
ultimately customers. This “partnering” will produce a value delivery network.
2. Connecting with customers,

 To succeed in today’s competitive marketplace, companies must be customer
centred. They must win customers from competitors and keep them by delivering
greater value.
Since companies cannot satisfy all customers in a given market,
 they must divide up the total market (termed as market segmentation)
 choose the best segments (termed as marketing target) and
 design strategies for profitably serving chosen segments better than the
competitors (termed as market positioning).
2.3 Marketing Mix;
Introduction;
 Marketing mix forms an important part of overall competitive marketing strategy. The
marketing mix is the set of controllable marketing variables that the firm blends (i.e.,
combined) to produce the response it wants in the target market.
 These variables are often referred to as the “4 P’s” from seller’s perception and “4
C’s” from buyer’s perception.
P’s (Seller’s Perception) C’s (Buyer’s Perception)
• Product  Customer Solution
• Price  Customer Cost
• Place  Convenience
• Promotion  Communication of merits
(i) Product:
 Product stands for the combination of “goods-and-service” that the company offers
to the target market. Strategies are needed for managing existing product over time,
adding new ones and dropping failed products.
 Strategic decisions must also be made regarding branding, packaging and other product
features such as warranties.
 Products can also be classified on the basis of;
• Industrial or Consumer products, E.g., Air Conditioner for Home or Mall’s
• Essentials or Luxury products, E.g., Medicines or Diamond
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• Durables or Perishables. E.g., Home Appliance or Vegetables
(ii) Price:
 Price stands for the amount of money customers have to pay to obtain the product.
Necessary strategies pertain to the location of the customers, price flexibility, related
items within a product line and terms of sale.
 The price of a product is its composite expression of its value and utility to the customer,
its demand, quality, reliability, safety, the competition it faces, the desired profit and
so on.
 In an industry there would be organizations with low-cost products and other
organizations with high costs (i.e., differentiate product).
 For a new product pricing strategy for entering a market need to be designed. In pricing
a really new product at least three objectives must be kept in mind.
a. Making the product acceptable to the customers.
b. Producing a reasonable margin over cost.
c. Catering to a market that helps in developing market share.
Types of pricing policy for a new product;

• Cost plus pricing,
Wherein a margin is added to the cost of the product to determine its price. However,
in the competitive environment such an approach may not be feasible.
• Skimming Pricing Policy,
Prices are set at a very high level. The product is directed to those buyers who are
relatively price insensitive but sensitive to the novelty of the new product.
For E.g., The pricing kept by Apple � for iPhone and iproducts are skimming.
• Penetration Pricing Policy.
In Penetration firm keeps a temptingly low price for a new product which itself is
selling point. A very large number of the potential consumer may be able to afford
and willing to try the product.
For E.g., The pricing kept by Reliance Jio is penetration.
(iii) Place:
 Place stands for company activities that make the product available to target consumers.
One of the most basic marketing decisions is choosing the most appropriate marketing
channel.
 Strategies should be taken for the management of channel(s) by which ownership
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of product is transferred from producers to customers and system of movement.

Strategies applicable to the intermediaries such as wholesalers and retailers must
be designed.
 The distribution policies of a company are important determinants (i.e., factors) of the
functions of marketing. The decision to utilize a particular marketing channel or
channels, sets the pattern of operations of sales force.
(iv) Promotion:
 Promotion stands for activities that communicate the merits of the product and persuade
target consumers to buy it. Strategies are needed to combine individual methods such
as advertising, personal selling, and sales promotion into a coordinated campaign.
 In addition, promotional strategies must be adjusted as a product move from an earlier
stage to a later stage of its life, besides many other factors like, nature of product,
type of target audience, resourcefulness, type of market, organisation’s policy and
so forth.
 Modern marketing is highly promotional oriented. Promotion gives a boost to
marketing and sales. It involves communication, persuasion (i.e., belief) and
conditioning process. There are at least four major direct promotional methods or
tools – personal selling, advertising, publicity and sales promotion.
Q. Modern marketing is highly promotional oriented?

Answer:
Introduction;
Promotion stands for activities that communicate the merits of the product and persuade
target consumers to buy it. Strategies are needed to combine individual methods such as
advertising, personal selling, and sales promotion into a coordinated campaign.
In addition, promotional strategies must be adjusted as a product move from an earlier
stage to a later stage of its life, besides many other factors like, nature of product, type
of target audience, resourcefulness, type of market, organisation’s policy and so forth.
Modern marketing is highly promotional oriented. Promotion gives a boost to marketing
and sales. It involves communication, persuasion (i.e., belief) and conditioning process.
There are at least four major direct promotional methods or tools – personal selling,
advertising, publicity and sales promotion.
 Personal selling;
• Personal selling is one of the oldest forms of promotion. It involves face-to-face
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interaction of sales force with the prospective customers and provides a high
degree of personal attention to them.
• In personal selling, oral communication is made with potential buyers of a
product with the intention of making a sale. It may initially focus on developing
a relationship with the potential buyer, but end up with efforts for making a
sale.
• Personal selling suffers from a very high costs as sales personnel are expensive.
They can physically attend only one customer at a time. Thus, it is not a cost-
effective way of reaching a large number of people.
 Advertising; (Non – Personal selling)

• Advertising is a non-personal, highly flexible and dynamic promotional method.
The media for advertising includes pamphlets, brochures, newspapers, magazines,
hoardings, display boards, radio, television and internet. Choice of appropriate
media is important for effectiveness of the message.
• The media may be local, regional, or national. The type of the message, copy,
and illustration are a matter of choice and creativity.
• Advertising may be directed towards consumers, middlemen or opinion leaders.
Advertising is likely to succeed in promoting the sales of an organization but its
effectiveness in respect to the expenditure cannot be directly measured. A sale
is a function of several variables out of which advertising is only one.
 Publicity; (Non – Personal selling)

• Publicity is also a non-personal form of promotion similar to advertising. However,
no payments are made to the media as in case of advertising.
• Publicity is communication of a product, brand or business by placing information
about it in the media without paying for the time or media space directly.
• Thus, it is way of reaching customers with negligible cost. Basic tools for publicity
are press releases, press conferences, reports, stories, and internet releases. These
releases must be of interest to the public.
 Sales promotion; (Non – Personal selling)

• Sales promotion is an omnibus. Term that includes all activities that are undertaken
to promote the business. Activities like discounts, contests, money refunds,
instalments, exhibitions and fairs constitute sales promotion. All these are
meant to give a boost to the sales.
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• Sales promotion done periodically may help in getting a larger market share to
an organization. For E.g., Amazon, Great Indian festival.
2.4 Expanded Marketing mix;
Introduction;
 Typically, all organizations use a combination of 4 P’s in some form or the other.
However, the above elements of marketing mix are not fully comprehensive.
 It is relevant to discuss a few more elements that may form part of an organizational
marketing mix strategy.
 They have got more currency (i.e., value) in recent years. With the growth of services
sector, newer Ps specifically based on the characteristics of the services have been
included. A few P’s included later are as follows:
P’s (Seller’s Perception) C’s (Buyer’s Perception)
• People  Caring
• Process  Co-ordinated
• Physical evidence  Comfort
(i) People:
All human actors who play a part in delivery of the market offering and thus influence
the buyer’s perception, namely the firm’s personnel and the customer.
(ii) Process: (creating standard operating procedures (SOPs) to set process)
The actual procedures, mechanisms and flow of activities by which the product,
service is delivered.
(iii) Physical evidence:
The environment in which the market offering is delivered and where the firm and
customer interact.
2.5 Formulation of Marketing Strategy;

Introduction;
 Before making any strategy, it is imperative (i.e., essential) for a marketer to understand
the environment in which the organisation is operating. He should undertake a complete
analysis and diagnosis of both micro and macro environment.
 To interpret in a better way, he can do the SWOT analysis and comprehend where the
organisation is positioned and where it wants to go and how will it go. It involves a
complete analysis of the company’s situation.
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 A company performs analysis by identifying environmental opportunities and threats.

It also analyzes its strengths and weaknesses to determine which opportunities the
company can best pursue.
 Marketing has three components as;

1. Planning,
2. Implementation, and
3. Control.
 Through these analyses, organizations gather information and other inputs that can
be best utilized for its interest while framing a marketing strategy.
 A company must carefully analyze its environment in order to avoid the threats and
take advantage of the opportunities.
 Areas to be analyzed include:
1. Forces close to the company such as its ability to serve customers, other company
departments, channel members, suppliers, competitors, and publics.

2. Broader forces such as demographic and economic forces, political and
legal forces, technological and ecological forces, and social and cultural
forces.
 After completing the environmental analysis and diagnosis, the organisation can
start strategic marketing planning involves deciding on marketing strategies that will
help the company attain its overall strategic objectives.
 A detailed plan is needed for each business, product, or brand. A product or brand
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plan may contain different sections: Executive summary, Current marketing situation,
Threats and Opportunity analysis, Objectives and issues, Marketing strategies, Action
programs, Budgets, and Controls.
 Executive summary: It is a short summary of the main goals and recommendations
to be presented in the plan.
 Current marketing situation: The section of a marketing plan that describes the
target market and the company’s position in it. Important sections include;
• A market description,
• A product review,
• Analysis of the competition, and
• A section on distribution.
 Threats and Opportunity analysis: Managers give their assessment of important
developments that can have an impact, either positive or negative, on the firm.
 Objectives and issues: The manager can set objectives and consider issues that
will affect them. The objectives should be stated as goals that the company
would like to attain during the plan’s term.
 Marketing strategies: The marketing logic by which the business unit hopes
to achieve its marketing objectives. Strategies should be formulated for all
marketing mix components.
 Controls: Strategic control involves monitoring and measuring of results and
their evaluation. This would lead to taking corrective actions in the marketing
plan or strategy.
2.6 Strategic Marketing Techniques;

• Social Marketing;
It refers to the design, implementation, and control of programs seeking to increase the
acceptability of a social ideas, cause, or practice among a target group.
For E.g., the publicity campaign for prohibition of smoking in Delhi explained
the place where one can and can’t smoke.
• Augmented Marketing;
It is provision of additional customer services and benefits built around the core and
actual products that is being offered. It can be in the form of introduction of hi-
tech services like movies on demand, online computer repair services, secretarial services,
etc...
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Such innovative offerings provide a set of benefits that promise to elevate (i.e., to
improve) customer service to unprecedented (i.e., exceptional) levels.
For E.g.,
• Services Marketing;
It is applying the concepts, tools, and techniques, of marketing to services. Services is
any activity or benefit that one party can offer to another that is essentially intangible
and does not result in the ownership of anything. This marketing requires different
marketing strategies since it has peculiar (i.e., specific or unique) characteristics of
its own such as intangibility, inseparability, variability and perishability.
For E.g., Hair Styling, Counselling, Advice from a lawyer, etc...
Note: Just for conceptually clarity
Intangibility; Service cannot be seen, tasted, felt, heard or smelled before

purchase.
Inseparability; Service cannot be separated from their providers.
Variability; Quality of services depends on who provides them and when,

where and how?
Perishability; Service cannot be stored for later sale or use.

*Not covered in our syllabus
• Direct Marketing;
Marketing through various advertising media that interact directly with consumers,
generally calling (i.e., influence) for the consumer to make a direct response.
Direct marketing includes catalogue selling, e-mail, telecomputing, electronic
marketing, shopping, and TV shopping.
For E.g., Sugar free green tea for calorie-conscious consumer.
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• Person Marketing;
People are also marketed. Person marketing consists of activities undertaken to
create, maintain or change attitudes and behaviour towards particular person.
For E.g., politicians, sports stars, film stars, etc...

Market themselves to get votes, or to promote their careers.
• Place Marketing;
Place marketing involves activities undertaken to create, maintain or change attitudes
and behaviour towards particular places say.
For E.g.,
 Business sites marketing,
 Tourism marketing.
• Organization Marketing;
It consists of activities undertaken to create, maintain or change attitudes and behaviour
of target audiences towards an organization. Both profit and non-profit organizations
practice organization marketing.
For E.g.,
• Relationship Marketing;
The process of creating, maintaining, and enhancing strong, value-laden (i.e., value
based) relationships with customers and other stakeholders.
For E.g., Airlines offer special lounges at major airports for frequent flyers.
Thus, providing special benefits to select customers to strengthen bonds. It will go a

long way in building relationships.
• Enlightened Marketing;
It is a marketing philosophy holding that a company’s marketing should support the
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best long-run performance of the marketing system; its five principles include;
1. Customer-oriented Marketing,
2. Innovative Marketing,
3. Value Marketing,
4. Sense-of-mission Marketing, And
5. Societal (relating to society) Marketing.
• Concentrated Marketing;
It is a market-coverage strategy in which a firm goes after a large share of one or few
sub-markets.
For E.g., Patanjali Ayurveda, Kent, etc...
• Differential Marketing;
It is a market-coverage strategy in which a firm decides to target several market
segments and designs separate offer for each.
For E.g., Hindustan Unilever Limited has;
Popular Segment Premium Segment
• Lifebuoy • Dove
• Lux • Pears
• Rexona
• Synchro Marketing;
When the demand for a product is irregular due to season, some parts of the day, or
on hour basis, causing idle capacity or overworked capacities, synchro-marketing can
be used to find ways to alter the pattern of demand through flexible pricing, promotion,
and other incentives.
For E.g., Products such as movie tickets can be sold at lower price over week days to
generate demand.
• De–Marketing;
It includes marketing strategies to reduce demand temporarily or permanently. The aim
is not to destroy demand, but only to reduce or shift it.
This happens when there is overfull demand. Here demarketing can be applied to
regulate demand.
For E.g., buses are overloaded in the morning and evening, roads are busy for most
of times, zoological parks are overcrowded on Saturdays, Sundays and holidays.
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Concept 3: Financial Strategy;
Introduction;
 The financial strategies of an organization are related to several areas of financial
management considered central to strategy implementation. These include:
 Capital Structure decision,
 Sources of fund,
 Developing projected financial statements (budgets),
 Management (i.e., usage, application) of funds, and
 Evaluating the worth of a business.
 Strategists need to formulate strategies in these areas (meaning financial areas) so
that they are implemented. Some of financial decisions are;
• To raise capital with short-term debt, long-term debt, preferred stock, or
common stock.
• To lease or buy fixed assets.
• To determine an appropriate dividend pay-out ratio.
• To extend the time of accounts receivable.
• To establish a certain percentage discount on accounts (i.e., accounts receivable)
within a specified period of time. (Such as, 2/10 net 30)
• To determine the amount of cash that should be kept on hand.
3.1 Acquiring capital to implement strategies;

Introduction;
 Organizations have a range of alternatives regarding the sources of funds. While one
company may rely on external borrowings, another may follow a policy of internal
financing.
 Successful strategy implementation often requires additional capital. Besides net profit
from operations and the sale of assets, two basic sources of capital for an organization
are debt and equity. Being a financial manager to determine an appropriate mix of debt
and equity in a firm’s capital structure can be vital (i.e., essential) to successful strategy
implementation.
 Debt capital and its impact;
• Theoretically, an enterprise should have enough debt in its capital structure
to boost its return on investment by applying debt to products and projects
earning more than the cost of the debt.
• In low earning periods, too much debt in the capital structure of an organization
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can endanger (i.e., harm) stockholders’ return and jeopardize (i.e., put in risk
of) company survival. Many debt-ridden real estate companies find things
very difficult at time of recession. Fixed debt obligations generally must be met,
regardless of circumstances.
• This does not mean that stock issuances are always better than debt for raising
capital.
 Equity (stock) capital and its impact;
• If ordinary stock is issued to finance strategy implementation; ownership and
control of the enterprise are diluted. This can be a serious concern in today’s
business environment of hostile takeovers, mergers, and acquisitions.
 Other factors;
The major factors regarding which strategies have to be made by a financial manager
is:
• Capital structure;
• Procurement of capital and working capital borrowings;
• Reserves and surplus as sources of funds; and
• Relationship with lenders, banks and financial institutions.
Conclusion;
Therefore, strategies related to the sources of funds are important since they determine
how financial resources will be made available for the implementation of strategies.
3.2 Utilization of funds and its impact on strategy implementation;

Introduction;
 Plans and policies for the usage of funds deal with investment or asset-mix decisions.
The important factors regarding which plans and policies are to be made are: capital
investment; fixed asset acquisition; current assets; loans and advances; dividend
decisions; and relationship with shareholders. Usage of funds is important since it
relates to the efficiency and effectiveness of resource utilization in the process of strategy
implementation.
 Implementation of projects in pursuance of expansion strategies typically results in
increase in capital work in progress and current assets. If plans and policies are not
clear, the usage of funds would be inefficient, leading to less than an optimum utilization of
resources.
 The management of funds can play a significant role in strategy implementation as it
aims at the conservation and optimum utilization of funds objectives which are central to
any strategic action.
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 Organizations that implement strategies of stability, growth or retrenchment cannot

escape the rigours of a proper management of funds. In fact, good management
of funds often creates the difference between a strategically successful and unsuccessful
company.
For instance, Gujarat Ambuja Cements, currently a highly profitable cement company
in the country, has achieved tremendous financial success primarily on the basis
of its policies of cost control. This company has been particularly successful in
maintaining a low cost for power, which is a major input in cement manufacturing.
 Financial plans and policies, however, present a dilemma before management.
The priorities of management may often conflict with those of shareholders. It is the
responsibility of the strategists to minimize the conflict of interest between the
management and the shareholders.
3.3 Projected financial statements (budgets);

Introduction;
 Projected (i.e., pro forma) financial statement analysis is a central strategy-
implementation technique because it allows an organization to examine the expected
results of various actions and approaches.
 This type of analysis can be used to forecast the impact of various implementation
decisions for instance:
• to increase promotion expenditures by 50 percent to support a market-
development strategy.
• to increase salaries by 25 percent to support a market-penetration strategy.
• to increase research and development expenditures by 70 percent to support
product development. or
• to sell common stock to raise capital for diversification.
 Nearly all financial institutions require a projected financial statement whenever a
business seeks (i.e., raising) capital. A pro forma income statement and balance sheet
allow an organization to compute projected financial ratios under various strategy-
implementation scenarios.
 When compared to prior years and to industry averages, financial ratios provide valuable
insights (i.e., understanding) into the feasibility of various strategy-implementation
approaches. As a result of the governance challenges, companies today are being
much more diligent (i.e., careful) in preparing projected financial statements in a
reasonable manner rather than too optimistically.
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 A financial budget is also a document that details how funds will be obtained and
spent for a specified period of time. Annual budgets are most common, although
the period of time for a budget can range from one day to more than ten years.
Fundamentally, financial budgeting is a method for specifying what must be done to
complete strategy implementation successfully.
 Financial budgeting should not be thought of as a tool for limiting expenditures but
rather as a method for obtaining the most productive and profitable use of an
organization’s resources. Financial budgets can be viewed as the planned allocation
of a firm’s resources based on forecasts of the future.
 Types of financial budgets used by different organizations such as;

• Cash budgets, • Production budgets,
• Sales budgets, • Capital budgets,
• Expense budgets, • Divisional budgets, etc...
 When an organization is experiencing financial difficulties, budgets are especially
important in guiding strategy implementation.
 Financial budgets have some limitations also;

 Budgetary programs can become so detailed that they are complicated and
overly expensive.
 Over budgeting or under budgeting can cause problems.
 Financial budgets can become a substitute for objectives. Because a budget is
a tool and not an end in itself.
 Budgets can hide inefficiencies if based solely on model rather than on periodic
evaluation of circumstances and standards.
 Budgets are sometimes used as instruments of dictatorship that result in
frustration, resentment, absenteeism, and high turnover. To minimize the effect
of this last concern, managers should increase the participation of subordinates
in preparing budgets.
3.4 Evaluating the worth of a business;

Introduction;
 Evaluating the worth of a business is central (i.e., essential) to strategy implementation
because integrative, intensive, and diversification strategies are often implemented by
acquiring other firms.
 Other strategies, such as retrenchment may result in the sale of a division of a firm
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itself. Various approaches for determining a business’s worth can be grouped into
three main approaches:
1. Net worth (Stockholder’s equity);

 The first approach in evaluating the worth of a business is determining its
net worth or stockholders’ equity. Net worth represents the sum of common
stock, additional paid-in capital, and retained earnings. After calculating net
worth, add or subtract an appropriate amount for goodwill and overvalued or
undervalued assets. This total provides a reasonable estimate of a firm’s monetary
value.
2. Future benefits to owners through net profits;

 The second approach to measuring the value of a firm grows out of the belief
that the worth of any business should be based largely on the future benefits its
owners may derive through net profits.
 A conservative rule of thumb is to establish a business’s worth as five times the
firm’s current annual profit or A five-year average profit level could also be
used.
3. Market determined business worth;

 The third approach, letting the market determine a business’s worth, involves
three methods.
• First Method;
Firm’s worth = Base on the selling price of a similar company.
A potential problem, however, is that sometimes, comparable figures are
not easy to locate.
• Second Method; Price Earnings Ratio method
Firm’s worth = (MPS ÷ EPS) x Average net income for the past five years
• Third Method; Outstanding Shares method
Firm’s worth = No. of Shares x (MPS + Premium)
Concept 4: Production Strategy;

Introduction;
 The production/operations strategy is related to the production system, operational
planning and control and logistics management.
 Such decisions are;
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 What products are offered? (i.e., Nature of product or service)

 Which market and (i.e., market to be served)
 How these markets are served. (i.e., manner in which market to be served)
 All these collectively influence the operations system structure and objectives which
are used to determine the operational plans and policies.
 Thus, a strategy of expansion through related diversification, for instance, will affect
what products are offered to which market and how these markets are served.
4.1 Understanding the Production System;

Introduction;
 The production system is concerned with the capacity, location, layout, product or
service design, work systems, degree of automation, extent of vertical integration, and
such other factors. Therefore, all the decisions related to production of goods and
services form the production strategies.
 Strategies related to production system are significant as they deal with vital issues
affecting the capability of the organisation to achieve its objectives.
 Strategy implementation would have to take into account the production system
factors as they involve decisions which are long-term in nature and influence not
only the operations capability of an organisation but also its ability to implement
strategies and achieve objectives.
For E.g., Excel Industries, a pioneering company in the area of industrial and agro
chemicals, adopted a policy of successive vertical integration for import substitution.
It starts with the end product and then integrates backward to make raw materials
for it.
4.2 Production (Operations) Planning and Control;

Introduction;
 Strategies related to operations planning and control are concerned with aggregate
production planning; materials supply; inventory, cost, and quality management;
and maintenance of plant and equipment.
 Here, the aim of strategy implementation is to see how efficiently resources are utilized
and in what manner the day-to-day operations can be managed in the light of
long-term objectives. Operations planning and control provides an example of an
organizational activity that is aimed at translating the objectives into reality.
 Some companies use quality as a strategic tool. For E.g., The operations policies at KSB
Pumps Ltd lay a great emphasis on quality aspects. In implementing its strategy of
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stable growth, KSB Pumps has built a solid reputation for its quality products. Structurally,
it has a separate department of quality assurance having two groups of quality
inspection and quality engineering. Thus, quality is a consideration not only at the
inspection stage but is built into the design itself.
Concept 5: Logistics Management;

Introduction;
 Management of logistics is a process which integrates

the flow of supplies into, through and out of an organization.
 To achieve a level of service which ensures that the right materials are available; at
the right place, at the right time, of the right quality, and at the right cost.
 Organizations try to keep the cost of transporting materials as low as possible consistent
with safe and reliable delivery.
 Logistics Management is a small portion of Supply Chain Management that deals
with management of goods in an efficient way. Supply chain management helps in
logistics and enables a company to have constant contact with its distribution team,
which could consist of trucks, trains, or any other mode of transportation. Emerging
technologies and industry attractiveness affect logistics operations.
5.1 Issues in Logistics Management;

 For a business enterprise, effective logistic strategy will involve raising and finding
solutions to the following questions;
 Which sources of raw materials and components are available?
 How many manufacturing locations are there?
 What products are being made at each manufacturing location?
 What modes of transportation should be used for various products?
 What is the nature of distribution facilities?
 What is the nature of materials handling equipment possessed? Is it ideal?
 What is the method for deploying inventory in the logistics network?
 Should the business firm own the transport vehicles?
5.2 Advantage of Logistics Management;

 Improvement in logistics can results in savings in cost of doing business. These savings
can also reveal in the profits of the company. Some examples of how logistics can help
a business are as follows:
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 Cost savings,
 Reduced inventory,
 Improved delivery time,
 Customer satisfaction,
 Competitive advantage.
(Note: In 5.1 and 5.2 first need to explain about logistic management then need to
write answer.)
Concept 6: Supply Chain Management;

Introduction;

 The term supply chain refers to the linkages between suppliers, manufacturers and
customers. Supply chains involve all activities like;
 Sourcing material,
 Procurement of material,
 Conversion, and
 Logistics.
 Supply chain management is defined as; “The process of planning, implementing, and
controlling the supply chain operations.”
 It is a cross-functional (i.e., multi-functional) approach to managing the movement
of raw materials into an organization and the movement of finished goods out of the
organization toward the end-consumer. Therefore, supply chain management is an
extension of logistics management.
 It includes all movement and storage of raw materials, work-in-process inventory,
and finished goods from point-of-origin to point-of- consumption.
 Naturally, management of supply chains include closely working with channel partners
– suppliers, intermediaries, other service providers and customers. Technological
changes and reduction in information communication costs with increase in its
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speed has led to changes in coordination among the members of the supply chain
network.
 Modern organisations are attempting to focus on core competencies and reduce their
ownership of sources of raw materials and distribution channels. These functions can
be outsourced to other business organisations that specialize in those activities
and can perform in better and cost-effective manner. In a way organisation in the
supply chain do tasks according to their core-competencies. Working in the supply
chain improve trust and collaboration amongst partners and thus improve flow and
management of inventory.
Conclusion;
 Supply chain management is a tool of business transformation and involves delivering;
the right product, at the right time, to the right place, and at the right price. It reduces
costs of logistics of an organisation and enhances customer service by linkages
between suppliers, manufacturers and customers.
6.1 Implementing Supply Chain Management System;

Introduction;
 A successful implementation of supply management system requires a change from
managing individual functions to integrating activities into key supply chain processes.
 It involves collaborative work between buyers and suppliers. A key requirement for
successfully implementing supply chain will be network of information sharing and
management.
 The partners need to link together to share information through electronic data
interchange and take decisions in timely manner.
Implementing and successfully running supply chain management system will
involve:
1. Product development;
Customers and suppliers must work together in the product development process.
Right from the start the partners will have knowledge of all. Involving all partners will
help in shortening the time of lunch.
Products are developed and launched in shorter time and help organizations to remain
competitive.
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2. Procurement;
Procurement requires careful resource planning, quality issues, identifying sources,
negotiation, order placement, inbound transportation and storage. Organizations
have to coordinate with suppliers in scheduling without interruptions. Suppliers are
involved in planning the manufacturing process.
3. Manufacturing;
Flexible manufacturing processes must be in place to respond to market changes. They
should be adaptive to accommodate customization and changes in the taste and
preferences.
Manufacturing should be done on the basis of JIT and minimum lot sizes. Changes in
the manufacturing process be made to reduce manufacturing cycle.
4. Physical distribution;
Delivery of final products to customers is the last position in a marketing channel.
Availability of the products at the right place at right time is important for each
channel participant.
Through physical distribution processes serving the customer become an integral
part of marketing. Thus, SCM links a marketing channel with customers.
5. Outsourcing;
Outsourcing is not limited to the procurement of materials and components, but also include
outsourcing of services that traditionally have been provided within an organization.
The company will be able to focus on those activities where it has competency and
everything else will be outsourced.
6. Customer services;
Organizations, through interfaces with the company’s production and distribution
operations, develop customer relationships so as to satisfy them. They work
with customer to determine mutually satisfying goals, establish and maintain
relationships. This in turn help in producing positive feelings in the organization and
the customers.
7. Performance measurement;
An uninterrupted supply chain can contribute significantly in improving the overall
performance of the organization by building a strong relationship between the
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supplier, customer and organisation. Performance is measured by different parameters

such as costs, customer service, productivity and quality and supplier involvement
and capabilities can help in building long lasting customer relationships.
6.2 Is logistic management same as supply chain management?

Difference between logistic management vs. supply chain management.
Logistics Management Supply Chain Management
Meaning;
Management of logistics is a process The term supply chain refers to
which integrates the flow of supplies the linkages between suppliers,
into, through and out of an organization. manufacturers and customers.
Objective;
Customer satisfaction. To gain competitive advantage.
Evolution;
The concept of Logistics has been Supply Chain Management is a modern
evolved earlier. concept.
One in another;
Logistics Management is a fraction of Supply Chain Management is the new
Supply Chain Management. version of Logistics Management.
Incudes;
Logistical activities typically include Naturally, management of supply chains
management of inbound & outbound include closely working with channel
goods, transportation, warehousing, partners – suppliers, intermediaries,
handling of material, fulfilment of other service providers and customers.
orders, inventory management, supply-
demand planning.
Concept 7: Research and Development Strategy;
Introduction;
 Research and development (R&D) personnel can play an integral part in strategy
implementation. These individuals are generally charged with developing new products
and improving old products in a way that will allow effective strategy implementation.
 R&D employees and managers perform tasks that include transferring complex
technology, adjusting processes to local raw materials, adapting processes to local
markets, and altering products to particular tastes and specifications.
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 Strategies such as product development, market penetration, and concentric

diversification require that new products be successfully developed and that old
products be significantly improved. But the level of management support for R&D is
often constrained by resource availability.
 Technological improvements that affect consumer and industrial products, services
shorten product life cycles. Companies in virtually, every industry are relying on the
development of new products and services to fuel (i.e., to provide) profitability
and growth. Surveys suggest that the most successful organizations use an R&D
strategy that ties external opportunities to internal strengths and is linked with
objectives. Well formulated R&D policies match market opportunities with internal
capabilities.
R&D policies can enhance strategy implementation efforts to:

• Emphasize product or process improvements.
• Be leaders or followers in R&D.
• Develop robotics or manual-type processes.
• Spend a high, average, or low amount of money on R&D.
• Perform R&D within the firm or to contract R&D to outside firms.
• Use university researchers or private sector researchers.
There must be effective interactions between R&D departments and other functional
departments in implementing different types of generic business strategies.
7.1 R&D guidelines;
A critical question is whether a firm should develop research and development expertise
internally or outside to external agencies. The following guidelines can be used to help
make this decision:
Guidelines;
1. If the rate of technical progress is slow, the rate of market growth is moderate, and there
are significant barriers to possible new entrants, then in-house R&D is the preferred
solution. The reason is that R&D, if successful, will result in a temporary product or
process monopoly that the company can exploit.
2. If technology is changing rapidly and the market is growing slowly, then a major effort
in R&D may be very risky, because it may lead to the development of an ultimately
obsolete technology or one for which there is no market.
3. If technology is changing slowly but the market is growing quickly, there generally is
not enough time for in-house development. The prescribed approach is to obtain R&D
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expertise on an exclusive or nonexclusive basis from an outside firm.

4. If both technical progress and market growth are fast, R&D expertise should be obtained
through acquisition of a well-established firm in the industry.
7.2 R&D Approaches to Implement Strategic Decisions;

1. Market Leader (Pioneer);
2. Imitator (Follower);
3. Low-Cost Producer;
 There are at least three major R&D approaches for implementing strategies;
1. Be the leader (Pioneer);
 The first strategy is to be the first firm to market new technological products. This
is a glamorous and exciting strategy but also a dangerous one. Firms such as 3M
and General Electric have been successful with this approach, but many other
pioneering firms have fallen, with rival firms seizing the initiative.
2. Be an innovative Imitator (Follower);
 A second R&D approach is to be an innovative imitator of successful products,
thus, minimizing the risks and costs of startup. This approach entails (i.e., result
in) allowing a pioneer firm to develop the first version of the new product and to
demonstrate that a market exists. Then, laggard (i.e., a firm who makes slow
progress and falls behind others, धीमा) firms develop a similar product. This
strategy requires excellent R&D personnel and an excellent marketing department.
3. Be a low-cost producer;
 A third R&D strategy is to be a low-cost producer by mass-producing products
similar to but less expensive than products recently introduced. As a new product
accepted by customers, price becomes increasingly important in the buying
decision. Also, mass marketing replaces personal selling as the dominant
selling strategy. This R&D strategy requires substantial investment in plant and
equipment, but fewer expenditures in R&D than the two approaches described
earlier.
Concept 8: Human Resource Strategy;
Introduction;
 Strategic responsibilities of the human resource manager include assessing the
staffing needs and costs for alternative strategies proposed during strategy
formulation and developing a staffing plan for effectively implementing strategies.
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The plan must also include how to motivate managers and employees.
 The human resource management (HRM) helps the organization to effectively deal
with the external environmental challenges. The function has been accepted as a
partner in the formulation of organization’s strategies and in the implementation of
such strategies through human resource planning, employment, training, appraisal and
rewarding of personnel.
 The human resource department must develop performance incentives that clearly
link performance and pay to strategies. The process of empowering managers and
employees through their involvement in strategic management activities yields (i.e.,
produces) the greatest benefits when all organizational members understand clearly
how they will benefit personally if the firm does well. Linking company and personal
benefits is a major new strategic responsibility of human resource managers.
 Other new responsibilities for human resource managers may include establishing
and administering an employee to have conductive work environment, maintain
work life balance, synchronising individual with organisation goals.
8.1 Major Strategic Decisions or Concerns related to Human Resource Management;

(Hint: Problem that arises and method for preventing and overcoming HR problems.)
Introduction;
A well-designed strategic-management system can fail if insufficient attention is given to the
human resource dimension. A human resource (HR) problem that arises when a business
implements strategies can usually be traced to one of three causes:
1. Disruption of social and political structures;
 Strategy implementation poses (i.e., creates) a threat to many managers
and employees in an organization. New power and status relationships are
anticipated and realized. New formal and informal groups’ values, beliefs,
and priorities may be largely unknown. Managers and employees may become
engaged in resistance behaviour as their roles, rights, and power in the firm
change.
 Disruption of social and political structures that follow strategy execution
must be anticipated and considered during strategy formulation and managed
during strategy implementation.
2. Failure to match individuals’ aptitudes with implementation tasks;
 A concern in matching managers with strategy is that jobs have specific and
relatively static responsibilities, although people are dynamic in their personal
development.
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 Commonly used methods that match managers with strategies to be implemented

include transferring managers, developing leadership workshops, offering
career development activities, promotions, etc...
3. Inadequate top management support for implementation activities;
 Inadequate support from strategists for implementation activities often
undermines (i.e., diminish) organizational success. Chief executive officers,
small business owners, and government agency heads must be personally
committed to strategy implementation and express this commitment in highly
visible ways.
 Strategists’ formal statements about the Importance of strategic management
must be consistent with actual support and rewards given for activities
completed and objectives reached. Otherwise, stress created by inconsistency
can cause uncertainty among managers and employees at all levels.
Solution to overcome HR problems;

Perhaps the best method for preventing and overcoming human resource problems in strategic
management is to actively involve as many managers and employees’ as possible in
the process. Although time-consuming, this approach builds understanding, trust,
commitment, etc... The true potential of strategy formulation and implementation
resides in people.
8.2 Role of HRM in Achieving Competitive advantage (Task of HRM);

Introduction;
 A well trained and a competent workforce can go a long way in helping to achieve
competitive advantage for an organisation.
 The role of human resources in enabling the organization to effectively deal with
the external environmental challenges, the human resource management function has
been accepted as a strategic partner in the formulation of organization’s strategies
and in the implementation of such strategies through human resource planning,
employment, training, appraisal and rewarding of personnel.
 An organization’s recruitment and selection, training, performance appraisal, and
compensation practices can have a strong influence on employee competence. The
following points should be kept in mind;
 Recruitment and selection:
The workforce will be more competent if a firm can successfully identify, attract,
and select the most competent applicants.
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 Training:
The workforce will be more competent if employees are well trained to perform
their jobs properly.
 Appraisal of performance:
The performance appraisal is to identify any performance deficiencies experienced
by employees due to lack of competence. Such deficiencies, once identified, can
often be solved through counselling, coaching or training.
 Compensation:
A firm can usually increase the competency of its workforce by offering pay and
benefit packages that are more attractive than those of their competitors. This
practice enables organizations to attract and retain the most capable people.
8.3 Strategic Human Resource Management (SHRM);

Introduction;
 The human resource strategy of a business should reflect and support the corporate
strategy. An effective human resource strategy includes the way in which the
organization plans to develop its employees and provide them suitable opportunities
and better working conditions so that their optimal contribution is ensured. This
implies selecting the best available personnel, ensuring a ‘fit’ between the employee
and the job and retaining, motivating and empowering employees to perform well
in direction of corporate objectives.
 Strategic human resource management may be defined as the linking of human resource
management with strategic goals and objectives to improve business performance and
develop organizational culture that encourage innovation and flexibility.
 The success of an organization depends on its human resources. This means how they are
acquired, developed, motivated and retained organization play an important role
in organizational success.
 The Human Resource Management practices of an organization may be an important
source of competitive advantage. For this strategic focus, should be given on the
following points:
• Pre-selection practices;
Pre-selection practices including human resource planning and job analysis.
• Selection practices;
It meant to staff various positions in the organization. Both recruitment and
selection policies and procedures should be designed keeping in view the
mission and the purpose of the organization.
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• Post-selection practices;
Post-selection practices to maintain and improve the workers job performance
levels. Human Resources decisions related to training and development,
performance appraisal, compensation and motivation should be based on
corporate strategy of the organization.
8.4 The prominent (important) areas where the human resource manager can play strategic role
are as follows;
 Providing purposeful direction:
 The human resource manager must be able to lead people and the organization
towards the desired direction involving people right from the beginning.
 The most important task of a HR manager is to ensure that the objectives of an
organization are internalized (i.e., implemented) by each individual working in
the organization.
 Building core competency:
 The human resource manager has a great role to play in developing core
competency by the firm. A core competence is a unique strength of an organization
which may not be shared by others.
 This may be in the form of human resources, marketing capability, or technological
capability.
 Organization of business around core competence implies leveraging the limited
resources of a firm. It needs creative, courageous and dynamic leadership
having faith in organization’s human resources.
 Creating competitive advantage:
 Creating and maintaining a competitive advantage in the globalized market is
the object of any organization.
 There are two important ways a business can achieve a competitive advantage
over the others.
1. The first is cost leadership which means the firm aims to become a low-
cost leader in the industry.
2. The second competitive strategy is differentiation under which the firm
seeks (aim) to be unique in the industry in terms of dimensions that are
highly valued by the customers. Putting these strategies into effect carries
a heavy premium on having a highly committed and competent workforce.
 Facilitation of change:
 The human resource manager will be more concerned with substance rather than
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form, accomplishments rather than activities, and practice rather than theory.
 The HR function will be responsible for furthering (i.e., promoting) the organization
not just maintaining it. Human resource manager will have to devote more time
to promote changes than to maintain the status quo.
 Managing workforce diversity:
 In modern organizations, management of diverse workforce is a great challenge.
 Workforce diversity can be observed in terms of male and female workers, young
and old workers, educated and uneducated workers, unskilled and professional
employee, etc... Moreover, many organizations also have people of different
castes, religious and nationalities.
 The workforce in future will comprise more of educated and self-conscious workers.
They will ask for higher degree of participation and avenues for fulfilment.
Money will no longer be the sole motivating force for majority of the workers. Non-
financial incentives will also play an important role in motivating the workforce.
 Empowerment of human resources:
 Empowerment means authorizing every member of an organization to take up
his/her own destiny realizing his/her full potential.
 It involves giving more power to those who, at present, have little control what
they do and little ability to influence the decisions being made around them.
 Development of works ethic and culture:

 Greater efforts will be needed to achieve cohesiveness (i.e., act of togetherness)
because employees will have transient (i.e., short-term) commitment to groups.
As changing work ethic requires increasing emphasis on individuals, jobs will have
to be redesigned to provide challenge.
 Flexible starting and quitting times for employees may be necessary. Focus will
shift from extrinsic (i.e., external) to intrinsic (i.e., internal, self) motivation.
 A vibrant work culture will have to be developed in the organizations to create
an atmosphere of trust among the employees and to encourage creative ideas by
them.
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Question Bank
Q. 1 Explain functional level strategies and its importance.

or
What is meant by Functional strategies? In term of level, where will you put them?
Are functional strategies really important for business?
Q. 2 Explain marketing strategy and factors affect the success or failure.
Q. 3 Explain marketing strategy and its objectives.
Q. 4 What do you understand by the term marketing mix? Briefly explain its various
components.
Q. 5 What do you understand by promotion? What are various promotion tools adopted
by organization?
or
Explain the marketing mix in the context of modern marketing.
Q. 6 Expanded marketing mix.
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Q. 7 Explain formulation of marketing strategy.
Q. 8 Strategic marketing techniques.
Q. 9 What are the different sources of raising funds and their impact on the financial
strategy.
or
Successful implementation of any project needs additional funds. What are the
different sources of raising funds and their impact on the financial strategy which
you as a Financial Manager will consider?
Q. 10 Projected financial statements (budgets) as an effective tool to implement financial

strategy?
or
Briefly explain financial budgets and its limitations.
Q. 11 Resource utilization in the process of strategy implementation.

or
The management of funds is an important area of financial strategies.
or
The management of funds can play a pivotal role in strategy implementation as it
aims at the conservation and optimum utilization of funds.
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Q. 12 “Evaluating the worth of a business is central to strategy implementation.” In the

light of this statement, explain the methods that can be used for determining the
worth of a business.
or
What do you mean by financial strategy of an organization? How the worth of a
business is evaluated?
Q. 13 Does production system play vital role in strategy implementation?
Q. 14 Explain Production (Operations) Planning and Control.
Q. 15 Explain logistic management (strategy), issues affect in strategy implementation

and its advantages.
Q. 16 Explain supply chain management.
Q. 17 Discuss the major steps in implementing supply chain management system in a

business organization.
Q. 18 Is logistic management same as supply chain management? Explain the difference

between the two.
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Q. 19 How would you argue that R&D Personnel are important for effective strategy
implementation?
Q. 20 Discuss the guidelines for selection of R&D expertise by an organisation.
Q. 21 Discuss R&D Approaches to Implement Strategic Decisions.
Q. 22 Explain HRS, problem that arises and method for preventing and overcoming HR
problems.
Q. 23 State the factors of human resource that influence on employee’s competence.

or
Achieving Competitive advantage Task of HRM.
Q. 24 Explain Strategic Human Resource Management (SHRM).
Q. 25 Explain prominent areas where Human Resource Manager can play a strategic
role.
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Q. 26 Human Resource Manager's role is significant in building up core competency of

the firm. Comment.
Q. 27 Define the term 'Marketing'. Distinguish between social marketing and service
marketing.
Q. 28 Define Augmented Marketing. Give two examples.
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Organization Structure and

Strategic Leadership
The ideal organizational structure is a place where ideas filter up as well as down, where
the merit of ideas carries more weight than their source, and where participation and
shared objectives are valued more than executive order.
– Edson Spencer
Concept 1: Organization Structure:
Introduction;
 A competitive advantage is created when there is a proper match between 7and
structure.
 Selecting the organizational structure and controls that result in effective
implementation of chosen strategies is a fundamental challenge for managers, especially
top-level managers.
 Changes in corporate strategy often require changes in the way an organization is
structured for two major reasons.
Structure largely dictates;

1. How operational objectives and policies will be established to achieve the strategic
objectives?
2. How resources will be allocated to achieve strategic objectives?
 Every firm is influence by numerous external and internal forces. But no firm could change
its structure in response to each of these forces, because to do so would lead to
disorder (i.e., chaos).
 However, when a firm changes its strategy, the existing organizational structure may
become ineffective. Symptoms of an ineffective organizational structure include;
 Too many levels of management,
 Too many meetings attended by too many people,
 Too much attention being directed toward solving interdepartmental conflicts,
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 Too large a span of control, and

 Too many unachieved objectives.
 Changes in organisational structure can facilitate strategy implementation
efforts, but changes in structure should not be expected to make a bad strategy
good, to make bad managers good, or to make bad products sell.
 Structure can also influence strategy. If a proposed strategy required massive
structural changes, it would not be an attractive choice. In this way, structure can
shape the choice of strategy. (#Forward & Backward Linkages Chapter 8)
 But a more important concern is determining what types of structural changes
are needed to implement new strategies and how these changes can best be
accomplished.
Concept 2: Chandler's - Strategy Structure Relationship:
 According to Chandler, Changes in strategy lead to changes in organizational structure.
 Structure should be designed or redesigned to

facilitate the strategic pursuit of a firm and, therefore,
structure should follow strategy.
 Chandler’s Strategy – Structure Relationship;
 Chandler found a particular structure sequence to be often repeated as organizations

grow and change strategy over time. There is no one optimal organizational design
or structure for a given strategy. What is appropriate for one organization may not be
appropriate for a similar firm, although successful firms in a given industry do tend to
organize themselves in a similar way
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Concept 3: Simple Structure;
Introduction;
 Simple organizational structure is most appropriate for companies that follow a
single – business strategy and offer a line of products in a single geographic market.
The simple structure also is appropriate for companies implementing focused cost
leadership or focused differentiation strategies.
 A simple structure is an organizational form in

which the owner-manager makes all major
decisions directly and monitors all activities,
while the company’s staff merely serves as an
executor.
 Characteristics of Simple Structure;

• Little specialization of tasks, (As staff merely serves as an executor)
• Few rules,
• Little formalization,
• Unsophisticated information systems, and
• Direct involvement of owner-manager in all phases of day-to-day operations.
 Advantages of Simple Structure;

 Communication is frequent and direct,
 New products tend to be introduced to the market quickly,
 Few of the coordination problems that are common in larger organizations exist.
(mean less coordination problems compare to other form of organisation
structure)
 Greater structural flexibility.
 A broad-based openness to innovation.
 An ability to respond more rapidly to environmental changes.
 Issues in Simple Structure;

When small companies grow larger. As a result of this growth, the company outgrows
the simple structure. Generally, there are significant increases in the amount of
competitively relevant information that requires processing. More extensive and
complicated information processing requirements place significant pressures on owner
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– managers. (Often due to a lack of organizational skills or experience or simply due

to lack of time).
• Thus, it is necessary on the company’s managers to recognise the inadequacies

or inefficiencies of the simple structure and change it to one that is more
consistent with company’s strategy.
• To coordinate more complex organizational functions, companies should
abandon the simple structure in favour of the functional structure. The functional
structure is used by larger companies and by companies with low levels of
diversification.
Concept 4: Functional Structure;
Introduction;
 A widely used structure in business organisations is functional type because of its
simplicity and low cost. A functional structure groups tasks and activities by business
function, such as production (operations), marketing, finance, accounting, R&D, and
management information systems.
 The functional structure consists of a chief executive officer or a managing director and
supported by corporate staff with functional line managers in dominant functions
such as production, financial accounting, marketing, R&D, engineering, and human
resources.
 The functional structure enables the company to overcome the growth-related
constraints of the simple structure, enabling or facilitating communication and
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coordination.
 Advantages of Functional Structure;

 Promotes specialization of labour,
 Encourages efficiency,
 Minimizes the need for an elaborate control system, and
 Allows rapid decision making.
 There also are some potential problems.

 Differences in functional specialization and orientation may delay communications
and coordination.
 Thus, the chief executive officer must integrate functional decision- making
and coordinate actions of the overall business across functions.
 Functional specialists often may develop a narrow perspective, and losing sight of
the company’s strategic vision and mission.
 When this happens, this problem can be overcome by implementing the
multidivisional structure.
Concept 5: Divisional Structure;
Introduction;
 As a firm, grows year after year it faces difficulty in managing different products and
services in different markets. Some form of divisional structure generally becomes
necessary to motivate employees, control operations, and compete successfully in
diverse locations.
 The divisional structure can be organized in one of the four ways;

1. By Geographic Area,
2. By Product or Service,
3. By Customer, or
4. By Process.
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 With a divisional structure, functional activities are performed both centrally and, in
each division, separately.
 Advantages of Divisional Structure;

 Accountability is clear. Mean divisional managers can be held responsible for
sales and profit levels.
 Employee morale is generally higher in a divisional structure than it is in
centralized structure as managers and employees can easily see the results of
their good or bad performances.
 It creates career development opportunities for managers.
 Allows local control of local situations, leads to a competitive climate within
an organization.
 Allows new businesses and products in be added easily.
 Disadvantages of Divisional Structure;

 Divisional structure is costly,
• Each division requires functional specialists who must be paid.
• Second, there exists some duplication of staff services, facilities, and
personnel; for instance, functional specialists are also needed centrally (at
headquarters) to coordinate divisional activities.
• Third, managers must be well qualified because the divisional design
forces delegation of authority better-qualified individuals requires higher
salaries.
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 Difficult to maintain consistency,

• It requires an elaborate, headquarters-driven control system.
• Certain regions, products, or customers may sometimes receive special
treatment, and it may be difficult to maintain consistent, companywide
practices.
1. By geographic area; (For E.g., UL)

It is appropriate for organizations whose strategies are formulated to fit the particular
needs and characteristics of customers in different geographic areas.
This type of structure can be most appropriate for organizations that have similar
branch facilities located in widely dispersed areas.
 Advantage of divisional structure by geographic area;

It allows local participation in decision making and improved coordination
within a region.
2. By product or services; (For E.g., P&G, General Motors)

It is most effective for implementing strategies when specific products or services need
special emphasis.
Also, this type of structure is widely used when an organization offers only a few
products or services, when an organization’s products or services differ substantially.
 Advantage of divisional structure by product or services;
It allows strict control over and attention to product lines.
 Limitation of divisional structure by product or services;
It may also require a more skilled management force and reduced top
management control.
3. By customers; (For E.g., Airlines, Banks)

When a few major customers are of prime importance and many different services
are provided to these customers, then a divisional structure by customer can be the
most effective way to implement strategies.
Like; Airline companies have two major customer divisions: passengers and freight or
cargo services.
Like; Banks are often organised in divisions such as personal banking corporate
banking.
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 Advantage of divisional structure by customers;

This structure allows an organization to cater effectively to the requirements of
clearly defined customer groups.
4. By process;
It is similar to a functional structure, because activities are organised according to the way
work is actually performed. However, a key difference between these two designs is that
functional departments are not accountable for profits or revenues, whereas divisional process
departments are evaluated on these criteria.
 Advantage of divisional structure by process;

Is accountable for profits or revenues.
Concept 6: Multi – Divisional Structure; (M Form Structure)
Introduction;
 Multidivisional or M-form structure was developed in the 1920s, in response to

coordination and control related problems in large firms. Functional departments
often had difficulty dealing with distinct product lines and markets, especially in
coordinating conflicting priorities among the products. Such as, costs were not
allocated to individual products, so it was not possible to assess an individual product’s
profit contribution. Loss of control meant that optimal allocation of firm resources
between products was difficult. Top managers became overinvolved in solving short-
run problems (such as coordination, communications, conflict resolution) and neglected
long-term strategic issues.
 Multidivisional (M-form) structure is composed of operating divisions where each division
represents a separate business to which the top corporate officer delegates responsibility
for day-to-day operations and business unit strategy to division managers. By such
delegation, the corporate office is responsible for formulating and implementing
overall corporate strategy and manages divisions through strategic and financial
controls.
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Study Note: Organisational structure is same as Divisional structure only key difference is
here divisional head responsible for day-to-day operations and business unit strategy.
 Multidivisional structure calls (ask) for:

• Creating separate divisions, each representing a distinct business,
• Each division would house its functional hierarchy,
• Division managers would be given responsibility for managing day-to-day
operations,
• A small corporate office that would determine the long-term strategic direction
of the firm and exercise overall financial control over the semi-autonomous
divisions.
 Advantages of Multi – Divisional Structure;

 Enable the firm to more accurately monitor the performance of individual
businesses,
 Simplifying control problems,
 Facilitate comparisons between divisions,
 Improving the allocation of resources and
 Stimulate (i.e., encourage) managers of poorly performing divisions to seek ways
to improve performance.
 Issues in Multi – Divisional Structure;

 Multi – Divisional structure is costly due to duplication of specialists and
functions.
 Inconsistent decision making, each division may take its own decision.
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Concept 7: Strategic Business Unit Structure; (SBU Structure)
Introduction;
 The concept is relevant to multi-product, multi-business enterprises. It is impractical
for an enterprise to provide separate strategic planning treatment to each one of its
products or businesses. It has to necessarily group the products or businesses into a
manageable number of strategically related business units and then take them up for
strategic planning.
 An SBU is a grouping of related businesses, which is willing to respond to composite

planning treatment.
 As per this concept, a multi-business enterprise groups its multitude of businesses

into a few distinct business units in a scientific way. The purpose is to provide effective
strategic planning treatment to each one of its businesses or products.
 The three most important Characteristics of SBU’s;

• SBU is a single business or collection of related businesses that can be planned for separately,
• SBU has its own set of competitors.
E.g., Realme, Vivo and Oppo, etc...
• SBU has a manager who is responsible for strategic planning and profit.
 The SBU structure is composed of operating units where each unit represents a
separate business to which the top corporate officer delegates responsibility for
day-to-day operations and business unit strategy to its managers.
 By such delegation, the corporate office is responsible for formulating and

implementing overall corporate strategy and manages SBU’s through strategic and
financial controls.
 A strategic business unit (SBU) structure consists of at least three levels, with a
corporate headquarters at the top, SBU groups at the second level, and divisions grouped
by relatedness within each SBU at the third level.
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Individual SBUs are treated as profit centres and controlled by corporate headquarters.
 Advantages of SBU Structure;

 Establishing coordination between divisions having common strategic interests.
 Facilitates strategic management and control on large and diverse organizations.
 Fixes accountabilities at the level of distinct business units.
 Allows strategic planning to be done at the most relevant level within the total
enterprise.
 Makes the task of strategic review by top executives more objective and more
effective.
 Helps allocate corporate resources to areas with greatest growth opportunities.
Concept 8: Matrix Structure;

Introduction;
 Most organizations find that organising around either functions (in the functional
structure) or around products and geography (in the divisional structure) provides
an appropriate organizational structure. The matrix structure, in contrast, may be
very appropriate when organizations conclude that neither functional nor divisional
forms, even when combined with horizontal linking mechanisms.
 A matrix structure is the most complex of all designs

because it depends upon both vertical and horizontal
flows of authority and communication (hence the term
matrix).

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 In contrast, functional and divisional structures depend primarily on vertical flows of

authority and communication.
 In matrix structures, functional and product forms are combined simultaneously at the
same level of the organization. Employees have two superiors;
1. A functional manager. (Home department, reasonably permanent).
2. A product or project manager (usually temporary).
 Matrix structure combines the stability of the functional structure with the flexibility
of the division by product form. People from these functional units are often assigned
temporarily to one or more product units or projects. The product units or project are
usually temporary and act like divisions.
 Despite its complexity, the matrix structure is widely used in many industries, including;
• Construction,
• Healthcare,
• Research, and
• Defence.
 The matrix structure is often found in an organization or within an SBU when the
following 3 conditions exists;
1. Ideas need to be cross – fertilized across projects or products,
2. Resources are scarce, and
3. Abilities to process information and to make decisions need to be improved.
 Advantages of Matrix Structure;

 Project objectives are clear.
 Workers can see the visible results of their work.
 Shutting down a project is accomplished relatively easily.
 It is very useful when the external environment is very complex and changeable.
 It reflects the benefit of both functional and divisional structure.
 Employee can adopt best practice from one division in another division.

 Disadvantages of Matrix Structure;
 A matrix structure can result in higher overhead because it has more management
positions.
 It contributes to overall complexity include dual lines of budget authority.
 Dual reporting channels i.e., a violation of the unity command principle.
 Dual sources of reward and punishment, shared authority.
 A need for an extensive and effective communication system. and
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 Might be a continuous battle for power between product and functional

manger.
8.1 For development of matrix structure Davis and Lawrence, have proposed 3 distinct phases:
1. Cross-functional task forces;

 Initially it involves people from different functions forming a temporary task force
under charge of project manager.
 Temporary cross-functional task forces are initially used when a new product line
is being introduced. A project manager is in charge as the key horizontal link.
2. Product (brand) management;

 If the cross-functional task forces become more permanent, the project manager
becomes a product or brand manager and a second phase begins.
 In this arrangement, function is still the primary organizational structure, but
product or brand managers act as the integrators of semi-permanent products or
brands.
3. Mature matrix;
 The third and final phase of matrix development involves a true dual-authority
structure. Both the functional and product structures are permanent.
 All employees are connected to both a vertical functional superior and a horizontal
product manager. Both (functional and product managers) have equal authority
and must work well together to resolve disagreements over resources and priorities.
Concept 9: Network Structure;

Introduction;
 The network organization is a series of independent firms or business units linked together
by a common system that designs, produces, and markets (i.e., offers) a product or
service.
 Network structure could be termed as “non-structure” by its virtual elimination of
in-house business function. Many activities are outsourced. A corporation organized
in this manner is often called a virtual organization because it is composed of a series
of project groups or collaborations linked by constantly changing non-hierarchical,
cobweblike networks.
 The network structure becomes most useful when the environment of a firm is unstable
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and is expected to remain so (i.e., unstable). Under such conditions, there is usually
a strong need for innovation and quick response. Instead of having salaried employees, it
may contract with people for a specific project or length of time. Long-term contracts
with suppliers and distributors replace services that the company could provide for
itself through vertical integration.
 Electronic markets and sophisticated (i.e., advanced) information systems reduce the
transaction costs of the marketplace, thus justifying a “buy” over a “make” decision.
 Rather than being located in a single building or area, an organization’s business
functions are scattered at different geographical locations. The organization is, in effect,
only a shell (i.e., cover), with a small headquarters acting as a “broker”, electronically
connected to some completely owned divisions, partially owned subsidiaries, and
other independent
 Companies like Airtel use the network structure in their operations function by
subcontracting manufacturing to other companies in low-cost.
Other E.g.,
 Advantages of Network Structure;

 Network structure provides an organization with increased flexibility and
adaptability to cope with rapid technological change and shifting patterns of
international trade and competition.
 It allows a company to concentrate on its distinctive competencies, while gathering
efficiencies from other firms who are concentrating their efforts in their areas of
expertise.
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 Disadvantages of Network Structure;

 The availability of numerous potential partners can be a source of trouble.
 Contracting out functions to separate suppliers (distributors) may keep the firm
from discovering any synergies by combining activities.
 It a particular firm overspecializes on only a few functions; it runs the risk of choosing
the wrong functions and thus becoming non-competitive.
Concept 10: Hourglass Structure;
Introduction;
 In the recent year’s information technology and communications have significantly altered
the functioning of organizations. The role played by middle management is diminishing
as the tasks performed by them are increasingly being replaced by the technological
tools.
 Hourglass organization structure consists of three layers with constricted middle layer.
The structure has a short and narrow middle management level. Information technology
links the top and bottom levels in the organization taking away many tasks that are
performed by the middle level managers.
 A shrunken (i.e., narrow) middle layer coordinates diverse lower-level activities. Contrary
to traditional middle level managers who are often specialist, the managers in the
hourglass structure are generalists and perform wide variety of tasks. They would
be handling cross-functional (i.e., multi-functional) issues emerging such as those from
marketing, finance or production.
 Advantages of Hourglass Structure;

 Reduced costs.
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 Helps in enhancing responsiveness by simplifying decision making.

 Decision making authority is shifted close to the source of information so that it is
faster.
 Disadvantages of Hourglass Structure;

 The promotion opportunities for the lower levels diminish significantly.
 Continuity at same level may bring monotony and lack of interest and it becomes
difficult to keep the motivation levels high.
• Organisations try to overcome these problems by assigning challenging
tasks, transferring laterally (i.e., horizontally) and having a system of
proper rewards for performance.
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Concept 11: Strategic Leadership;
Introduction;
 Strategic leadership sets the firms direction by developing and communicating vision
of future, formulate strategies in the light of internal and external environment, brings
about changes required to implement strategies and inspire the staff to contribute to
strategy execution.
 A manager as a strategic leader has to play many leadership roles to play; Visionary,
Policy Maker, Motivator, Culture Builder, Crisis Manager, Resource Acquirer and
Allocator, etc...
 A Strategic leader has several responsibilities, including the following:
• Making strategic decisions.
• Formulating policies and action plans to implement strategic decision.
• Ensuring effective communication in the organisation.
• Managing human capital (perhaps the most critical of the strategic leader’s skills).
• Managing change in the organisation.
• Creating and sustaining strong corporate culture. and
• Sustaining high performance over time.
 Thus, the strategic leadership skills of a company’s managers represent resources
that affect company performance. And these resources must be developed for the
company’s future benefit.
11.1 Managers have five leadership roles to play in pushing for good strategy execution;
Introduction;
 A strategic leader is a change agent to initiates strategic changes in the organisations
and ensure that the changes successfully implemented. For the most part, major change
efforts have to be top-down and vision-driven. Leading change has to start with
diagnosing the situation and then deciding which of several ways to handle it.
Managers have five leadership roles to play in pushing for good strategy execution.
1. Staying on top of what is happening, closely monitoring progress, solving out
issues, and learning what obstacles lie in the path of good execution.
2. Promoting a culture of esprit de corps (a sense of unity and of common interests
and responsibilities shared by organisational members) that mobilizes and
energizes organizational members to execute strategy in a competent fashion
and perform at a high level.
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3. Keeping the organization responsive to changing conditions, alert for new

opportunities, creating with innovative ideas, and ahead of rivals in developing
competitively valuable competencies and capabilities.
4. Ethical leadership and insisting that the company conduct its affairs like a model
corporate citizen.
5. Pushing corrective actions to improve strategy execution and overall strategic
performance.
11.2 Approaches to leadership style;
Introduction;
 Strategic leadership is the ability of influencing others to voluntarily make decisions
that enhance prospects for the organisation’s long-term success while maintaining
short-term financial stability.
 It includes determining the firm’s strategic direction, aligning the firm’s strategy with
its culture, modelling and communicating high ethical standards, and initiating changes
in the firm’s strategy, when necessary.
 Strategic leadership sets the firm’s direction by developing and communicating a
vision of future and inspire organization members to move in that direction.
 Unlike strategic leadership, managerial leadership is generally concerned with the
short-term, day-to-day activities. Two basic approaches to leadership can be
transformational leadership style and transactional leadership style.
1. Transformational Leadership style;

 Such a leadership motivates followers to do more than originally affected to do
by stretching their abilities and increasing their self-confidence, and also promote
innovation throughout the organization.
 Transformational leaders offer excitement, vision, intellectual stimulation and
personal satisfaction. They inspire involvement in a mission, giving followers a
‘dream’ or ‘vision’ of a higher calling so as to elicit (i.e., obtain) more dramatic
changes in organizational performance.
 Uses charisma and enthusiasm to inspire people to exert them for the good
of the organization.
 Transformational leadership style may be appropriate in turbulent
environments.
 In industries at the very start or end of their life-cycles.
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 In poorly performing organizations when there is a need to inspire a company

to embrace (i.e., to accept, include) major changes.
2. Transactional Leadership style;

 Focuses more on designing systems and controlling the organization’s activities
and are more likely to be associated with improving the current situation. Transactional
leaders try to build on the existing culture and enhance current practices.
 Transactional leadership style prefers a more formalized approach to motivation,
setting clear goals with explicit rewards or penalties for achievement or non-
achievement.
 The style is better suited in persuading people to work efficiently and run operations
smoothly.
 Transactional leadership style uses the authority of its office to exchange
rewards, such as pay and status.
 Transactional leadership style may be appropriate in static environment.
 In mature industries, and in organizations that are performing well.
 It is suitable for well performed organizations.
Concept 12: Strategy Supportive Culture;
Introduction;
 Every organisation has a unique organizational culture. It has its own philosophy and
principles, its own history, values, and rituals, its own ways of approaching problems,
making decisions, and its own work climate. Its own established beliefs and thought
patterns, and practices that define its corporate culture.
12.1 How is it both strength and weakness of an organisation?
Introduction;
 The situation which often distinguishes good organizations from bad ones could be
summed up as ‘corporate culture’. Corporate culture refers to a company’s values,
beliefs, business principles, traditions, ways of operating and internal work
environment. Every corporation has a culture that exerts powerful influences on the
behaviour of managers.
 Culture affects not only the way managers behave within an organization but also
the decisions they make about the organization’s relationships with its environment
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and its strategy.

 “Culture is a strength that can also be a weakness”. This statement can be explained by
splitting it in to two parts.
 Culture as a strength:
As a strength, culture can facilitate communication, decision - making & control and
create cooperation & commitment. An organization’s culture could be strong and
cohesive (act of togetherness) when it conducts its business according to a clear and
explicit set of principles and values, which the management devotes considerable
time to communicating to employees and which values are shared widely across the
organization.
 Culture as a weakness:
As a weakness, culture may obstruct the smooth implementation of strategy by
creating resistance to change. An organization’s culture could be characterized as
weak when many subcultures exist, few values and behavioural norms are shared and
traditions are rare. In such organizations, employees do not have a sense of commitment
and loyalty with the organisation.
12.2 Role of culture in promoting better strategy execution?
Introduction;
 The situation which often distinguishes good organizations from bad ones could be
summed up as ‘corporate culture’. Corporate culture refers to a company’s values,
beliefs, business principles, traditions, ways of operating and internal work
environment. Every corporation has a culture that exerts powerful influences on the
behaviour of managers.
 Culture affects not only the way managers behave within an organization but also
the decisions they make about the organization’s relationships with its environment
and its strategy.
 Strong culture promotes good strategy execution when there’s fit and impedes (i.e.,
constrain) execution when there’s negligible fit.
 Role of culture in promoting better strategy execution:

• A culture grounded in values, practices, and behavioural norms that match what
is needed for good strategy execution helps energize people throughout the
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company to do their jobs in a strategy supportive manner, adding significantly

to the power and effectiveness of strategy execution.
• A culture built around such business principles as listening to customers, encouraging
employees to take pride in their work, and giving employees a high degree
of decision-making authority is very conducive (i.e., helpful) to successful
execution of a strategy of delivering superior customer value.
• Strategy-supportive cultures shape the mood, temperament, and motivation
the workforce, positively affecting organizational energy, work habits and
operating practices, the degree to which organizational units cooperate, and
how customers are treated.
• A strong strategy-supportive culture nurtures and motivates people to do their jobs
in ways conducive (i.e., helpful) to effective strategy execution; it provides structure,
standards, and a value system in which to operate; and it promotes strong
employee identification with the company’s vision, performance targets, and
strategy. All this makes employees feel genuinely better about their jobs and
work environment and the merits of what the company is trying to accomplish.
• Employees are stimulated (i.e., motivated) to take on the challenge of realizing
the company’s vision, do their jobs competently and with enthusiasm, and
collaborate with others as needed to bring the strategy to fruition.
12.3 Steps to change a company’s problem culture;
Introduction;
 Changing a company’s culture to align it with strategy is among the toughest
management tasks--easier to talk about than do.
 Changing problem cultures is very difficult because of the heavy anchor of deeply
held values and habits. It takes concerted management action over a period of time
to replace an unhealthy culture with a healthy culture or to root out certain unwanted
cultural obstacles and introduce ones that are more strategy supportive.
 Steps to change a company’s problem culture;

1. The first step is to diagnose which aspect of the present culture is strategy
supportive and which are not.
2. Then, managers have to talk openly and directly to all concerned about those
aspects of the culture that have to be changed.
3. The talk has to be followed swiftly by visible, aggressive actions to modify the culture
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actions that everyone will understand are intended to establish a new culture
more in tune with the strategy.
4. The menu (i.e., plan) of culture changing actions includes revising policies and
procedures, altering incentive compensation, recruiting and hiring new managers
and employees, replacing key executives, communication on need and benefit
to employees and so on.
Conclusion;
The task of making culture supportive of strategy is not a short-term exercise. It takes
time for a new culture to emerge and prevail; it’s unrealistic to expect an overnight
transformation. The bigger the organization and the greater the cultural shift needed
to produce a culture-strategy fit, the longer it takes. In large companies, changing the
corporate culture in significant ways can take two to five years. In fact, it is usually
tougher to reshape a deeply ingrained culture that is not strategy-supportive than it is to
instil (i.e., inject) a strategy-supportive culture from scratch in a brand-new organization.
Concept 13: Entrepreneurship and Intrapreneurship;
Note: for concept understanding

For instance;
13.1 Entrepreneurship;
Introduction;
 An entrepreneur is a person who searched for business opportunity and starts a new
enterprise to make use of that opportunity.
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 Entrepreneurship is the attempt to create value through recognition of business opportunity,

the management of risk taking appropriate to the opportunity and through
management skills to mobilize financial, human and material resources necessary
to create an enterprise.
 Entrepreneurship involves creation of a business idea and the fusion of capital,
technology and human talent to give practical shape to the idea. The person who
perceives the business idea and take steps to implement the idea is known as an
entrepreneur.
 An entrepreneur is an individual who conceives the idea of starting a new venture, takes
all types of risks, not only to put the product or service into reality but also to make
it an extremely demanding one.
 Characteristics of Entrepreneur;
• Initiates and innovates a new concept.
• Recognises and utilises opportunity.
• Faces risks and uncertainties.
• Establishes a start-up company.
• Adds value to the product or service.
• Takes decisions to make the product or service a profitable one.
• Is responsible for the profits or losses of the company.
13.2 Intrapreneurship;
Introduction;
 The terms Entrepreneur and Intrapreneur are frequently used in the business world.
Many people use these terms interchangeably because they think that they both
contain the same elements. However, there is a fine line of difference in these terms;
 The former (Entrepreneur) refers to a person who starts his own business with a
new idea or concept,
 The latter (Intrapreneur) represents an employee who promotes innovation
within the limits of the organisation.
 Characteristics of Intrapreneur;
• An intrapreneur is nothing but an entrepreneur who operates within the
boundaries of an organisation.
• He is an employee of a large organisation, who is vested with authority of initiating
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creativity and innovation in the company’s products, services and projects,

redesigning the processes, workflows and systems.
• The intrapreneurs believe in change and do not fear failure.
• They discover new ideas, look for such opportunities that can benefit the whole
organisation and take risks, promote innovation to improve the performance
and profitability of the organisation.
• The job of an intrapreneur is extremely challenging.
• They get recognition and reward for the success achieved by them.
• It has now become a trend that large corporations appoint intrapreneur within
the organisation, to bring operational excellence and gain competitive edge in the
market.
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Question Bank
Q. 1 What is organizational structure? Symptoms of an ineffective organizational

structure.
Q. 2 Explain Chandler’s Strategy – Structure Relationship.
Q. 3 Explain Simple Structure? What are its characteristics, advantages, issues?
Q. 4 Explain Functional Structure? What are its advantages, limitations.
Q. 5 Explain Divisional Structure? What are its advantages, limitations.
Q. 6 Explain Multi-Divisional Structure.
Q. 7 What is a SBU structure? What are its advantages?
Q. 8 Enumerate Matrix Structure? What are its advantages, limitations.
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Q. 9 Explain distinct phases proposed by Davis and Lawrence for development of matrix
structure.
Q. 10 Enumerate Network Structure? What are its advantages, limitations.
Q. 11 What is an ‘hour glass structure’? How can this structure benefit an organization?
Q. 12 Explain strategic leadership. And responsibilities of strategic leaders?
Q. 13 Discuss the leadership role played by the managers in pushing for good strategy
execution.
Q. 14 What do you mean by strategic leadership? What are two approaches to leadership
style?
Q. 15 How can you differentiate between transformational, transactional leaders?
Q. 16 What is corporate culture? How is it both strength and weakness of an organisation?

or
Explain corporate culture. And also, elucidate the statement “Culture is a strength
that can also be a weakness”.
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Q. 17 Explain briefly the role of culture in promoting better strategy execution?
Q. 18 What steps would you suggest to change a company’s problem culture?
Q. 19 Explain entrepreneurship and its Characteristics.
Q. 20 Explain intrapreneur and its Characteristics.
Q. 21 Difference between Entrepreneur and Intrapreneur.
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Strategy Implementation and

Control
Concept 1: Strategy Implementation:
Introduction;
 Strategy implementation concerns the managerial exercise of putting a freshly chosen
(i.e., selected) strategy into action.
 Strategy implementation deals with the managerial exercise of supervising the ongoing
pursuit of strategy, making it work, improving the competence with which it is
executed and showing measurable progress in achieving the targeted results.
 Strategic implementation is concerned with translating a strategic decision into action.
 The allocation of resources to new courses of action will need to be undertaken, and
there may be a need for adapting the organization’s structure to handle new activities as
well as training personnel and devising appropriate systems.
1.1 Relationship with strategy formulation;
Introduction;
 Many managers fail to distinguish between strategy formulation and strategy
implementation. Yet, it is crucial to realize the difference between the two because
they both require very different skills. Also, a company will be successful only when
the Strategy formulation is sound and implementation is excellent. There is no such
thing as successful strategic design.
 Often people, blame the strategy model for the failure of a company while the main
flaw might lie in failed implementation.
 Thus, Organization success is a function of good strategy and proper
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• Square A;
 It is the situation where a company apparently has formulated a very competitive
strategy, but is showing difficulties in implementing it successfully.
 This can be due to various factors, such as the lack of experience, lack of resources,
missing leadership and so on.
 In such a situation the company will aim at moving from square A to square B,
given they realize their implementation difficulties.
• Square B;
 It is the ideal situation where a company has succeeded in designing a sound
and competitive strategy and has been successful in implementing it.
 This can be achieved with the help various factors, such as the availability of
resources, excellent leadership, strategy supportive structure, and so on.
• Square C;
 It is denoting for companies that haven’t succeeded in coming up with a sound
strategy formulation and in addition are bad at implementing their flawed strategic
model.
 Their path to success also goes through business model redesign and implementation
readjustment.
• Square D;
 It is the situation where the strategy formulation is flawed, but the company is
showing excellent implementation skills.
 When a company finds itself in square D the first thing, they have to do is to
redesign their strategy before readjusting their implementation skills.
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Conclusion;
 It needs to be emphasized that ‘strategy’ is not synonymous with ‘long-term plan’
but rather consists of an enterprise’s attempts to reach some preferred future state by
adapting its competitive position as circumstances change.
 While a series of strategic moves may be planned, competitors’ actions will mean that
the actual moves will have to be modified to take account of those actions.
1.2 Distinguish between Strategy Formulation vs Strategy Implementation;

 Successful strategy formulation does not guarantee successful strategy
implementation. It is always more difficult to do something (strategy implementation)
than to say you are going to do it (strategy formulation).
 Although inseparably linked, strategy implementation is fundamentally different
from strategy formulation.
 Strategy formulation and implementation can be contrasted in the following ways:
Strategy Formulation Strategy Implementation

Focus on;
Strategy formulation focuses on Strategy implementation focuses on
effectiveness. efficiency.
Process;
Strategy formulation is preliminary an Strategy implementation is preliminary an
intellectual process. operational process.
Required;
Strategy formulation requires conceptual, Strategy implementation requires special
Integrating and analytical skills. skills in motivating and leadership skills.
Co-ordination;
Strategy formulation requires co- It requires co-ordination among the
ordination among the executives at the top executives at the middle and lower level.
level.
Decision-making;
Strategy formulation is primarily an Strategy implementation is mainly an
entrepreneurial activity, based on strategic administrative task based on strategic as
decision-making. well as operational decision-making.
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1.3 Relationships of Effectiveness and Efficiency;
Introduction;
In contrast to this view of strategy there is another approach to management practice, which
has been followed in many organizations. In organizations that lack strategic direction
there has been a tendency to look inwards in times of stress, and for management to
devote their attention to cost cutting and to shedding unprofitable divisions.
In other words, the focus has been on efficiency (i.e., the relationship between inputs
and outputs, usually with a short time horizon) rather than on effectiveness (which
is concerned with the attainment of organisational goals - including that of desired
competitive position).
• Cell 1 (Thrive);
It is well placed and thrives i.e., succeed, since it is achieving what it aspires to
achieve with an efficient output–input ratio.
• Cell 2 (Die Slowly);
It is a worse place to be than is cell 3. Due to ineffective strategy formulation.
• Cell 3 (Survive);
It is a better place to be than is cell 2. As strategy formulation is effective, organisation
need to improve operational efficiency.
• Cell 4 (Die Quickly);
It is doomed i.e., unfortunate, unless it can establish some strategic direction.
Conclusion;
Even the most technically perfect strategic plan will serve little purpose if it is not
implemented effectively. Change comes through implementation and evaluation, not
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through the plan. A technically imperfect plan that is implemented well will achieve
more than the perfect plan that never gets off the paper on which it is typed.
1.4 Distinguish between Effectiveness vs Efficiency;

Effectiveness Efficiency
Nature;
Strategic in nature. Operational in nature.
Viewpoint;
From strategy formulation viewpoint. From strategy implementation viewpoint.
Concerned with;
Concerned with “to do the right thing”. i.e., Concerned with “to do the thing right”. i.e.,
act correctly act orderly
Focus on;
Focus on linkage between firm and Focus within the firm.
environment.
Concept 2: Linkages;
Introduction;
 It is to be noted that the division of strategic management into different phases
(i.e., steps) is only for the purpose of orderly study. In real life, the formulation and
implementation processes are intertwined (i.e., interconnected).
 Two types of linkages exist between these two phases of strategic management.
• The forward linkages deal with the impact of strategy formulation on strategy
implementation,
• While the backward linkages are concerned with the impact in the opposite
direction.
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1. Forward linkages;
 The different elements in strategy formulation starting with objective setting
through external and internal environmental analysis, determines the course
that an organization adopts for itself.
 With the formulation of new strategies, or reformulation of existing strategies, many
changes have to be affected within the organization.
 For instance, the organizational structure has to undergo (i.e., face) a change
in the light of the requirements of the modified or new strategy. The style of
leadership has to be adapted to the needs of the modified or new strategies.
 In this way, the formulation of strategies has forward linkages with their
implementation.
2. Backward linkages;
 Just as implementation is determined by the formulation of strategies, the
formulation process is also affected by factors related with implementation.
 While dealing with strategic choice, remember that past strategic actions also
determine the choice of strategy.
 Organizations tend to adopt those strategies which can be implemented with the
help of the present structure of resources combined with some additional efforts.
 Such incremental changes, over a period of time, take the organization from
where it is to where it wishes to be.
Concept 3: Issues in Strategy Implementation;
Introduction;
 The different issues involved in strategy implementation cover practically everything
that is included in the discipline (i.e., aspect) of management studies.
 A strategist, therefore, has to bring a wide range of knowledge, skills, attitudes, and
abilities. The implementation tasks put to test the strategists’ abilities to allocate
resources, design organisational structure, formulate functional policies, and to
provide strategic leadership.
• Strategies, have to be activated through implementation;

The strategic plan developed by the organization proposes the manner in which the
strategies could be put into action. Strategies, by themselves, do not lead to action.
They are, in a sense, a statement of intent. Implementation tasks are meant to realise
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the intent. Strategies, therefore, have to be activated through implementation.
• Strategies should lead to formulation of different kinds of programmes;

A programme is a broad term, which includes goals, policies, procedures, rules, and
steps to be taken in putting a plan into action. Programmes are usually supported
by funds allocated for plan implementation.
• Programmes lead to the formulation of projects;

A project is a highly specific programme for which the time schedule and costs are
predetermined. It requires allocation of funds based on capital budgeting by
organizations. Thus, research and development programme may consist of several
projects, each of which is intended to achieve a specific and limited objective, requires
separate allocation of funds, and is to be completed within a set time schedule.
 Implementation of strategies is not limited to formulation of plans, programmes, and

projects. Projects would also require resources. After resources have been provided, it
would be essential to see that a proper organizational structure is designed, systems
are installed, functional policies are developed, and various behavioural inputs are
provided so that plans may work.
 Given below in sequential manner the issues in strategy implementation which are to be
considered:
 Project implementation,
 Procedural implementation,
 Resource allocation,
 Structural implementation,
 Functional implementation,
 Behavioural implementation, etc...
 It should be noted that the sequence does not mean that each of the above activities are
necessarily performed one after another.
 Many activities can be performed simultaneously, certain other activities may be
repeated over time; and there are activities, which are performed only once.
 Thus, there can be overlapping and changes in the order in which these activities are
performed.
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3.1 Management issues in strategy implementation;
Introduction;
 Implementation problems can arise because of this shift in responsibility, especially if
strategic decisions come as a surprise to middle and lower-level managers.
 Managers and employees are motivated more by perceived (i.e., by recognizing) self-
interests than by organizational interests.
 Management issues in strategy implementation includes:
 Establishing annual objectives,
 Devising policies,
 Allocating resources,
 Altering an existing organizational structure,
 Restructuring and reengineering,
 Revising reward and incentive plans,
 Minimizing resistance to change,
 Developing a strategy – supportive culture,
 Adapting production (i.e., operations) processes, and
 Developing an effective human resource system.
Conclusion;
 Managers and employees throughout an organization should participate early and
directly in strategy – implementation activities.
 Their role in strategy implementation should build upon prior involvement in strategy –
formulation activities.
 Firms should provide training for both managers and employees to ensure that they
have and maintain the skills necessary to be world-class performers.
Concept 4: Strategic Change;
Introduction;
 The changes in the environmental forces often require businesses to make modifications
in their existing strategies and bring out new strategies.
 Strategic change is a complex process that involves a corporate strategy focused on
new markets, products, services and new ways of doing business.
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4.1 Specify the steps that are needed to introduce strategic change in an organization;
For initiating strategic change, three steps can be identified as under:
1. Recognize the need for change;
• The first step is to diagnose which aspects of the corporate culture that are
strategy supportive or not.
• This basically means going for environmental scanning involving appraisal of
both internal and external capabilities may be through SWOT analysis. The idea
(i.e., purpose) is to determine where the gap lies and scope for change exists.
2. Create a shared vision to manage the change;
• Objectives and vision of both individuals and organization should match. There
should be no conflict between them.
• This is possible only if the management and the organization members follow
a shared vision.
• Senior managers need to constantly and consistently communicate the vision not
only to inform but also to overcome resistance.
3. Institutionalize the change;
• This is basically an action stage which requires implementation of changed strategy.
• Creating and sustaining a different attitude towards change is essential to
ensure that the firm does not slip back into old ways of thinking or doing things.
• All these changes should be set up as a practice to be followed by the
organization and be able to transfer from one level to another as a well settled
practice.
• Any discrepancy or deviation should be brought to the notice of persons concerned
so that the necessary corrective actions are taken. It takes time for the changed
culture to prevail.
4.2 Kurt Lewin’s Model of Change;

To make the change lasting, Kurt Lewin proposed three phases of the change process
for moving the organization from the present to the future. These stages are unfreezing,
changing and refreezing.
1. Unfreezing the situation;
• Unfreezing is the process of breaking down the old attitudes and behaviours,
customs and traditions, so that they start with a clean slate.
• This can be achieved by making announcements, holding meetings and promoting
the new ideas throughout the organization.
• The process of unfreezing simply makes the individuals aware of the necessity for
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change and prepares them for such a change.

• Lewin proposes that the changes should not come as a surprise to the members
of the organization. Sudden and unannounced change would be socially
destructive and morale lowering.
2. Changing to the new situation;
• Once the unfreezing process has been completed and the members of the
organization recognise the need for change and have been fully prepared to
accept such change, their behaviour patterns need to be redefined.
• H.C. Kellman has proposed three methods for reassigning new patterns of
behaviour.
 Compliance,
 Identification, and
 Internalisation.
3. Refreezing;
• Refreezing occurs when the new behaviour becomes a normal way of life. The
new behaviour must replace the former behaviour completely for successful and
permanent change to take place.
• In order for the new behaviour to become permanent, it must be continuously
reinforced so that this new acquired behaviour does not diminish.
Conclusion;
Change process is not a one–time application but a continuous process due to dynamism and
ever-changing environment.
The process of unfreezing, changing and refreezing is a cyclical one and remains
continuously in action.
Study note;
When specifically, question asked about steps and does not mention for Kurt Lewin’s
Model of Change then answer as per 4.1 and when Kurt Lewin’s Model of Change asked
then answer as per 4.2.
4.3 Methods for reassigning new patterns of behavior as proposed by H.C. Kellman;
Introduction;
 In order to accept such change, organization members behaviour patterns need to
be redefined.
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 H.C. Kellman has proposed three methods for reassigning new patterns of behaviour. These
are compliance, identification and internalisation.
1. Compliance;
It is achieved by strictly enforcing the reward and punishment strategy for good or
bad behaviour. Fear of punishment, actual punishment or actual reward seems
to change behaviour for the better.
2. Identification;
Identification occurs when members are psychologically impressed upon to
identify themselves with some given role models whose behaviour they would like
to adopt and try to become like them.
3. Internalization;
Internalization involves some internal changing of the individual’s thought processes
in order to adjust to the changes introduced. They have given freedom to learn
and adopt new behaviour in order to succeed in the new set of circumstances.
Concept 5: Strategic Organisation Control;
Introduction;
 Controlling is one of the important functions of management, and is often regarded as
the core of the management process. It is a function intended to ensure and make
possible the performance of planned activities and to achieve the pre-determined
goals and results.
 Control is intended to regulate and check. It is also to ensure that what is planned is
translated into results, to keep a watch on proper use of resources, on safeguarding of
assets and so on.
 The controlling function involves;
• Monitoring the activity and measuring results against pre-established standards,
• Analysing and correcting deviations as necessary and maintaining or adapting
the system.
 It is intended to enable the organisation to continuously learn from its experience and
to improve its capability to cope with the demands of organisational growth and
development.
F The process of control has the following elements:

 Objectives of the business system which could be operationalized into measurable
and controllable standards.
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 A mechanism for monitoring and measuring the performance of the system.

 A mechanism;
• for comparing the actual results with reference to the standards.
• for detecting deviations from standards. and
• for learning new insights on standards, themselves.
 A mechanism for feeding back corrective, adaptive information and instructions to
the system, for effecting the desired changes to set right the system to keep it on
course.
Primarily there are 3 types of organizational control;

1. Operational control, (5.1)
2. Management control (5.2) and
3. Strategic control. (5.3)
5.1 Operational Control;

Introduction;
 Operational control systems are designed to ensure that day-to-day actions are
consistent with established plans and objectives. It focuses on events in a recent
period. Operational control systems are derived from the requirements of the
management control system.
 The thrust (i.e., impact) of operational control is on individual tasks or transactions as
against total or more aggregative management functions. For example, procuring
specific items for inventory is a matter of operational control, in contrast to inventory
management as a whole.
 Many of the control systems in organisations are operational and mechanistic
in nature. A set of standards, plans and instructions are formulated. Some of the
examples of operational controls can be;
• Stock control, (maintaining stocks between set limits)
• Production control, (manufacturing to set programs)
• Quality control, (keeping product quality between agreed limits)
• Cost control, (maintaining expenditure as per standards)
• Budgetary control. (keeping performance to budget)
5.2 Management Control;

Introduction;
 When compared with operational control, management control is more inclusive
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and more aggregative, in the sense of embracing the integrated activities of a

complete department, division or even entire organisation. For example, inventory
management, marketing, etc..
 The basic purpose of management control is the achievement of enterprise goals –
short range and long range – in a most effective and efficient manner.
 It is defined by Robert Anthony; as ‘the process by which managers assure the
resources are obtained and used effectively and efficiently in the accomplishment of
the organisation’s objectives.
5.3 Strategic Control;
Introduction;
 According to Schendel and Hofer “Strategic control focuses on the dual questions of
whether:
i. the strategy is being implemented as planned; and
ii. the results produced by the strategy are those intended.”
 There is often a time gap between the stages of strategy formulation and its
implementation. A strategy might be affected on account of changes in internal and
external environments of organisation. There is a need for warning systems to track
a strategy as it is being implemented.
 Strategic control is defined;
Strategic control is the process of evaluating strategy as it is formulated and
implemented. It is directed towards identifying problems and changes in premises and
making necessary adjustments.
1. Premise Control;
 The premise control is focussed. A strategy is formed on the basis of certain assumptions
or premises (i.e., theories) about the complex and turbulent organizational
environment. Over a period of time these premises may not remain valid.
 Premise control is a tool for systematic and continuous monitoring of the
environment to verify the validity and accuracy of the premises on which the
strategy has been built.
 It primarily involves monitoring two types of factors:
i. Environmental factors (Micro and Macro factors) and
ii. Industry factors. (i.e., Five forces)
 It is neither feasible nor desirable to control all types of premises in the same manner.
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Different premises may require different amount of control. Thus, managers are
required to select those premises that are likely to change and would severely
impact the functioning of the organization and its strategy.
2. Strategic Surveillance;
 Contrary (i.e., opposed) to the premise control, the strategic surveillance is
unfocussed. It involves general monitoring of various sources of information
to uncover unanticipated information having an impact on the organizational
strategy.
 Strategic surveillance may be loose form of strategic control, but is capable of
uncovering information relevant to the strategy. It involves casual environmental
browsing; reading financial and other newspapers, business magazines, attending
meetings, conferences, discussions and so on can help in strategic surveillance.
3. Special alert control;
 At times, unexpected events may force organizations to reconsider their
strategy. Sudden changes in government, natural calamities, unexpected merger
(acquisition) by competitors, industrial disasters and other such events may
trigger an immediate and intense review of strategy.
 To cope up with such eventualities, the organisations form crisis management
teams to handle the situation.
4. Implementation control;
 Managers implement strategy by converting major plans into concrete, sequential
actions that form incremental steps. Implementation control is directed towards
assessing the need for changes in the overall strategy in light of unfolding events
and results.
 Strategic implementation control is not a replacement to operational control.
Unlike operational control, it continuously monitors the basic direction of the
strategy. The two basic forms of implementation control are:
i. Monitoring strategic thrusts,
Monitoring strategic thrusts (i.e., impact) helps managers to determine
whether the overall strategy is progressing as desired or whether there is
need for readjustments.
ii. Milestone reviews.
All key activities necessary to implement strategy are segregated in
terms of time, events or major resource allocation. It normally involves
a complete reassessment of the strategy. It also assesses the need to
continue or refocus the direction of an organization.
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Concept 6: Strategy Audit;
Introduction;
 A strategy audit is an examination and evaluation of areas affected by the operation of a
strategic management process within an organization.
 The audit of management performance with regard to its strategies helps an
organization identify problem areas and correct the strategic approaches that have not
been effective so far. An assessment of the external environment shows where changes
happen and where organization’s strategic management no longer match the
demands of the marketplace. Based on such analysis, the organization can improve
business performance by periodically conducting such an audit.
 Companies review their business plans and strategies on regular basis to identify
weaknesses and shortcomings to enable a successful development plan.
 The strategy audit secures that all necessary information for the development of the
company is included in the business plan and that the management supports it.
 In other words, strategic audit is a comprehensive and systematic evaluation of all
aspect of the strategic management process. There is no universally accepted method
of strategic audit.
6.1 The core of Strategy Audit, for any corporate entity, lies on following important questions;
• How well is the current strategy working?
• How well will the current strategy be working in future?
• How can this be evaluated in present and future?
• How urgent is there a need to change the strategy?
Conclusion;
For this, a periodic review and evaluation of the fundamental characteristics of a strategy
are necessary.
6.2 Need of Strategy Audit;
Introduction;
A strategy audit provides an excellent platform for discussion with the top management
regarding necessary corporate actions or changes in the existing business plan. It also
identifies the need to adjust the existing business strategies and plans.
 When the performance indicators reflect that a strategy is not working properly or is
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not producing desired outcomes.

 When the goals and objectives of the strategy are not being accomplished.
 When a major change takes place in the external environment of the organization.
 When the top management plans;
 to fine-tune the existing strategies and introduce new strategies. and
 to ensure that a strategy that has worked in the past continues to be in-tune
with subtle internal and external changes that may have occurred since the
formulation of strategies.
6.3 Basic activities include in Strategy Audit;
Introduction;
Adequate and timely feedback is the cornerstone (i.e., essence, base) of effective strategy
audit. Strategy audit can be no better than the information on which it is based.
1. Examining the underlying bases of a firm’s strategy,
2. Comparing expected results with actual results, and
3. Taking corrective actions to ensure that performance conforms to plans.
6.4 Richard Rumelt’s Criteria for Strategy Audit;

1. Consistency;
 A strategy should not present inconsistent goals and policies. Organizational
conflict and interdepartmental bickering are often symptoms of managerial
disorder, these problems are sign of strategic inconsistency.
 Three guidelines to determine inconsistencies in strategy.
i. If managerial problems continue despite changes in personnel and if they
tend to be issue-based rather than people-based.
ii. If success for one organizational department leads to, failure for another
department.
iii. If policy problems and issues continue to be brought to the top for resolution,
then strategies may be inconsistent.
2. Consonance; (Meaning according to, follow traditionalism)
 Consonance refers to the need for strategists to examine sets of trends, as well
as individual trends, in auditing strategies. A strategy must represent an adaptive
response to the external environment and to the critical changes occurring within it.
 One difficulty in matching a firm’s key internal and external factors in the
formulation of strategy is that most trends are the result of interactions among
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other trends.
 For instance, the day-care school or centre came about as a combined result
of many trends that included a rise in the average level of education, need for
different education pedagogy, increase in income, inflation, and an increase in
women in the workforce.
3. Feasibility;
 A strategy must neither overtax available resources nor create unsolvable sub-
problems.
 The final broad test of strategy is its feasibility; that is, can the strategy be attempted
within the physical, human, and financial resources of the enterprise? The
financial resources of a business are the easiest to quantify and are normally
the first limitation against which strategy is audited.
 A less quantifiable, but actually more rigid, limitation on strategic choice is that
imposed by individual and organizational capabilities. In auditing a strategy, it
is important to examine whether an organization has demonstrated in the past
that it possesses the abilities, competencies, skills, and talents needed to carry
out a given strategy.
4. Advantage;
 A strategy must provide for the creation, maintenance of a competitive advantage
in a selected area of activity. Competitive advantages normally are the result
of superiority in one of three areas:
1. Resources,
2. Skills, or
3. Position.
 Position can also play a crucial role in an organization’s strategy. Once gained,
a good position is defensible—meaning that it is so costly to capture that rival
are discouraged from full-scale attacks. The principal characteristic of good
position is that it permits the firm to obtain advantage from policies that would
not similarly benefit rivals without the same position. Therefore, in auditing
strategy, organizations should examine the nature of positional advantages
associated with a given strategy.
6.5 Reasons why strategy evaluation is more difficult today include the following trends;
 A dramatic increase in the environment’s complexity.
 The increasing difficulty of predicting the future with accuracy.
 The increasing number of variables in the environment.
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 The rapid rate of obsolescence of even the best plans.

 The increase in the number of both domestic and world events affecting organizations.
 The decreasing time span for which planning can be done with any degree of certainty.
Concept 7: Business Process Reengineering;
Introduction;
 BPR refers to the analysis and redesign of workflows and processes both within and
between the organisation.
 The orientation of the redesign effort is radical (complete), i.e., it is a total deconstruction
and rethinking of a business process in its entirety (whole) unconstrained by its existing
structure and pattern.
 “Business process reengineering means starting all over, starting from scratch.”
 Its objective is to obtain quantum gains in the performance of the process in terms of
time, cost, output, quality, and responsiveness to customers. Through the use of IT
systems.
 Reengineering is about business reinvention and not business enhancement, business
modification or business improvement.
 What is a Business Process(s) and Core Business Process(s)?

 A process is a set of logically related tasks or activities oriented towards achieving
a specified outcome.
 A business process involves a number of steps performed by different people in
different departments. For E.g.; Order, is one of the common process found
almost in every organization.
• A set of interconnected processes comprise a business system.

• Some processes turn out to be extremely critical for the success and survival of the
enterprise and they are known as ‘Core Business Processes’.
• BPR focuses on such critical business processes out of the many processes that go on
in any company.
• A core business process creates value by the capabilities it provides to the competitiveness.
7.1 Business Process Reengineering are briefly outlined as follows: (Reasons for BPR)
 The operational excellence of a company is a major basis for its competitiveness.
 The business strategy of a company should be oriented towards leveraging its
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operational excellence into the marketplace.

 A customer-focussed organization needs to be realigned in terms of a process
orientation.
 Process needs to be managed, not only its components.
 For considering totally new ways of redesigning processes, each and every concept,
assumption, purpose, and principle, needs to abandoned temporarily.
 Continuous improvement is lacking in the organisation. The company is far behind the
industry standards, and needs rapid quantum leaps in performance.
 Dramatic improvement in performance is the prerequisite for overcoming competition.
 How to compete is more important than deciding about where to compete?
7.2 Elements of Business Process Reengineering:

1. Reengineering begins with a fundamental rethinking.
 The thinking process in reengineering begins with a totally free state of mind
without having any preconceived notion.
 Reengineering first determines what a company must do. And then it decides
on how to do it.
 Reengineering ignores what the existing process is and concentrates on what it
should be.
2. Reengineering involves radical redesigning of process.
 It means going to the root of the problem areas. Radical redesign involves
completely discarding all existing structures and procedures and evolving completely
new ways of doing the work.
3. Reengineering aims at achieving dramatic improvement in performance.
 Reengineering is meant for replacement of the old process by altogether new
one to achieve dramatic improvement in the performance. Signifies not incremental
but quantum leaps in performance.
7.3 Factors have accelerated the needs to improve business process; i.e., Rationale (i.e., Ground,
Logic) of BPR;
Introduction;
 Improving business processes is paramount for businesses to stay competitive in
today’s marketplace. Over the last three decades several factors have accelerated
the need to improve business processes.
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1. Technology,
New technologies (like Information Technology) are rapidly bringing new capabilities
to businesses, thereby raising the strategical options and the need to improve
business processes dramatically.
2. Opening up of Indian Economy,
After opening up of Indian economy, companies have been forced to improve their
business processes because of increased competition. More companies have entered
the market place, and competition has become harder. In today’s market place,
major changes are required to just stay even. It has become a matter of survival for
most companies.
3. Need for better product and service by customer.
Customers are also demanding better products and services. If they do not receive
what they want from one supplier, they have many others to choose from. They are
ready to try new suppliers and new brands.
7.4 Role of Information Technology in BPR;
Introduction;
 The pace at which information technology has developed during the past few years
had a very large impact in the transformation of business processes.
 Globalization and competition call (i.e., required) for better management, faster
response to change and adherence to globally accepted standards of quality and
services.
 IT-assisted speed, accuracy, adaptability and integration of data and service points,
is focused on meeting the customer needs and expectation quickly and adequately,
thereby enhancing customer satisfaction level.
 Impact of IT-systems are identified as:
• Compression of time,
• Overcoming restrictions of geography distance, and
• Restructuring of relationships.
 IT-initiatives, thus, provide business values in three distinct areas:
• Efficiency, – by way of increased productivity,
• Effectiveness, – by way of better management,
• Innovation. – by way of improved products and services.
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Conclusion;
 All these can bring about a radical change in the quality of products and services,
thereby improving the competitiveness and customer satisfaction.
 Information technology (IT) is a critical factor in the success of bringing this change.
7.5 Central Thrust of BPR;

Introduction;
 Improvement on quality and cost follows after improvement on thrust area. BPR is a
continuous improvement process.
 Although BPR is a multi-dimensional approach in improving the business performance
its thrust area may be identified as “the reduction of the total cycle time of a business
process.”
 Total cycle may be explained in terms of;
• Customer need.
• Time to manufacture product or provide service.
• Customer satisfaction.
 BPR aims at reducing the cycle time of process;
• By eliminating the unwanted and redundant steps,
• By simplifying the systems and procedures, and
• By eliminating the transit and waiting times as far as possible.
 Even after redesigning of a process, BPR maintains a continuous effort for more and
more improvement.
F BPR and other processes;

 Reengineering does not mean any partial modification or marginal improvement
in the existing work processes. Reengineering is a revolutionary approach towards
radical and total redesigning of the business processes. While reengineering may
lead to restructuring of organization, any restructuring does not necessarily mean
reengineering.
 The basic principles that differentiate reengineering from any other drive on improving
organizational efficiency may be summarized as follows:
• BPR aims at achieving excellence and a breakthrough in performance by
redesigning the process entirely and radically.
• BPR aims at utilizing information technology for evolving a new process, instead
of automating the existing process.
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• Reengineering requires viewing a process from cross-functional perspective.

Meaning, Reengineering focuses on a multidimensional approach disregarding
the constraints of departmental boundaries.
• BPR efforts involve managing massive organizational change. Reengineering
is not just changing the process. Work changes from task oriented to process
oriented.
7.6 Steps in BPR;

1. Determining objectives;
 Objectives are the desired end results of the redesign process which the
management and organization attempts to realise.
 They will provide the required focus, direction, and motivation for the redesign
process and help in building a comprehensive foundation for the reengineering
process.
2. Identify customers and determine their needs;
 The process designers have to understand customers - their profile, their steps
in acquiring, using and disposing a product.
 The purpose is to redesign business process that clearly provides value addition
to the customer.
3. Study the existing processes;
 The study of existing processes will provide an important base for the process
designers.
 The purpose is to gain an understanding of the ‘what’, and ‘why’ of the targeted
process.
 However, as discussed earlier, some companies go through the reengineering
process with clean perspective without laying emphasis on the past processes.
4. Formulate a redesign process plan;
 The information gained through the earlier steps is translated into an
ideal redesign process. Formulation of redesign plan is the real crux of the
reengineering efforts. Customer focused redesign concepts are identified and
formulated.
 In this step alternative processes are considered and the best is selected.
5. Implement the redesigned process;
 It is easier to formulate new process than to implement them. Implementation
of the redesigned process and application of other knowledge gained from the
previous steps is key to achieve dramatic improvements.
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 It is the joint responsibility of the designers and management to operationalise

(i.e., realize) the new process.
7.7 Problems in BPR;
Introduction;
 Reengineering is a major radical improvement in the business process. Only a limited
number of companies are able to have enough courage for having BPR because of
the challenges posed.
Problems in BPR;
• It disturbs established hierarchies and functional structures and creates serious
consequence and involves resistance among the work-force.
• Reengineering involves time and expenditure, at least in the short run, that many
companies are reluctant to go through the exercise. Even there can be loss in revenue
during the transition period.
• Setting of targets is tricky and difficult. If the targets are not properly set or the whole
transformation not properly carried out, reengineering efforts may turn-out to be a
failure.
Concept 8: Benchmarking;
Introduction;
 Benchmarking is an approach of setting goals and measuring productivity based on best
industry practices.
 It gives information against which performances can be measured. Benchmarking helps
in improving performance by learning from best practices and the processes by which
they are achieved.
 Benchmarking is a process of continuous improvement in search for competitive
advantage.
 It measures a company’s products, services and practices against those of its competitors
or other acknowledged leaders in their field.
For E.g., Xerox pioneered this process in late 70’s by benchmarking its manufacturing
costs against those of domestic and Japanese competitors and got dramatic
improvement in the manufacturing cost.
 Firms can use benchmarking process to achieve improvement in diverse range of management
functions like:
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• Assessment of total manufacturing costs,

• Product development,
• Product distribution,
• Customer services,
• Plant utilization levels,
• Human resource management, etc...
8.1 Steps in Benchmarking;

 Benchmarking processes used by different organisations lack standardization. However,
common elements are as follows:
1. Identifying the need for benchmarking;

This step will define the objectives of the benchmarking exercise. It will also involve
selecting the type of benchmarking (Such as Strategic, Performance or Process).
Organizations identify realistic opportunities for improvements.
2. Clearly understanding existing business processes;

This step will involve compiling (i.e., collecting) information and data on performance.
This will include mapping processes. Information and data are collected by different
methods such as interviews, visits and filling of questionnaires.
3. Identify best processes;

Within the selected framework, best processes are identified. These may be within the
same organization or external to it.
4. Compare own processes and performance with that of others;

While comparing gaps in performance between the organization and better performers
is identified. Further, gaps in performance are analysed to seek explanations.
Such comparisons have to be meaningful and acceptable. Feasibility of making the
improvements in the light of the conditions that apply within the organization is
also examined.
5. Prepare a report and implement the steps necessary to close the performance gap;
A report on the Benchmarking initiatives containing recommendations is prepared.
Such a report includes the action plan(s) for implementation.
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6. Evaluation;
A business organization must evaluate the results of the benchmarking process
in terms of improvements w.r.t. objectives and other criteria set for the purpose. It
also periodically evaluates and reset the benchmarks in the light of changes in the
conditions that impact its performance.
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Question Bank
Q. 1 What is strategy implementation and how it deals with?
Q. 2 Explain relationships between Strategy formulation and strategy implementation

with matrix.
Q. 3 Difference between strategy formulation vs. strategy implementation.

or
Is strategy formulation an intellectual process? How is it different from strategy
implementation?
Q. 4 Relationships of Effectiveness and Efficiency with matrix.
Q. 5 Explain linkages.
Q. 6 Issues in strategy implementation.
Q. 7 Explain management issues in strategy implementation.
237
Q. 8 Specify the steps that are needed to introduce strategic change in an organization.
Q. 9 What is strategic change? Explain the change process proposed by Kurt Lewin that
can be useful in implementing strategies?
Q.10 Discuss three methods for reassigning new patterns of behavior as proposed by H.C.
Kellman?
Q. 11 Explain strategic control and elements of process of control?
Q. 12 What is operational control.
Q. 13 What is management control.
Q. 14 What are the differences between operational control and management control.
Q. 15 What is strategic control? Briefly explain the different types of strategic control?
238
Q. 16 What is implementation control? Discuss its basic forms?
Q. 17 Explain strategy audit and core of Strategy Audit.
Q. 18 Explain strategy audit and need of Strategy Audit.
Q. 19 Explain strategy audit and activities included in strategy audit.
Q. 20 Explain Richard Rumelt’s Criteria for Strategy Audit.
Q. 21 Explain Strategy Audit and Why Strategy evaluation is more difficult today?
Q. 22 What steps would you recommend to implement BPR in an organization?
Q. 23 Discuss the role of Information Technology in BPR.
Q. 24 Explain central thrust of BPR.
239
Q. 25 Discuss Problems in BPR.
Q. 26 What is Benchmarking? Explain briefly the elements involved in Benchmarking

process?
240
INDIRECT TAX
Introduction to GST &

Supply Under GST
1. Multiplicity of taxes
• Prior to 1.7.2017, there were multiple taxes on goods or services such as Value Added
Tax (VAT), Central Sales Tax(CST), Service Tax, Excise Duty, Entry Tax, Entertainment
tax, etc.
• With effect from 1.7.2017, the above taxes were replaced by Goods and Services Tax
(GST). India follows dual GST which means GST is levied by both Central Government
and State Government.
• Even after introduction of GST, local bodies have the power to levy certain taxes as
the power of local bodies has not been subsumed under GST. Basic Custom Duty is
also not subsumed under GST.
• Goods and Service Tax (“GST”) is charged by the Central Government as well as the
respective State Government/ Union Territory on Goods and Services. GST is a value
added tax levied on manufacture, sale and consumption of goods and services.
• GST offers comprehensive and continuous chain of tax credits from the producer's point/
service provider's point upto the retailer's level/consumer’s level thereby taxing only
the value added at each stage of supply chain.
• Power to levy and collect tax is obtained from the Constitution of India. There are 3
list specifying the various subjects of regulations and taxation viz Union List, State
List and Concurrent List under article 246 read with seventh schedule of constitution.
• Article 246A was added to the constitution to provide for concurrent powers to Central
Government and State Government to levy GST on intra state supplies of goods and
services.
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• Article 269A provides that Central Government has exclusive powers to make a law for
Inter State supplies and it will be apportioned as provided by Parliament.
• Article 279A provides for GST Council which is empowered to make recommendations
to the Central Government and State Government with regard to GST. It is headed by the
Union Finance Minister.
• Legislations under GST Regime
2. Relevant Definitions
• Person includes an individual, HUF, Company, Firm, LLP, AOP or BOI, whether
incorporated or not, in India or outside India; a co-operative society, local authority,
CG, SG, society, trust, artificial juridical person and any corporation established by
or under any Central Act, State Act or Provincial Act or a Government company as
defined in clause (45) of section 2 of the Companies Act, 2013.
• India means-
(a) Territory of India as referred to in article 1 of the Constitution
(b) Its territorial waters, seabed and sub soil under lying such waters, continental
shelf, exclusive economic zone or any other maritime zone as referred to in
the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other
Maritime Zones Act,1976
(c) The air space above its territory and territorial waters [Section 2(56)]
• 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
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of property in goods (whether as goods or in some other form) is involved in the

execution of such contract.
• Exempt supply means supply of any goods or services or both which attracts nil rate
of tax or which may be wholly exempt from tax under section 11, or under section 6
of the Integrated Goods and Services Tax Act, and includes non-taxable supply [Section
2(47)].
• Non-taxable supply means a supply of goods or services or both which is not leviable
to tax under CGST Act or under IGST Act. [Section 2(78)]
• Taxable supply means supply of goods &/or services which is chargeable to tax under
CGST Act.
• Recipient: of supply of goods and/or services means-
(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.
It shall also include an agent acting as such on behalf of the recipient in relation
to the goods or services or both supplied. [Section 2(93)]
• Supplier: in relation to any goods or services or both, shall mean the person supplying
the said goods or services or both and shall include an agent acting as such on
behalf of such supplier in relation to the goods or services or both supplied. [Section
2(105)]
• Taxable person means a person who is registered or liable to be registered u/s 22 or

section 24.
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3. Levy of GST – Section 9 of CGST/ Section 5 of IGST
• Section 9(1) - Main Provision: There shall be levied a tax called the central goods
and services tax on all intra-State supplies of goods1 or services2 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.
1
Goods means every kind of movable property other than money and securities but includes actionable claim, growing
crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under
a contract of supply. [Section 2(52)]
2
Services means anything other than goods, money and securities but includes activities relating to the use of money or
its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or
denomination for which a separate consideration is charged. [Section 2(102)].
Explanation: For the removal of doubts, it is hereby clarified that the expression “services” includes facilitating or
arranging transactions in securities.
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• Sec 9(2) - Petroleum products from the date to be notified: 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.
• Sec 9(3) - Reverse Charge Mechanism for notified Goods or services: 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.
• Sec 9(4) - Purchases from unregistered person: The Government may, on

recommendations of the Council, by notification, specify a class of registered persons
who shall, in respect of supply of specified categories of goods or services or both
received from an unregistered supplier, pay the tax on reverse charge basis as the
recipient of such supply of goods or services or both, and all the provisions of this
Act shall apply to such recipient as if he is the person liable for paying the tax in
relation to such supply of goods or services or both.
• Sec 9(5) - Tax on notified services to be paid by E Commerce Operator3: 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:
- 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.
3
E-Commerce operator means any person who owns, operates or manages digital or electronic facility or platform for
electronic commerce. [Section 2(45)]
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• Examples for section 9
4. Type of Tax – Section 7 and 8 of IGST Act
• Where the location of the supplier and the place of supply of goods or services are in
the same State/Union territory, it is treated as intra-State supply of goods or services
respectively.
• Where the location of the supplier and the place of supply of goods or services are
in (i) two different States or (ii) two different Union Territories or (iii) a State and a
Union territory, it is treated as inter-State supply of goods or services respectively.
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5. Scope of the term supply & taxability of various transactions – Section 7 of CGST Act
5.1. Supply for consideration and in the course or furtherance of business
• “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”
Example
• 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 (a)

above;
(c) Any activity or transaction in the nature of (a) above, whether or not there is
volume, frequency, continuity or regularity of such transaction;
(d) Supply or acquisition of goods including capital assets 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, as the case
may be;
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(f) Admission, for a consideration, of persons to any premises; and
(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) Activities of a race club including by way of totalisator or a license to book

maker or activities of a licensed 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
[Section 2(17)].
• Consideration: in relation to the supply of goods or services or both includes:
(a) Any payment made or to be made, whether in money or otherwise, in respect of,
in response to, or for the inducement of, the supply of goods or services or both,
whether by the recipient or by any other person but shall not include any subsidy
given by the Central Government or a State Government.
(b) The monetary value of any act or forbearance, in respect of, in response to, or
for the inducement of, the supply of goods or services or both, whether by the
recipient or by any other person but shall not include any subsidy given by the
Central Government or a State Government.
Note: However, 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 supply. [Section 2(31)].
5.2. Importation of service
• Import of services for a consideration whether or not in the course or furtherance of

business.
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5.3. Supply without Consideration – Schedule I
• This includes all supplies by a taxable person to a taxable or non-taxable person,

even if the same is without consideration. These are specifically mentioned in Schedule
I appended to the CGST Act. The same has been discussed in the subsequent paras
i. Permanent Transfer/Disposal of Business Assets where ITC was taken
• Any kind of disposal or transfer of business assets made by an entity on permanent

basis even though without consideration.
• This clause is wide enough to cover transfer of business assets from holding to
subsidiary company for nil consideration. However, it is important to note that this
provision would apply if input tax credit has been availed on such assets.
Example: Dealer of laptops or dealers of cloth gives laptops or clothes free of cost to
their friend.

ii. Supply between related person or distinct persons
• Related person is defined under Section 15 of CGST Act which means the following:
a. Such persons are officers or directors of one another’s businesses;
b. Such persons are legally recognised partners in business;
c. Such persons are employer and employee;

d. 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;
e. One of them directly or indirectly controls the other;
f. Both of them are directly or indirectly controlled by a third person;
g. Person who are associated as sole agent or sole distributor or sole concessionaire.
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h. Together they directly or indirectly control a third person; or they are members
of the same family; FAMILY MEANS
Explanation: 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.
Examples:
(i) Mr. A and Mr. B are partners in the partnership firm A&B Co. Mr. A & Mr. B are
related persons. Thus, a transaction of supply between Mr. A & Mr. B in the
course or furtherance of business is treated as supply even if made without
consideration.
(ii) Ms. Priya holds 30% shares of ABC Ltd. and 35% shares of XYZ Ltd. ABC Ltd.
and XYZ Ltd. are related.
(iii) Q Ltd. has a deciding role in corporate policy, operations management and
quality control of R Ltd. It can be said that Q Ltd. controls R Ltd. Thus, Q Ltd.
and R Ltd. are related.
(iv) Alpha Ltd. controls the composition of Board of directors of Beta Ltd. and Gama
Ltd. It is said to control both Beta Ltd. and Gama Ltd. Beta Ltd. and Gama Ltd.
are related persons.
(v) Brita Ltd. and Grita Ltd. together control Margarita Ltd. Brita Ltd. and Grita Ltd.
are related.
• Supply of goods or services or both between an employer and employee: By virtue of

aforesaid definition of related person, employer and employee are related persons.
However, services provided by an employee to the employer in the course of or in
relation to his employment shall not be treated as supply of services [Schedule III
(Negative List)].
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Further, Schedule I provides that gifts not exceeding ` 50,000 in value in a financial
year by an employer to an employee shall not be treated as supply of goods or services
or both.
Examples
• Distinct persons: As per section 25 of CGST Act, A person who has obtained/is required
to obtain more than one registration, whether in one State/Union territory or more
than one State/Union territory shall, in respect of each such registration, be treated
as distinct persons.
Stock transfers or branch transfers: In view of the aforesaid discussion, transactions

between different locations (with separate GST registrations) of same legal entity
(eg., stock transfers or branch transfers) will qualify as ‘supply’ under GST.
iii. Importation of Service
Import of services by a person from a related person or from his establishments

located outside India, in the course or furtherance of business shall be treated as
“supply”.
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iv. Principal - Agent
• Supply of goods by a principal to his agent, without consideration, where the agent
undertakes to supply such goods on behalf of the principal is considered as supply.
Similarly, supply of goods by an agent to his principal, without consideration, where
the agent undertakes to receive such goods on behalf of the principal is considered
as supply.
Scope of Principal Agent relationship - Circular 57/31/2018 dated 4th September 2018
The key ingredient for determining relationship under GST would be whether the invoice
for the further supply of goods on behalf of the principal is being issued by the agent or
not. Where the invoice for further supply is being issued by the agent in his name then, any
provision of goods from the principal to the agent would fall within the fold of the said
entry. However, it may be noted that in cases where the invoice is issued by the agent
to the customer in the name of the principal, such agent shall not fall within the ambit of
Schedule I of the CGST Act.
Scenario 1
Mr. A appoints Mr. B to procure certain goods from the market. Mr. B identifies various
suppliers who can provide the goods as desired by Mr. A, and asks the supplier (Mr. C) to
send the goods and issue the invoice directly to Mr. A. In this scenario, Mr. B is only acting
as the procurement agent, and has in no way involved himself in the supply or receipt of the
goods. Hence, Mr.B is not an agent of Mr. A for supply of goods in terms of Schedule I.
Scenario 2
M/s XYZ, a banking company, appoints Mr. B (auctioneer) to auction certain goods.
The auctioneer arranges for auction and identifies potential bidders. The highest bid is
accepted and the goods are sold by M/s XYZ and invoice for supply of goods is issued by
M/s XYZ to successful bidder. In this scenario, auctioneer is merely providing auctioneering
services with no role in supply of goods. Even in this scenario, Mr.B is not an agent of M/s
XYZ for supply of goods in terms of Schedule I.
Scenario 3
Mr. A, an artist, appoints M/s B (auctioneer) to auction his painting. M/s B arranges for the
auction and identifies the potential bidders. The highest bid is accepted and the painting
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is sold to the highest bidder. The invoice for the supply of the painting is issued by M/s B
on the behalf of Mr. A but in his own name and the painting is delivered to the successful
bidder. In this scenario, M/s B is not merely providing auctioneering services, but is also
supplying the painting on behalf of Mr. A to the bidder, and has the authority to transfer
the title of the painting on behalf of Mr. A. This scenario is covered under Schedule I.
A similar situation can exist in case of supply of goods as well where the C&F or commission
agent takes possession of the goods from the principal and issues the invoice in his own
name. In such cases, the C&F/commission agent is an agent of the principal for the supply
of goods in terms of Schedule I. The disclosure or non-disclosure of name of principal is
immaterial in such situations.
Scenario 4
Mr. A sells agricultural produce by utilizing the services of Mr. B, a commission agent
as per Agricultural Produce Marketing Committee Act (APMC Act). Mr. B identifies the
buyers and sells the agricultural produce on behalf of Mr. A for which he charges a
commission from Mr. A. As per the APMC Act, commission agent is a person who buys
or sells the agricultural produce on behalf of his principal, or facilitates buying and
selling of agricultural produce on behalf of his principal and receives commission in such
transaction.
In cases where invoice is issued by Mr. B to the buyer, the former is an agent covered under
Schedule I. However, in cases where invoice is issued directly by Mr. A to the buyer, the
commission agent (Mr. B) doesn’t fall under the category of agent covered under Schedule I.
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5.4. Activities to be treated as supply of goods or supply of services – Schedule II
Sl No. Transaction Type Nature of

Supply
1 Transfer Title of goods
Right in goods/ undivided share in goods
without transfer of goods
Title in goods under an agreement which
stipulates that property shall pass at a
future date
2 Land & Building Lease, tenancy, easement, licence to
occupy land
Lease or letting out of building wholly or
partly
3 Treatment or Applied to other person’s goods
process
4 Renting of immovable property
5 Transfer of right to use any goods for any purpose
6 Construction of complex, building, civil structure, etc. 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
7 Temporary transfer or permitting use or enjoyment of any
intellectual property right
8 Development, design, programming, customisation,
adaptation, upgradation, enhancement, implementation of
IT software
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9 Goods forming part of business assets

are transferred or disposed off by/under
directions of person carrying on the business
Goods held/used for business are put to
private use or are made available to any
person for use for any purpose other than
business, by/under directions of person
Transfer of carrying on the business
business assets Goods forming part of assets of any
business carried on by a person who
ceases to be a taxable person, shall be
deemed to be supplied by him, in the
course or furtherance of his business,
immediately before he ceases to be a
taxable person
10 Agreeing to obligation to refrain from an act, or to tolerate an
act or situation, or to do an act
11 Works contract services
12 Supply by way of or as part of any other service or in any
other manner whatsoever, of goods, being food or any other
article for human consumption or any drink
13 Supply of goods by an unincorporated association or body of
persons to a member thereof for cash, deferred payment or
other valuable consideration
5.5. Negative list under GST – Schedule III

No Activities or transactions neither as a supply of goods nor a supply of services
1 Services by an employee to the employer in the course of or in relation to his
employment
2 Services by any court or Tribunal established under any law for the time being
in force
Explanation - The term "Court" includes District Court, High Court and
Supreme Court
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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 any person who holds any post in pursuance of the
provisions of the Constitution in that capacity; or
(c) Duties performed by any person as a Chairperson or a Member or a

Director in a body established by the Central Government or a State
Government or local authority and who is not deemed as an employee
before the commencement of this clause
4 Services of funeral, burial, crematorium or mortuary including transportation
of the deceased.
5 Sale of land and, subject to paragraph 5(b) of Schedule II (Construction service),
sale of building
6 Actionable claims, other than lottery, betting and gambling.
7 Services by way of any activity in relation to a function entrusted to a Panchayat
under article 243G of the Constitution by CG, SG or local authority
8 Alcoholic Liquor License fee charged by State Government
IMMOVABLE PROPERTY
Money
ACTIONABLE CLAIM
Goods
Employee
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6. Questions on Section 7
Case Taxability and classification

Sale of goods for a consideration in the
course of business.
Purchase of mobile phone paying ` 15,000
after exchange of old phone worth ` 4,000.
Mr A (photographer) clicks a photograph
of Mr B and gets his bicycle for 2 days.
Renting of immovable property.
Sale of land by Mr A.
Sale of lottery ticket.
Demand draft of ` 5,000 without a fee.
Demand draft of ` 5,000 with a fee of ` 40.
Exchange of foreign currency with a fee.
Commission earned from sale of goods.
Employer providing transportation service
to employees for ` 200 per month as part
of employment contract.
Employer providing canteen facility for a
charge.
Finance minister receiving teaching fee
from JKSC.
Investment in Mutual Fund.
Commission earned by mutual fund agents.
Insurance claim receipts.
Insurance Premium charged by insurance
company.
Commission earned by insurance agent.
Sale of old car which was used for personal
purpose.
Inter-state movement of various modes of
conveyance such as trucks, buses between
distinct persons.
257
7. Composite and Mixed Supplies [Section 8 of CGST Act]
• The tax liability on composite or a mixed supply shall be determined in the following
manner, namely:-
- A composite supply4 comprising two or more supplies, one of which is a principal

supply, shall be treated as a supply of such principal supply5.
- A mixed supply6 comprising of two or more supplies shall be treated as supply

of that particular supply that attracts highest rate of tax.
4
Composite supply means a supply made by a taxable person to a recipient and comprises two or more taxable supplies
of goods or services or both, or any combination thereof are naturally bundled and supplied in conjunction with each
other, in the ordinary course of business.
5
Principal supply means the supply of goods or services which constitutes the predominant element of a composite supply
and to which any other supply forming part of that composite supply is ancillary.
6
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.
258
Problems – Time of Supply
1. Determine the time of supply of SERVICES in the following cases
Case Date of Date of Invoice Date of receipt of Time of Supply

Completion payment
1 10th Oct, 2021 25th Oct, 2021 15th Oct, 2021
2 10th Oct, 2021 25th Nov, 2021 15th Oct, 2021
2. Determine the time of supply of GOODS in the following cases where Supply involves
movement

Case Date of Removal Date of Invoice Date of receipt of Time of Supply
payment
3. Illustration: Supply does not involve movement - GOODS

Case Date of making Date of Invoice Date of receipt of Time of Supply
available payment
1 16 Oct, 2021
th
25 Oct, 2021
th
15th Oct, 2021
259
4. Determine Time of supply for services - RCM

Case Date of Date of Invoice Date of payment Time of Supply
Completion
2 10th Oct, 2021 25th Nov, 2021 15th Dec, 2022
3 10th Oct, 2021 25th Oct, 2021 09th Jan, 2021
4 10th Oct, 2021 25th Nov, 2021 07th Dec, 2021
5. Determine TOS for Goods – Reverse Charge

Removal of Issue of Receipt of Date of Time of Supply
goods invoice goods payment
1st Nov, 25th Oct, 15th Nov, 25th Nov,
2021 2021 2021 2021
1st Nov, 25th Oct, 15th Nov, 12th Nov,
2021 2021 2021 2021
1st Oct, 1st Oct, 15th Nov, 12th Nov,
2021 2021 2021 2021
1st Oct, 1st Oct, 10th Feb, 02nd May,
2021 2021 2022 2022
6. Continuous supply
Gas is supplied by a pipeline. Monthly payments are made by the recipient as per
contract. Every quarter, invoice is issued by the supplier supported by a statement
of the goods dispatched and payments made, and the recipient has to pay the
differential amount, if any. The details of the various events are:
• August 5, September 5, October 6 - Payments of Rs 2 lakh made in each month.

• October 3 Statement of accounts issued by supplier, with invoice for the quarter
July – September
• October 17 Differential payment of Rs 56,000 received by supplier for the
quarter July –September as per statement of accounts
Determine the time of supply.
260
7. Service industry
Investigation shows that ABC & Co carried out service of cleaning and repairs of tanks
in an apartment complex, for which the Apartment Owners’ Association showed a
payment in cash on 4th April to them against work of this description. The dates
of the work are not clear from the records of ABC & Co. ABC & Co have not issued
invoice or entered the payment in their books of account.

261
Exemptions
1. Power to Exempt – Section 11 of CGST Act, 2017
• Overview

Section 11 of CGST Act, 2017/ Section 6 of IGST Act, 2017
General Exemption: If the CG is satisfied that it is necessary in the public interest,
it may on the recommendation of GST Council exempt, goods or services of any
specified description from the whole or any part of the GST leviable thereon, subject
to such conditions as may be specified in the notification.
Special Exemption: On the recommendation of GST Council, Central Government may
by special order in each case, exempt goods or services of any specified description
from the whole or any part of the GST leviable thereon, under circumstances of an
exceptional nature to be stated in such order, subject to such conditions as may be
specified in the order.
Explanation: Central Government may insert Explanations for clarifying the scope or
applicability of the notification or special order.
Such explanation can have retrospective effect from date of exemption notification.
However, the Explanation should be inserted within 1 year from issue of such
Notification or Order.
Mandatory: If an exemption is absolute – whether for whole or part of GST, then
the registered person supplying such goods or services or both shall not collect the
tax, in excess of the effective rate after giving effect to the exemption.
262
2. List of Service Exemptions – Notification no.12/2017 of CGST and 9/2017 of IGST
2.1. Renting of Immovable Property
a) Exemptions
• Renting or leasing of vacant land relating to agriculture7.
• Renting of a residential dwelling for use as residence. Hotel, Lodge used as residence
for temporary or long period will not be covered under this entry as they are not
residential dwelling.
• Renting of Hotel, Inn, guest house, club or campsite, by whatever name called, for
residential and lodging purpose having value of supply of a unit of accommodation
below or equal to 1,000 rupees per day or equivalent.
2.2. Hiring, Leasing, Licensing of Goods
• Services by way of giving on hire
(a) Motor vehicle meant to carry more than 12 passengers to State transport
undertaking; or
(b) Electrically operated vehicle meant to carry more than 12 passengers to Local
authority; or
(c) Means of transportation of goods to a Goods transport agency; or
7
Agriculture means the cultivation of plants and rearing of all life forms of animals except rearing of horses, for food,
fibre, fuel, raw materials or other similar products.
263
(d) Motor vehicle for transport of students, faculty and staff, to a person providing
services of transportation of students, faculty and staff to an educational
institution providing services by way of pre-school education and education
upto higher secondary school or equivalent.
2.3. Construction Services
• Services provided by way of pure labour contracts of construction, erection,

commissioning, installation, completion, fitting out, repair, maintenance, renovation,
or alteration of a civil structure or any other original works pertaining to the
beneficiary-led individual house construction or enhancement under the Housing for All
(Urban) Mission or Pradhan Mantri Awas Yojana.
• Services by way of pure labour contracts of construction, erection, commissioning, or

installation of original works pertaining to a single residential unit otherwise than as a
part of a residential complex8.
• Services supplied by electricity distribution utilities by way of construction, erection,

commissioning, or installation of infrastructure for extending electricity distribution
network upto the tube well of the farmer or agriculturalist for agricultural use.
2.4. Services provided by Government and Local Authorities
• Exemption
8
Residential complex: means any complex comprising of a building or buildings, having more than one single residential
unit
264
• Additional Points
 Basic postal services, money orders, book post, registered posts provided by
department of post is not taxable. However, agency services are liable to GST.
 Any service provided by CG, SG or LA upto ` 5,000 is also exempted. This exemption
is not applicable to first three limbs of exemption
 Exemption: Any service provided by Government to a business entity whose

turnover does not exceed registration limit(`40/`20/`10 lakh) in preceding financial
year is exempt except first three limbs and renting of immovable property.
• Other Points & Exemptions related to Government

Type of service Taxability
Service provided by Government Such services have been exempted. However,
or local authority to another it does not apply to first three limbs of 1st
Government or local authority exemption provided by government.
Service provided to an individual Services by way of grant of passport, visa,
who may be carrying out a profession driving license, birth or death certificates have
or business. been exempted.
Services in the nature of allocation of Exempted. However, Such allocations/
natural resources by Government or a auctions to categories of persons other than
local authority to individual farmers individual farmers would be leviable to GST.
Services provided in lieu of fee charged Registration required under the law; testing,
by Government or a local authority calibration, safety check or certification
relating to protection or safety of workers,
consumers or public at large, required under
the law, have been exempted.
265
Fines and penalties It is clarified that fines and penalty chargeable by Government
or a local authority imposed for violation of a statute, bye-laws,
rules or regulations are not leviable to GST.
Fines and liquidated damages payable to Government for

non-performance of contract entered into with Government
or local authority have been exempted.
Guarantee Commission Services supplied by Central Government, State Government,
Union territory to their undertakings or PSUs by way of
guaranteeing the loans taken by such undertakings or PSUs
from the banking companies & financial institutions is exempted..
Long term lease by One time upfront amount (called as premium, salami, cost,
State Government price, development charges or by any other name) leviable
in respect of the service, by way of granting long term (thirty
years, or more) lease of industrial plots or plots for development
of infrastructure for financial business, provided by the
State Government Industrial Development Corporations
or Undertakings or by any other entity having 20% or more
ownership of CG, SG, UT to industrial units is exempted.
Charges for officers Services provided by the Central Government, State
Government, Union territory by way of deputing officers after
office hours or on holidays for inspection or container stuffing
or such other duties in relation to import export cargo on
payment of Merchant Overtime charges is exempted.
Petroleum Profit Supply of services by way of grant of license or lease to
explore or mine petroleum crude or natural gas or both.
GST is exempted on the consideration paid to the Central
Government in the form of Central Government’s share of
profit petroleum as defined in the contract entered into by the
Central Government in this behalf.
Assigning right to Services supplied by a State Government to Excess Royalty
collect royalty Collection Contractor (ERCC) by way of assigning the right to
collect royalty on behalf of the State Government on the
mineral dispatched by the mining lease holders is exempted.
266
FSSAI Services by way of licensing, registration and analysis or

testing of food samples supplied by the Food Safety and
Standards Authority of India (FSSAI) to Food Business Operators
is exempted.
National Permit Services by way of granting National Permit to a goods
carriage to operate through-out India is exempted.
Panchayat and Pure Service/ Composite supply of goods or services where
Municipality value of goods is not more than 25% of the total value provided
to Government or local authority by way of any activity in
relation to any function entrusted to Panchayat under Article
243G or to Municipalities under Article 243W of the Constitution
is exempted.
Commission paid to Service provided by Fair Price Shops to Central Government,
ration shops State Government or Union territory by way of sale of
food grains, kerosene, sugar, edible oil, etc. under Public
Distribution System against consideration in the form of
commission or margin is exempted.
267
2.5. Education related services - Exemption
• Services provided
(a) BY an educational institution* to its students, faculty and staff.
(aa) By an education institution* by way of conduct of entrance examination against

consideration in the form of entrance fee.
(b) TO an educational institution*, by way of,-
(i) Transportation of students, faculty and staff;

(ii) Catering, including any mid-day meals scheme sponsored by the
Government;
(iii)
Security or cleaning or house-keeping services performed in such educational
institution;
(iv) Services relating to admission to, or conduct of examination by, such
institution;
(v) Supply of online educational journals or periodicals;

Note 1: However nothing contained in entry (i) (ii) (iii) of item (b) shall apply to an education
institution* other than an institution providing services by way of pre-school education and
education up to higher secondary school or equivalent.
Note 2: Provided further that nothing contained in sub-item (v) of item (b) shall apply to an
institution providing services by way of,-
(i) Pre-school education and education up to higher secondary school or equivalent; or

(ii) Education as a part of an approved vocational education course
_____________________________________________________________________
*Education institution9 means an institution providing services by way of -
(i) Pre-school education and education up to higher secondary school or equivalent;

(ii) Education as a part of a curriculum for obtaining a qualification recognised by any
law for the time being in force;
(iii) Education as a part of an approved vocational education course**;
268
**Approved vocational education course means,-
(i) A course run by an industrial training institute or an industrial training centre

affiliated to the National Council for Vocational Training or State Council for Vocational
Training offering courses in designated trades notified under the Apprentices Act,
1961 (52 of 1961.); or
(ii) A Modular Employable Skill Course, approved by the National Council of Vocational
Training1010 , run by a person registered with the Directorate General of Employment
and Training, Union Ministry of Labour and Employment.
9
It is clarified that the Central and State Educational Boards shall be treated as Educational Institution for the limited
purpose of providing services by way of conduct of examination to the students.
10
Circular number 55/2018 clarified that private Industrial Training Institutes providing courses approved by NCVT/ SCVT
would be exempt.
269
2.6. Transportation of goods - Exemptions
• Services by way of transportation of goods by road except the services of goods

transportation agency11 or courier agency12;
• GTA providing service to an unregistered person other than specified persons.
• Transportation of goods by an aircraft from outside India upto the custom airport;
• By inland waterways (means national waterway);
• Services by way of transportation by rail or a vessel from one place in India to another
and transportation by Goods Transportation Agency of the following goods:
- Relief materials meant for victims of natural or man-made disasters, calamities,

accidents or mishap;
- Defence or military equipment’s;
- Newspaper or magazines registered with the Registrar of Newspapers;
- Railway equipment’s or materials; (Except through GTA)
- Agricultural produce;
- Milk, Salt and Food grains including flour, pulses and rice; or
- Organic manure;
• Services by way of transportation of goods by an aircraft/vessel from customs station of

clearance in India to a place outside India. (upto 30th September 2022);
• Additional Exemption for GTA Service

- Goods, where gross amount charged for the transportation of goods on a
consignment transported in a single carriage does not exceed ` 1500;
- Goods, where gross amount charged for transportation of all such goods for a
single consignee does not exceed ` 750;
GTA means any person who provides services in relation to transportation of goods by road and issues consignment
11
note, by whatever name called.

Courier agency means any person engaged in the door-to-door transportation of time-sensitive documents, goods
12
or articles utilising the services of a person, either directly or indirectly, to carry or accompany such documents,
goods or articles.
270
Examples
271
272
2.7. Transportation of passengers - Exemptions
• Railways in a class other than First class; or An air-conditioned coach;
• Metro, monorail or tramway;
• Inland waterways;
• Public transport, other than predominantly for tourism purpose, in a vessel, between
places located in India; and
• Metered cabs13 , Auto rickshaws;
• Transport of passengers by Air, embarking from or terminating in an airport located

in the state of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland,
Sikkim, or Tripura or at Bagdogra located in West Bengal; In short- North eastern
states, to encourage development.
• Services provided to the Central Government, by way of transport of passengers with or

without accompanied belongings, by air, embarking from or terminating at a regional
connectivity scheme airport, against consideration in the form of viability gap funding.
273
• Non-air conditioned contract carriage other than radio taxi, for transportation of
passengers, excluding tourism, conducted tour, charter or hire; or
• Stage carriage other than AC stage carriage.
13
Radio taxi means a taxi including a radio cab, by whatever name called, which is in two-way radio communication
with a central control office and is enabled for tracking using Global Positioning System (GPS) or General Packet Radio
Service (GPRS).
Metered cab means any contract carriage on which an automatic device, of the type and make approved under the
relevant rules by the State Transport Authority, is fitted which indicates reading of the fare chargeable at any moment
and that is charged accordingly under the conditions of its permit issued under the Motor Vehicles Act, 1988 (59 of
1988.) and the rules made thereunder but does not include radio taxi.
Stage carriage means a motor vehicle constructed or adapted to carry more than six passengers excluding the driver for
hire or reward at separate fares paid by or for individual passengers, either for the whole journey or for stages of the
journey.- Motor Vehicle Act, 1988. A person can get in or get down at any stage of journey.
In a contract carriage, the person will always buy a ticket for the whole journey. Generally, passengers do not get in
or step down at every point.
274
2.8. Agriculture Related Exemptions
a) Services relating to cultivation of plants and rearing of animals except rearing of horses,
for food, fibre, fuel, raw material or similar produce or agricultural produce by way of —
- (i) Agricultural operations directly related to production of any agricultural

produce including cultivation, harvesting, threshing, plant protection or
testing;
- (ii) Supply of farm labour;
- (iii) Processes carried out at an agricultural farm including tending, pruning,
cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating,
curing, sorting, grading, cooling or bulk packaging and such like operations
which do not alter the essential characteristics of agricultural produce but
make it only marketable for the primary market;
- (iv) Renting or leasing of agro machinery or vacant land with or without a
structure incidental to its use;
- (v) Loading, unloading, packing, storage or warehousing of agricultural
produce;
- (vi) Agricultural extension services;
- (vii) Services by any Agricultural Produce Marketing Committee or Board or
services provided by a commission agent for sale or purchase of agricultural
produce 14
;
b) Services by way of storage or warehousing of cereals, pulses, fruits, nuts and

vegetables, spices, copra, sugarcane, jaggery, raw vegetable fibres such as cotton,
flax, jute etc., indigo, unmanufactured tobacco, betel leaves, tendu leaves, coffee
and tea
c) Pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling of fruits and

vegetables.
d) Services by way of fumigation in a warehouse of agricultural produce.
14
Agricultural produce means any produce of agriculture on which either no further processing is done or such processing
is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it
marketable for primary market.
275
e) Services by way of loading, unloading, packing, storage or warehousing of rice.
f) Services by way of warehousing of minor forest produce.

g) Carrying out an intermediate production process as job work in relation to cultivation
of plants and rearing of all life forms of animals, except the rearing of horses, for
food, fibre, fuel, raw material or other similar products or agricultural produce.
Examples:
2.9. Health Care Services and Charity Related Exemptions
a) Health care services15 by a clinical establishment16, an authorised medical practitioner

or para-medics and Ambulance services provided by any person17.
b) Services provided by operators of the Common Bio-medical Waste Treatment Facility

to a clinical establishment by way of treatment or disposal of biomedical waste or
processes incidental thereto
c) Service provided by a cord blood bank in relation to preservation of stem cells.
d) Services by a veterinary clinic in relation to health care of animals or birds;
Health care services means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality
15
or pregnancy in any recognised system of medicines in India and includes services by way of transportation of the patient
to and from a clinical establishment, but does not include hair transplant or cosmetic or plastic surgery, except when
undertaken to restore or to reconstruct functions of body affected due to such injury or trauma.
Clinical establishment means a hospital, nursing home, clinic, sanatorium or any other institution by, whatever name
16
called, that offers services or facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality
or pregnancy in any recognised system of medicines in India.
Circular number 51/25/2018 has clarified that ambulance service provided by private operators to Government under
17
National Health Mission is not liable to GST.
276
e) Services by an entity registered under section 12AA/12AB of the Income tax Act,1961
(43 of 1961) by way of charitable activities*;
*Charitable activities means activities relating to -
- (i) Public health by way of -
(a) Care or counseling of (i) terminally ill persons or persons with severe
physical or mental disability, (ii) persons afflicted with HIV or AIDS,
or (iii) persons addicted to a dependence-forming substance such as
narcotics drugs or alcohol; or
(b) Public awareness of preventive health, family planning or prevention
of HIV infection;
- (ii) Advancement of religion or spirituality or yoga;
- (iii) Advancement of educational programmes or skill development relating

to,-
(a) Abandoned, orphaned or homeless children;

(b) Physically or mentally abused and traumatized persons or prisoners;
(c) Persons over the age of 65 years residing in a rural area;
- (iv) Preservation of environment including watershed, forests and wildlife
f) Services by an old age home run by Central Government, State Government or by an entity
registered under Section 12AA of the Income-tax Act, 1961 to its residents (aged 60 years
or more) against consideration upto 25,000 per month per member.
277
g) Services provided by an unincorporated body or a non-profit entity registered under

any law for the time being in force, engaged in

i) Activities relating to the welfare of i) To its own members against
industrial or agricultural labour or consideration in the form of
farmers; or membership fee upto an amount of
ii) Promotion of trade, commerce, one thousand rupees (`1000/-) per
industry, agriculture, art, member per year
science, literature, culture,
sports, education, social welfare,
charitable activities and protection
of environment
h) Services by way of training or coaching in recreational activities relating to -
 Arts, Culture, or
 Sports by charitable entities registered under section 12AA/12AB of Income Tax
Act, 1961
i) Services by a person by way of-
 Conduct of any religious ceremony;

 Renting of precincts of a religious place meant for general public by an entity
registered u/s 12AA/12AB of Income tax Act. 1961 or;
Except
 Rooms for ` 1000 or more per day;
 Community hall for ` 10,000 or more per day;
 Shops for ` 10,000 or more per month
j) Services provided by rehabilitation professionals recognised under the Rehabilitation

Council of India Act, 1992 (34 of 1992) by way of rehabilitation, therapy or counselling
and such other activity as covered by the said Act at medical establishments,
educational institutions, rehabilitation centers established by Central Government,
State Government or Union territory or an entity registered under section 12AA/12AB
of the Income-tax Act, 1961
278
2.10. RBI, Embassy and Financial Sector Related Exemptions
a) Services by the Reserve Bank of India;
b) Services received by the Reserve Bank of India, from outside India in relation to
management of foreign exchange reserves;
c) Services by a Foreign Diplomatic Mission located in India;
d) Banking and other financial services- Services by way of—
- (i) extending deposits, loans or advances in so far as the consideration is

represented by way of interest or discount except interest on credit card;
- (ii) inter se sale or purchase of foreign currency amongst banks or authorised

dealers of foreign exchange or amongst banks and such dealers;
e) Service by an acquiring bank, to any person in relation to settlement of an amount

upto two thousand rupees in a single transaction transacted through credit card,
debit card, charge card or payment card services.
f) Service provided by a Banking Company to Basic Saving Bank Deposit (BSBD) account
holders under Pradhan Mantri Jan Dhan Yojana (PMJDY).
g) Business facilitator or business correspondent to banking company with respect to

accounts in its rural area branch or any intermediary to the business facilitator or
business correspondent.
h) Business facilitator/ Business Correspondent to insurance company in rural area.
2.11. Other services - Exemptions
a) Toll Charges- Service by way of access to a road or a bridge on payment of toll

charges/ annuity.
279
b) Transmission or distribution of electricity by an electricity transmission or distribution

utility;
c) Arbitral Tribunal and Advocates (Not CA,CS,ICWA) by way of legal service -
d) Services provided by a tour operator to a foreign tourist in relation to a tour conducted

wholly outside India.
e) Services by an organiser to any person in respect of a business exhibition held outside

India;
*Legal service means any service provided in relation to advice, consultancy or assistance in any branch of law, in any
manner & includes representational services before any court, tribunal or authority
280
f) Service by an unincorporated body or a non-profit entity registered under any law, to its
own members by way of reimbursement of charges or share of contribution -
• As a trade union;
• For the provision of carrying out any activity which is exempt from the levy of GST;
or
• Upto an amount of ` 7,500 per month per member for sourcing of goods or services
from a third person for the common use of its members in a housing society or a
residential complex;
g) Services of admission to a museum, zoo, national park, wildlife sanctuary and a tiger
reserve. Ancient monuments have been exempted recently.
h) Service by way of Right to admission to:

 Circus, dance, or theatrical performances including where the consideration
drama or ballet. for such admission is upto
 Award functions, concerts, pageants, musical ` 500 per person.
performances or any sporting events other than
recognized sporting event.
 Recognized sporting events and Planetarium.
i) Services by a performing artist in folk or classical art forms of (i) music, or (ii) dance,
or (iii) theatre upto ` 1,50,000 per performance, excluding services provided by such
artist as a brand ambassador.
281
j) Services provided to a recognised sports body by-
• (a) an individual as a player, referee, umpire, coach or team manager for participation
in a sporting event organized by a recognized sports body;
• (b) another recognised sports body;
k) Services by way of sponsorship of sporting events organised,-
 By a national sports federation, or its affiliated federations, where the participating

teams or individuals represent any district, State, Zone or Country;
 By Association of Indian Universities, Inter-University Sports Board, School Games
Federation of India, All India Sports Council for Deaf, Paralympic Committee of
India or Special Olympics Bharat;
 By Central Civil Services Cultural and Sports Board;
 As part of national games, by Indian Olympic Association; or
 Under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA) Scheme;
l) Services received from a provider of service located in a non- taxable territory by -
o (i) Government, a local authority, a governmental authority or an individual

in relation to any purpose other than commerce, industry or any other
business or profession;

o (ii) An entity registered under section 12AA/12AB of the Income tax Act, 1961
(43 of 1961) for the purposes of providing charitable activities; or
o (iii) A person located in a non-taxable territory;
m) Services imported by unit/developer in SEZ for authorised operations are exempt

from IGST.
n) Services by an intermediary of financial services located in a multi services SEZ with

International Financial Services Centre (IFSC) status to a customer located outside
India for international financial services in currencies other than Indian rupees (INR).
[Eg: Gift City Gandhinagar]
282
o) Services provided to the Central Government, State Government, Union territory

administration under any training program for which “75% or more of the” total
expenditure is borne by CG/SG/UT.
p) Services provided by and to Asian Football Confederation (AFC) and its subsidiaries
directly or indirectly related to any of the events under AFC Women's Asia Cup 2022
to be hosted in India.
q) Services by way of right to admission to the events organised under AFC Women's
Asia Cup 2022.
r) Entry fee and service in relation to FIFA U-17 Women World Cup has been exempted
and this exemption will be available whenever the tournament is scheduled.
2.12. Read these exemptions yourself 
a) Services by way of collecting or providing news by an independent journalist, Press

Trust of India or United News of India;
b) Services by way of public conveniences such as provision of facilities of bathroom,

washrooms, lavatories, urinal or toilets;
c) Services of public libraries by way of lending of books, publications or any other

knowledge enhancing content or material;
d) Services by way of slaughtering of animals;
e) Services by way of transfer of a going concern, as a whole or an independent part thereof;
f) Service provided to the Central Government, State Government or Union Territory

under any insurance scheme for which total premium is paid by CG/SG/UT.
g) Specified schemes 18
of general insurance business. Services of life insurance business
provided under following schemes -
(i) Janashree Bima Yojana (JBY); or Aam Aadmi Bima Yojana (AABY);
283
(ii) Varista Pension Bima Yojana, Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri
Jeevan Jyoti Bima Yojana and Jan Dhan Yojana, Atal Pension Yojana, Pradhan Mantri Vaya
Vandana Yojana;
(iii) Life micro-insurance product as approved by the Insurance Regulatory and

Development Authority, having maximum amount of cover of two lakh rupees;
h) Any service provided by

 The National Skill Development In relation to
Corporation (NSDC) set up by  The National Skill Development
Government of India programme implemented by NSDC
 A Sector Skill Council approved by  A Vocational Skill development
NSDC course under National Skill
 An assessment agency approved by Certification and Monetary Reward
above two Scheme
 A training partner approved by  Any other scheme implemented by
above two NSDC
i) Service rendered by training providers under Deen Dayal Upadhyaya Grameen

Kaushalya Yojana.
j) Services of assessing bodies empanelled centrally by the Directorate General of

Training, Ministry of Skill Development and Entrepreneurship by way of assessments
under the Skill Development Initiative Scheme.
k) Service provided by Employee Provident Fund Organisation, IRDA to insurers, SEBI and
National Centre for Cold chain development.
l) Services by Employees‘ State Insurance Corporation to persons governed under the

Employees‘ Insurance Act, 1948 (34 of 1948);
18
Hut insurance scheme, Cattle insurance, scheme for insurance of tribals, Janata Personal Accident Policy and Gramin
Accident Policy, Group Personal Accident Policy for Self Employed women, Agricultural Pumpset and Failed Well
Insurance, Jan Arogya Bima Policy, Universal Health Insurance scheme, National Agricultural Insurance Scheme, Nirmaya
health insurance scheme, Bangla Shasya Bima
284
m) Services of life insurance business provided or agreed to be provided by the Army,

Naval and Air Force Group Insurance Funds to members of the Army, Navy and Air Force
respectively, under the Group Insurance Scheme of Central Government. Services
of life insurance provided or agreed to be provided by the Naval Group Insurance
Fund to the personnel of Coast Guard & Central Armed Police Force under the Group
Insurance Schemes of the Central Government.
n) Services by Coal Mines Provident Fund Organization to persons governed by the Coal
Mines Provident Fund and Miscellaneous Provisions Act, 1948.
o) Service provided under National Pension system.
p) Services by National Pension System (NPS) Trust to its members against consideration in
the form of administrative fee.
q) Services provided by the Goods and Services Tax Network to the Central Government
or State Governments or Union territories for implementation of Goods and Services
Tax.
r) Services by way of providing information under the Right to Information Act, 2005.
s) Services by way of artificial insemination of livestock (other than horses).
t) Supply of services associated with transit cargo to Nepal and Bhutan.
u) Satellite launch services supplied by Indian Space Research Organisation, Antrix

Corporation Limited or New Space India Limited.
v) Service provided by an intermediary when location of the supplier of goods &

recipient of goods is outside India.
w) Service provided by the Haj Committee and Kumaon Mandal Vikas Nigam Limited in
relation to pilgrimage to Mecca and Kailash Mansarovar.
285
3. Questions for practice
Case Taxability
Catering service provided to visitors by educational institution
Catering service provided to students by an education institute
Renting of immovable property to an education institute
Renting of vacant land for agriculture
Renting of vacant land to a stud farm
Renting of vacant land for poultry farming
Security service provided by Cobra Limited to a degree college
Security service provided by Cobra Limited to a school
A vocational training programme by Rajasthan Parishad, Bangalore
Vocational training programme approved by National council for
Vocational training
Swimming pool usage service provided by degree college to Faculties
Repair and Maintenance of a college building
Speed post provided by Dept of Post to Karnataka State Government
Speed post provided to an individual with no business/profession
Speed post service provided to a business entity
Repair of an aircraft provided by a Government department
Basic Mail service
Collection of telephone bills by dept of post on behalf of telecom
operators
Mining license given to a business entity
Passport of employees of a business owned by Mr. A
Mining license given to a business entity whose turnover in PFY was 18
lakhs
Mumbai Police providing security service to person other than business
entity
Money order by department of post
Marriage certificate for ` 2,000 from the registrar
Pension payments by department of post
Service provided by Central government to State government
Warehousing of biscuits
286
Transportation of Flour by Rail (Non AC)

Transportation of mineral oil by GTA to Registered Person
Warehousing for vegetable Oil
Supply of farm labour
Commission agent of wheat
Commission agent of Rice
Commission agent of watches
Packing and loading of wheat
Packing and loading of rice
Packing and loading of paddy
Training to farmers
Testing of farm Soil
Scientific research on Tropicana Fruit juice
Waxing of apples
Service provided to RBI
Service provided by a CA to RBI
Service provided by an Embassy
Administration charges for loan processing
Interest on Government Securities
Discount earned on bills discounted
Interest earned by a pawn broker for loan on jewellery
Exchange of foreign currency with general public
Entry fee to Bangalore International Circus – ` 600
Entry Fee to IIFA Award function – ` 200
Entry fee to India v Australia match – ` 5,000
Entry fee to IPL Match – ` 500
Entry fee to hip hop dance performance by Hema Malini – ` 200. Hema
Malini Charged ` 1,00,000 for the performance
Entry fee to Kathak dance performance by Honey Singh – ` 700. Honey
Singh Charged ` 1,50,000 for the performance
Zakir Hussain charged ` 1,00,000 for Taj Mahal Tea advertisement
Entry fee to Amoeba bowling centre – ` 11
Entry fee to a pageant – ` 499
287
Entry fee to snow city – ` 99

Entry Fee to Wonderla (Amusement Park)– ` 199
Health care service provided by Fortis Hospital
Mr A (CA) providing health advisory for cough and cold
Cosmetic and plastic surgery for an accident
Advocate providing legal service to a person other than business entity
A CA providing representation service before income tax authorities
Recreational activity in relation to arts
CA providing service to a charitable trust registered u/s 12AA/12AB
Entry fee to a museum
Entry fee to a wild life sanctuary
IRDA providing service to insurers
Life micro insurance of ` 2,75,000
Public library
Virat Kohli receiving fees for Boost advertisement
Virat Kohli receiving fees from BCCI
Virat Kohli receiving fees from IPL franchise
A religious ceremony conducted by a priest for ` 10,000
Renting of shop in precincts of religious premise for ` 10,000 per month
Ravi Shastri receiving fees from BCCI for Commentary
A commercial complex charging ` 3,000 per month as maintenance
A commercial complex charging ` 8,000 per month as maintenance
A residential complex charging ` 3,000 per month as maintenance
A residential complex charging ` 8,000 per month as maintenance
Pradhan mantri jeevan jyothi yojana
Public telephone booth
Public Conveniences
A service provided by GSTN to Karnataka State Government
Passengers – Tramway
Passengers – Aerial Tramway
Preservation of stem cells
288
Ambulance service provided by a CA

Transportation of passengers by Sleeper class (Rail)
Transportation of passengers by Two tier AC (Rail)
Transportation of passengers by Metro
Transportation of passengers by AC Monorail
Transportation of passengers by Non AC contract carriage
Transportation of passengers by Non AC stage carriage
Transportation of goods by Muniraju Auto driver
Transportation of goods by GTA to Registered Person
Transportation of goods by Courier Agency
Transportation of goods by GTA – Agriculture Produce
Transportation of goods by GTA – Organic Manure
Transportation of goods by aircraft from a place outside India upto
Custom Airport
Transportation of goods by Vessel from a place outside India upto
Custom Port
Transportation of goods by Inland waterways
Construction of a villa as part of a residential complex
Hiring of a truck to GTA
Hiring of a truck to Mr B (Individual Truck Driver)
Root canal by a Dentist
Slaughtering of animals
Transfer of business as going concern
Credit card Interest
Training given to trainers of farmers
Development of a new research drug
Dehusking of paddy to rice on job work basis
Leasing of vacant land to a poultry farm
Plantation of tea and coffee
Amount of commission received for debt collection service
Discount earned on bills discounted
Charges received on credit card and debit card facilities extended
Commission received for service rendered to Government for tax
collection
289
Interest earned on reverse repo transaction

Future contracts without delivery of underlying asset
Service supplied by a private transport operator to a School in relation
to transportation of students to and from a School
Services supplied by way of vehicle parking to general public in a
shopping mall.
Service supplied by way of repair or maintenance of aircraft owned by
a State Government
Exhibiting movies on television channels
Transportation of petroleum and petroleum products and household
effects by railways
Transportation of postal mails or mail bags by a vessel
Printing services for printing the question papers provided to a school
Honorarium to paper setters and examiners provided to a degree
college
Rural postal life insurance service in a Post office
Distribution of mutual funds, bonds and passport applications by Post
Office
Premises let to a temple trust for ` 40,000 by PQR Properties engaged
in the business of renting immovable properties
Building let to a theatre for ` 80,000 by PQR Properties engaged in the
business of renting immovable properties
290
Payment of GST
1. Definitions
• Output tax in relation to a taxable person, means the tax chargeable under this Act
on taxable supply of goods or services or both made by him or by his agent but
excludes tax payable by him on reverse charge basis.
• Valid return means a return furnished under sub-section (1) of section 39 on which
self-assessed tax has been paid in full.
• Common portal Identification Number (CPIN) is created for every Challan successfully
generated by taxpayer. It is a 14-digit unique number to identify the challan &
remains valid for a period of 15 days.
• CIN or Challan Identification Number is generated by banks, once payment in lieu of

a generated Challan is successful. It is a 17-digit number that is 14-digit CPIN plus
3-digit Bank Code.
• Bank Reference Number (BRN) is a transaction number given by bank for payment
against Challan.
2. Major and Minor Heads for payment

Major Heads Minor Heads
IGST Tax
CGST Interest
SGST/ UTGST Penalty
Compensation Cess Fee
----------- Others
291
Note 1: Cross Utilization of Major Head and Minor Head is strictly prohibited.
Note 2: Cross Utilization within Minor head is also not allowed.
Example for Adjustment: An amount of ` 1,000 is available under S(Tax) and the
taxpayer has a liability of ` 200 for S(Interest). Since, there is no amount available
under S(Int), therefore, interest payment cannot be made from the amount available
S(Tax). However, ` 200 can be transferred from S(tax) to S(Int) by filing form GST PMT-09
and then it can be utilised to pay the liability.
3. Rule 86A – Conditions of use of amount available in E-Credit Ledger
• Commissioner or an officer authorised not below the rank of an Assistant Commissioner

may, for reasons to be recorded in writing, not allow debit of an amount in E-Credit Ledger,
if he has reasons to believe that ITC has been fraudulently availed or is ineligible in
as much as:
- a) ITC has been availed on the strength of tax invoices or debit notes or any
other document prescribed under rule 36 issued by a registered person
who has been found non-existent or not to be conducting any business from
any place for which registration has been obtained; or without receipt of
goods or services or both; or

- b) The credit of input tax has been availed on the strength of tax invoices or
debit notes or any other document prescribed under rule 36 in respect of
any supply, the tax charged in respect of which has not been paid to the
Government; or
- c) The registered person availing the credit of input tax has been found non-
existent or not to be conducting any business from any place for which
registration has been obtained; or
- d) The registered person availing any credit of input tax is not in possession of
a tax invoice or debit note or any other document prescribed under rule
36,
292
• The Commissioner, or the officer authorised by him may, upon being satisfied that
conditions for disallowing debit of electronic credit ledger as above, no longer exist,
allow such debit. Such restriction shall cease to have effect after the expiry of a
period of 1 year from the date of imposing such restriction.
4. Rule 86B - Restrictions on use of amount available in electronic credit ledger
• The registered person shall not use amount available in electronic credit ledger to
discharge his liability towards output tax in excess of 99% of such tax liability, in cases
where value of taxable supply other than exempt supply and zero-rated supply, in a
month exceeds ` 50 Lakh:
• The above restriction is not applicable in the following cases
- (a) The said person or the proprietor or karta or the managing director or any of
its two partners, whole-time Directors, Members of Managing Committee of
Associations or Board of Trustees, have paid more than one lakh rupees as
income tax in each of last two financial years for which the time limit to file
return of income u/s 139(1) has expired; or
- (b) The registered person has received a refund amount of more than one lakh
rupees in the preceding financial year on account of unutilised input tax credit
under zero rated supply or inverted tax structure or
- (c) The registered person has discharged his liability towards output tax through
the electronic cash ledger for an amount which is in excess of 1% of the total
output tax liability, applied cumulatively, upto the said month in the current
financial year; or
- (d) The registered person is –(i) Government Department; or (ii) a Public Sector
Undertaking; or (iii) a local authority; or (iv) a statutory body
• Provided further that the Commissioner or an officer authorised by him in this behalf
may remove the said restriction after such verifications and such safeguards as he
may deem fit.
293
5. Payment of tax, interest, penalty and other amounts – Section 49 with the Rules
• Credit to E Cash Ledger: Every deposit made towards tax, interest, penalty, fee or any
other amount by a person by internet banking or by using credit or debit cards or National
Electronic Fund Transfer or Real Time Gross Settlement or by such other mode shall be
credited to the electronic cash ledger.
• Credit to E Credit Ledger: The input tax credit as self-assessed in the return of a
registered person shall be credited to his electronic credit ledger as provisional credit
u/s 41.
• What happens if the taxable person files the return but does not make payment of tax?
Solution: In such cases, the return is not considered as a valid return. Section 2(117)
defines a valid return to mean a return furnished under sub-section (1) of section
39 on which self-assessed tax has been paid in full. It is only the valid return that
would be used for allowing input tax credit (ITC) to the recipient. In other words,
unless the supplier has paid the entire self-assessed tax and filed his return and the
recipient has filed his return, the ITC of the recipient would not be confirmed.
• Sequence to discharge tax and other dues: Every taxable person shall discharge his tax
and other dues under this Act or the rules made thereunder in the following order:
- Self-assessed tax, and other dues19 related to returns of previous tax periods;
- Self-assessed tax, and other dues related to the return of the current tax period;
- Any other amount payable under this Act or the rules made thereunder including
the demand determined under section 73 or section 74.
• Date of Deposit: The date of credit to the account of the Government in the authorised
bank shall be deemed to be the date of deposit in the electronic cash ledger.
• ONLY CASH PAYMENT - TDS under section 51, or TCS under section 52, or the amount
payable on reverse charge basis, or the amount payable under Composition Scheme,
19
Other dues means interest, penalty, fee or any other amount payable under this Act or the rules under GST.
294
any amount payable towards interest, penalty, fee or any other amount under the
Act shall be paid by debiting the electronic cash ledger.
• Payment challan to be generated online and will be valid for 15 days – Form GST
PMT – 06.
• Limit for Over the Counter Payment: The limit for Over the Counter payment through
authorised banks for deposits is up to ` 10,000 per challan per tax period, by
cash, cheque or demand draft. However, the limit of ` 10,000 is not applicable to
Government Departments or any other deposit to be made by persons as may be
notified by the Commissioner in this behalf or deposit by proper officer in case of
recovery by department.
• The credit in E Credit ledger can be used to make payment of TAX ONLY and not for other
amounts such as interest, penalty, fees etc.
6. Interest on delayed payment of tax – Section 50

Case Interest
Delay in payment of tax, in full or in part 18% per annum from the date
within the prescribed period. following the due date to the date of
payment.
Undue or excess claim of input tax credit 24% per annum from the date of
under section 42(10) or Undue or excess taking ITC/ Reduction in Output tax
reduction in output tax liability under till the date of payment.
section 43(10)

Note 1: Provided that the interest on tax payable in respect of supplies made during
a tax period and declared in the return for the said period furnished after the due
date in accordance with the provisions of section 39 shall be levied on that portion
of the tax that is paid by debiting the electronic cash ledger.
However, this benefit will not be available where such return is furnished after
commencement of any proceedings under section 73 or 74 in respect of the said
period.
295
Note 2: Payment of tax wrongly collected and paid due to wrong place of supply
Section 19 of IGST Act - In case a person has paid IGST instead of CGST+SGST, then
he has to claim refund of IGST after payment of CGST+SGST. However, interest is not
applicable on such payment due to wrong place of supply.
Same principle is applicable if C+S is paid instead of IGST in terms of section 77 of

CGST Act, 2017.
296
Invoice and Other

Documents
1. Time limit for issue of invoice - Section 31
297
2. Manner of issuing an invoice – Rule 48
Case Number of Copies

Goods 3 Copies – Original for recipient, Duplicate
for Transporter and Triplicate for supplier
Services 2 Copies – Original for recipient, Duplicate
for supplier
3. Particulars to be mentioned on the invoice – Rule 46
4. Revised Tax Invoice – Rule 53
• Every registered person who has been granted registration with effect from a date
earlier than the date of issuance of certificate of registration to him, may issue revised
tax Invoices.
298
• There would be a time lag between date of grant of certificate of registration and the
effective date of registration. For supplies made by such person during this intervening
period, the law enables the issuance of a revised invoice can be issued within 30 days, so
that ITC can be availed by the recipient on such supplies except for cases where revised
invoice is due to Section 74,129 & 130.
Example:
• A registered person may issue a Consolidated Revised Tax Invoice in respect of all
taxable supplies made to an unregistered recipient during such period. However, in case
of inter-State supplies, a consolidated Revised Tax Invoice cannot be issued in respect
of all unregistered recipients if the value of a supply exceeds ` 2,50,000.
5. Consolidated tax invoice – Rule 46
• A registered person may not issue a Tax Invoice if: (i) Value of the goods/services/
both supplied is less than ` 200, (ii) the recipient is unregistered; and (iii) the recipient
does not require such invoice.
• Instead such registered person shall issue a Consolidated Tax Invoice for such supplies
at the close of each day in respect of all such supplies.
• All the above provisions are also applicable to Bill of Supply.
Example:
299
6. Bill of Supply – Rule 49
• A registered person supplying exempted goods or services or both or paying tax

under composition levy shall issue a bill of supply instead of a tax invoice.
7. Invoice cum Bill of Supply – Rule 49
• A registered person supplying exempted and taxable goods or services may issue an
invoice cum bill of supply instead of a tax invoice and bill of supply separately.
8. Receipt Voucher – Rule 50
• A registered person shall, on receipt of advance payment with respect to any supply
of goods or services or both, issue a Receipt Voucher evidencing receipt of such
payment.
• Where at the time of receipt of advance, rate of tax/ nature of supply is not determinable:
- Rate of tax would be – 18%

- Nature of supply would be– inter-state supply (IGST)
9. Refund Voucher – Rule 51
• Where, on receipt of advance payment with respect to any supply of goods or services
or both the registered person issues a Receipt Voucher, but subsequently no supply
is made and no tax invoice is issued in pursuance thereof, the said registered person
may issue to the person who had made the payment, a Refund Voucher against such
payment.
300
10. Payment Voucher – Rule 52
• A registered person who is liable to pay tax under reverse charge [under section
9(3)/9(4) of the CGST Act] shall issue a Payment Voucher at the time of making
payment to the supplier.
• Invoice and Payment Voucher for RCM - Summary
11. Suppliers permitted to issue any other document – Rule 54

Supplier Optional Mandatory Information
information
Insurer/ Banking Serial Number Other information’s and the document as
C o m p a n y and Address of may be issued/ made available – Optional
including NBFC recipient for these entities to issue invoice (Can also issue
consolidated invoice for a month).
Goods Transport Gross weight, Name of consignor and consignee,
Agency Registration number of carriage, Details of
goods, place of origin and destination, GSTIN
of the person liable to pay tax.
Supplier of Serial Number Tax invoice shall include ticket in any form, by
p a s s e n g e r and Address of whatever name called.
transportation recipient
A registered person supplying Issue an electronic ticket and the said electronic
services by way of admission to ticket shall be deemed to be a tax invoice for
exhibition of cinematograph films all purposes of the Act, even if such ticket
in multiplex screens. does not contain the details of the recipient of
service but contains the other information.
301
Note: A banking company or other financial institution can raise a single invoice per
quarter for transactions between distinct persons.

12. Delivery Challan – Rule 55
• Rule 55 specifies the cases where at the time of removal of goods, goods may be
removed on delivery challan and invoice may be issued after delivery.
- Supply of liquid gas where the quantity at the time of removal from the place of
business of the supplier is not known;
- Transportation of goods for job work;
- Transportation of goods for reasons other than by way of supply;
- Transportation of goods in semi knocked down or completely knocked down condition
and invoice was issued before dispatch of first consignment;
- Such other supplies as may be notified by Board;
13. Section 31A – Facility for digital payment to recipient
• The Government may, on the recommendations of the Council, prescribe a class of

registered persons who shall provide prescribed modes of electronic payment to
the recipient of supply of goods or services or both made by him and give option
to such recipient to make payment accordingly, in such manner and subject to such
conditions and restrictions, as may be prescribed.
14. Credit Note and Debit Note – Section 34
• Credit Note: Where one or more tax invoices have has been issued for supply of any
goods or services or both and the taxable value or tax charged in that tax invoice
is found to exceed the taxable value or tax payable in respect of such supply, or
where the goods supplied are returned by the recipient, or where goods or services
or both supplied are found to be deficient, the registered person, who has supplied
such goods or services or both, may issue to the recipient one or more credit notes for
supplies made in a financial year containing such particulars as may be prescribed.
302
• Reasons for Credit Note issued by Supplier
- Taxable value in invoice is more than Taxable value in respect of such supply;
- Tax charged in invoice is more than Tax payable in respect of such supply;
- Where the goods supplied are returned by the recipient;
- Where goods or services or both are found to be deficient.
• Debit Note is
Note: Last date to issue Credit note is
303
15. Manner of issuing E-invoice- - Rule 48(4)
• The e-invoice shall be prepared by notified class of registered persons, on the

recommendation of GST Council, by including such particulars contained in Form GST
INV-01 after obtaining an IRN (Invoice Reference Number) by uploading information
contained therein on the prescribed electronic portal (Invoice Registration Portal –
Eg: einvoice1.gst.gov.in).
• Every Invoice issued in any other manner shall not be treated as on invoice.
• The requirement of preparing the invoice in duplicate and triplicate in case of supply
of services and goods does not apply to such e-invoice. Signature or digital signature
is also not required for e-invoice. An e-invoice will have a Quick Response Code (QR
Code) having embedded IRN in it.
• Notified Persons: E-invoicing is mandatory for the registered person whose aggregate
turnover in any of the preceding financial year from 2017-18 exceeds ₹ 50 Crore in
case of B2B supplies and exports.
• E-invoice can be cancelled within 24 hours but any amendment is not permitted.
• Exceptions: However, irrespective of the turnover, e-invoicing shall not be applicable

to the following categories of registered person:
- SEZ Unit;
- Insurer or a banking company or a financial institution, including a NBFC;
- A Goods Transport Agency;
- A registered person supplying passenger transportation service; and
- A registered person supplying services by way of admission to the exhibition of

cinematograph films in multiplex screens.
- Government Department and Local Authority
304
16. Dynamic QR Code
Circular No. 146/02/2021-GST - Dynamic Quick Response (QR) Code on B2C (Registered
person to Customer) READ WITH Circular No. 156/12/2021
Sl. Issue Clarification

No.
1. Would this requirement of Dynamic The notification is applicable to a tax
QR Code on B2C invoices be applicable invoice issued to an unregistered person
on invoices issued for supplies made by a registered person (B2C invoice) whose
for Exports? annual aggregate turnover exceeds ` 500
Cr in any of the financial years from 2017-
18 onwards. However, the said notification
is not applicable to an invoice issued in
following cases:
i. Where the supplier of taxable service
is:
a. An insurer or a banking company or
a financial institution, including a
non-banking financial company;
b. GTA in relation to transportation
of goods by road in a goods
carriage;
c. Supplying passenger
transportation service;
d. Supplying services by way
of admission to exhibition of
cinematograph in films in
multiplex screens
ii. OIDAR supplies made by any registered
person, who has obtained registration
under section 14 of the IGST Act 2017,
to an unregistered person.
305
As regards the supplies made for exports,

though such supplies are made by a registered
person to an unregistered person, however, as
e-invoices are required to be issued in respect
of supplies for exports, treating them as (B2B)
supplies, and hence Dynamic QR Code will
not be applicable to export invoices.
2. What parameters/ details are required Dynamic QR Code is required, inter-alia, to
to be captured in the Quick Response contain the following information: -
(QR) Code? i. Supplier GSTIN number
ii. Supplier UPI ID
iii. Payee’s Bank A/C number and IFSC
iv. Invoice number & invoice date,
v. Total Invoice Value and
vi. GST amount along with breakup i.e.
CGST, SGST, IGST, CESS, etc.
Further, Dynamic QR Code should be such
that it can be scanned to make a digital
payment.
3. If a supplier provides/ displays If the supplier has issued invoice having
Dynamic QR Code, but the customer Dynamic QR Code for payment, the said
opts to make payment without using invoice shall be deemed to have complied
it, then will the cross reference of such with Dynamic QR Code requirements.
payment, made, be considered as In cases where the supplier, has digitally
compliance of Dynamic QR Code on displayed the Dynamic QR Code and the
the invoice? customer pays for the invoice: -
i. Using any mode like UPI, credit/
debit card or online banking or cash
or combination of various modes
of payment, with or without using
Dynamic QR Code, and the supplier
provides a cross reference of the
payment (transaction id along with
date, time and amount of payment,
mode of payment like UPI, Credit card,
306
Debit card, online banking etc.) on the

invoice; or
ii. In cash, without using Dynamic QR
Code and the supplier provides a cross
reference of the amount paid in cash,
along with date of such payment on
the invoice;
The said invoice shall be deemed to
have complied with the requirement
of having Dynamic QR Code.
4. If the supplier makes available to In such cases, if the cross reference of the
customers an electronic mode of payment made using such electronic modes
payment like UPI Collect, UPI Intent, of payment is made on the invoice, the
etc, through mobile applications or invoice shall be deemed to comply with the
computer- based applications, where requirement of Dynamic QR Code. However,
though Dynamic QR Code is not if payment is made after generation /
displayed, but the details of merchant issuance of invoice, the supplier shall
& transaction are displayed/ captured provide Dynamic QR Code on the invoice.
otherwise, how can the requirement
of Dynamic QR Code as per the
notification be complied with?
5. Is generation/ printing of Dynamic QR If cross reference of the payment received
Code on B2C invoices mandatory for either through electronic mode or through
pre- paid invoices i.e. where payment cash or combination thereof is made on the
has been made before issuance of the invoice, then the invoice would be deemed
invoice? to have complied with the requirement of
Dynamic QR Code.
307
6. Once the E-commerce operator The provisions of the notification shall apply
(ECO) or the online application has to each supplier separately, if such person
complied with the Dynamic QR Code is liable to issue invoices with Dynamic
requirements, will the suppliers using QR Code for B2C supplies as per the said
such e-commerce portal or application notification.
for supplies still be required to comply In case, the supplier is making supply
with the requirement of Dynamic QR through the Ecommerce portal or
Code? application, and the said supplier gives
cross references of the payment received in
respect of the said supply on the invoice,
then such invoices would be deemed to
have complied with the requirements of
Dynamic QR Code. In cases other than pre-
paid supply i.e. where payment is made
after generation / issuance of invoice, the
supplier shall provide Dynamic QR Code on
the invoice.
Refer Point 9 – This stands modified with
further clarification.
7. Whether Dynamic QR Code is to be Any person, who has obtained a Unique
provided on an invoice, issued to a Identity Number (UIN) as per the provisions
person, who has obtained a Unique of Sub-Section 9 of Section 25 of CGST Act
Identity Number as per the provisions 2017, is not a “registered person” as per
of Sub-Section 9 of Section 25 of CGST the definition of registered person provided
Act 2017? in section 2(94) of the CGST Act 2017.
Therefore, any invoice, issued to such
person having a UIN, shall be considered as
invoice issued for a B2C supply and shall be
required to comply with the requirement of
Dynamic QR Code.
8 UPI ID is linked to the bank account Given that UPI ID is linked to a specific bank
of the payee/ person collecting account of the payee/ person collecting
money. Whether bank account and money, separate details of bank account
IFSC details also need to be provided and IFSC may not be provided in the
separately in the Dynamic QR Code Dynamic QR Code.
along with UPI ID?
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9 In cases where the payment is Yes. In such cases where the payment is
collected by some person other than collected by some person, authorized by
the supplier (ECO or any other person the supplier on his/ her behalf, the UPI ID
authorized by the supplier on his/ her of such person may be provided in the Dynamic
behalf), whether in such cases, in place QR Code, instead of UPI ID of the supplier.
of UPI ID of the supplier, the UPI ID
of such person, who is authorized to
collect the payment on behalf of the
supplier, may be provided?
10 In cases, where receiver of services is No. Wherever an invoice is issued to a
located outside India, and payment recipient located outside India, for supply
is being received by the supplier of of services, for which the place of supply
services in foreign exchange, through is in India, as per the provisions of IGST Act
RBI approved modes of payment, but 2017, and the payment is received by the
as per provisions of the IGST Act 2017, supplier in foreign currency, through RBI
the place of supply of such services is approved mediums, such invoice may be
in India, then such supply of services issued without having a Dynamic QR Code,
is not considered as export of services as such dynamic QR code cannot be used
as per the IGST Act 2017; whether in by the recipient located outside India for
such cases, the Dynamic QR Code is making payment to the supplier.
required on the invoice issued, for such
supply of services, to such recipient
located outside India?
11 In some instances of retail sales over In such cases, where the invoice number is
the counter, the payment from the not available at the time of digital display of
customer in received on the payment dynamic QR code in case of over the counter
counter by displaying dynamic QR sales and the invoice number and invoices
code on digital display, whereas the are generated after receipt of payment, the
invoice, along with invoice number, is unique order ID/ unique sales reference
generated on the processing system number, which is uniquely linked to the
being used by supplier/ merchant invoice issued for the said transaction,
after receiving the payment. In such may be provided in the Dynamic QR Code
cases, it may not be possible for the for digital display, as long as the details of
merchant/ supplier to provide details such unique order ID/ sales reference number
of invoice number in the dynamic linkage with the invoice are available on
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QR code displayed to the customer the processing system of the merchant/

on payment counter. However, each supplier and the cross reference of such
transaction i.e. receipt of payment payment along with unique order ID/ sales
from a customer is having a unique reference number are also provided on the
Order ID/ sales reference number, invoice.
which is linked with the invoice for
the said transaction. Whether in such
cases, the order ID/ reference number
of such transaction can be provided
in the dynamic QR code displayed
digitally, instead of invoice number.
12 When part-payment has already been The purpose of dynamic QR Code is to enable
received by the merchant/ supplier the recipient/ customer to scan and pay
either in advance or by adjustment the amount to be paid to the merchant/
(e.g. using a voucher, discount coupon supplier in respect of the said supply. When
etc), before the dynamic QR Code is the part-payment for any supply has
generated, what amount should be already been received from the customer/
provided in the Dynamic QR Code for recipient, in form of either advance or
“invoice value”? adjustment through voucher/ discount
coupon etc., then the dynamic QR code may
provide only the remaining amount payable
by the customer/ recipient against “invoice
value”.
The details of total invoice value, along
with details/ cross reference of the part
payment/ advance/ adjustment done, and
the remaining amount to be paid, should
be provided on the invoice.
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17. Electronic way bill – Section 68 read with Rule 138, 138A, 138B, 138C, 138D & 138E
• The Government may require the person in charge of a conveyance carrying any
consignment of goods of value exceeding such amount as may be specified to carry
with him such documents and such devices as may be prescribed.
• Consequently, E-way Bills have been prescribed for such purpose.
17.1. Rule 138 – Information to be furnished prior to Commencement of movement of goods and
generation of E-way bill
• Every registered person who causes movement of goods of value20 exceeding ` 50,000
shall before commencement furnish Part A of GST EWB-01. It is required in the
following cases:
a. In relation to a supply;
b. For reasons other than supply;
c. Due to inward supply from an unregistered person (In this case, movement is
deemed to be caused by the registered recipient);
Note 1: The Unique number generated after submitting Part A would be valid for 15
days for updating Part B.
Note 2: A transporter or E-commerce operator or a courier agency can also furnish
the above details if they have the authorisation from the registered person.
Note 3: Mandatory E-way bill - The limit of ` 50,000 is not applicable in case of
movement of goods from the principal in one state to the job worker in another state
and handicraft goods from one state to another by a person who is exempted from
registration u/s 24 of CGST Act.
• Goods transported by road: Where the goods are transported by the registered person
as a consignor or consignee, whether in his own conveyance or a hired one or a public
conveyance, by road, the said person shall generate the e-way bill in FORM GST EWB-
01 electronically on the common portal after furnishing information in Part B of
FORM GST EWB-01.
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• Goods transported by road: If the registered person has not generated the E-way bill
and the goods are handed over to the transporter for transportation by road, the
registered person shall furnish the information relating to the transporter on the
common portal and the e-way bill shall be generated by the transporter on the said
portal on the basis of the information furnished by the registered person in Part A
of FORM GST EWB-01. Some key points are:
a. Consignment below ` 50,000 – E-way bill is optional. However, if the

consignments in a conveyance exceed ` 50,000 where the consignor or consignee
have not generated E-way bill and it is an interstate supply, then transporter
has to generate E-way bill.
b. Movement by URP – E-way bill is optional for such URP
c. Part B is optional if the distance between the place of business of consignor
and the place of business of transporter is upto 50 kms within the state.
• Goods transported by railway, air or vessel: E-way bill can be generated by the
registered person by furnishing Part B of form GST EWB-01 before or after the
commencement of movement. However, railways shall not deliver the goods unless
E-way bill is produced at the time of delivery.
• Consolidated E-way bill: The transporter may indicate serial number of e-way bills
generated in respect of each such consignment electronically on common portal
and a consolidated e-way bill in FORM GST EWB-02 maybe generated by him on
said portal prior to the movement of goods.
• E-way Bill Number: Upon generation of the e-way bill on the common portal, a
unique e-way bill number (EBN) shall be made available to the supplier, the recipient
and the transporter on the common portal. Any acceptance or rejection should be made
within 72 hours or delivery of goods, whichever is earlier. Otherwise, it is deemed to be
accepted.
• Cancellation of EBN: Where an e-way bill has been generated under this rule, but
goods are either not transported or are not transported as per the details furnished
in the e-way bill, the e-way bill may be cancelled electronically on the common
Value shall be as per section 15 of CGST Act, 2017 including GST but excludes exempt supply.
20
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portal within twenty four hours of generation of the e-way bill. However, an e-way
bill cannot be cancelled if it has been verified in transit in accordance with the provisions
of rule 138B.
• One conveyance to another: If the goods are transferred from one conveyance to
another, then the consignor or recipient or transporter shall before such transfer,
update Part B of GST EWB-01. It is not required if the distance is upto 50 kms within
the state.
• One transporter to another: The consignor or recipient or the transporter shall assign
the EBN to another registered or enrolled transporter for updating Part B of GST
EWB-01.
• Validity of EWB Number
Distance Validity period

Upto 200 Kms One day in cases other than over dimensional Cargo
For every 200 km. or One additional day in cases other than over dimensional
part thereof thereafter Cargo
Note 1: In case of Over Dimensional Cargo and Multi Modal transportation (at least one
leg involves transport by ship) 200 Kms is replaced by 20 Kms.
Note 2: The count would start from midnight of the day on which the goods were
transported. However, under circumstances of an exceptional nature, including
trans-shipment, where the goods cannot be transported within the validity period of
the e-way bill, the transporter may extend the validity period within 8 hours from the
expiry of EWB after updating the details in Part B of FORM GST EWB-01, if required.
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• Exemptions from generation of E-way bill
a. Where the goods being transported are specified in Annexure21;

b. Where the goods are being transported by a non-motorised conveyance;
c. Where the goods are being transported from the customs port, airport, air cargo
complex and land customs station to an ICD/CFS22 for clearance by Customs;
d. In respect of movement of goods within such areas as are notified;
e. Where the goods being transported are alcoholic liquor for human consumption,
petroleum crude, high speed diesel, motor spirit (petrol), natural gas or aviation
turbine fuel;
f. Where supply of goods being transported is treated as no supply under Schedule
III of Act;
g. Where the goods are being transported—

(i) under customs bond from an inland container depot or a container freight
station to a customs port, airport, air cargo complex and land customs
station, or from one customs station or customs port to another customs
station or customs port, or
(ii) under customs supervision or under customs seal;
h. Where the goods being transported are transit cargo from or to Nepal or Bhutan;
i. Where the goods being transported are exempt from tax;
j. Any movement of goods caused by defence formation under Ministry of defence as
a consignor or consignee;
k. Where the consignor of goods is the Central Government, Government of any State
or a local authority for transport of goods by rail;
l. Where empty cargo containers are being transported; and
m. Where the goods are being transported upto a distance of twenty kilometers from
the place of the business of the consignor to a weighbridge for weighment or from
the weighbridge back to the place of the business of the said consignor accompanied
by a delivery challan.
n. Empty cylinders for packing of LPG are being moved for reasons other than supply;

21
LPG, Kerosene (PDS), Postal baggage, precious stones, jewellery, currency, used personal or household effect, Coral.
22
Inland Container Depot/ Container Freight Station
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17.2. Rule 138A – Documents and devices to be carried by person in charge of a conveyance
• The person in charge of a conveyance shall carry—
(a) The invoice or bill of supply or delivery challan, as the case may be; and
(b) A copy of the e-way bill in physical form or the e-way bill number in electronic
form or mapped to a Radio Frequency Identification Device embedded on to the
conveyance in such manner as may be notified by the Commissioner. [(b) Not
applicable for rail, air or vessel]
17.3. Rule 138B – Verification of documents and conveyances
• The Commissioner or an officer empowered by him in this behalf may authorize the
proper officer to intercept any conveyance to verify the e-way bill in physical or
electronic form for all inter-State and intra-State movement of goods.
• The Commissioner shall get Radio Frequency Identification Device readers installed
at places where the verification of movement of goods is required to be carried out
and verification of movement of vehicles shall be done through such device readers
where the eway bill has been mapped with the said device.
• The physical verification of conveyances shall be carried out by the proper officer
as authorised by the Commissioner or an officer empowered by him in this behalf:
Provided that on receipt of specific information on evasion of tax, physical verification of a
specific conveyance can also be carried out by any other officer after obtaining necessary
approval of the Commissioner or an officer authorised by him in this behalf.
17.4. Rule 138C – Inspection and verification of goods
• A summary report of every inspection of goods in transit shall be recorded online

by the proper officer in Part A of FORM GST EWB-03 within twenty four hours of
inspection and the final report in Part B of FORM GST EWB-03 shall be recorded
within three days of such inspection.
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• Provided that where the circumstances so warrant, the Commissioner, or any other
officer authorised by him, may, on sufficient cause being shown, extend the time
for recording of the final report in Part B of FORM EWB-03, for a further period not
exceeding three days.
• Where the physical verification of goods being transported on any conveyance has
been done during transit at one place within the State or Union territory or in any
other State or Union territory, no further physical verification of the said conveyance
shall be carried out again in the State or Union territory, unless a specific information
relating to evasion of tax is made available subsequently.
17.5. Rule 138D – Facility for uploading information regarding detention of vehicle
• Where a vehicle has been intercepted and detained for a period exceeding thirty
minutes, the transporter may upload the said information in FORM GST EWB-04 on
the common portal.
17.6. Rule 138E – Restriction on furnishing information in Part A of GST EWB-01
• The following persons shall not be allowed to furnish information in Part A of Form
GST EWB-01 in respect of the following registered persons for their outward supply:
a. A person paying tax under composition scheme who has not furnished the
statement of payment of self-assessed tax for 2 consecutive quarters or
b. A person paying tax under regular scheme has not furnished the return for 2
consecutive tax period or
c. A person paying tax under regular scheme has not furnished GSTR 1 for any 2
months or quarters, as the case may be or
d. A person whose registration is suspended
• However, Commissioner may, on receipt of application from such person may allow him
to furnish information upon sufficient cause being shown and make an order in writing.
He shall not reject the application without giving an opportunity of being heard.
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18. Press release on E-way bill – Bill to ship to transaction
• Bill-to-Ship-to model of supply which involves two transactions, only one e-way
bill is to be generated –either by the person ordering goods to be sent to another or
by the person actually sending the goods. (Press Release dated 23-4-2018)
317
MCQ’s – Chapter Wise
Chapter 1 - Introduction
1. GST stands for __________________

(a) Good and Simple Tax
(b) Geographical Sales Tax
(c) Geographical Service Tax
(d) Goods and Services Tax
Ans (d)
2. In India GST became effective from __________________ .

(a) 30th June 2017
(b) 8th August 2017
(c) 1st July 2017
(d) 1st October 2017
Ans (c)
3. GST is a __________________ based tax on consumption of goods and services.

(a) Origin
(b) Destination
(c) Supply
(d) Both (b) and (c) are correct
Ans (b)
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4. Which of the following tax is not subsumed in GST?

(a) Value Added Tax
(b) Basic Customs Duty (BCD)
(c) Additional Customs Duty, commonly known as Countervailing Duty (CVD)
(d) Special Additional Duty of Customs – 4% (SAD)
Ans (b)
5. Every person registered under GST shall be issued a unique number called as:
(a) GSTAN (Based on TAN)
(b) GSTIN (Based on PAN)
(c) GSPIN (Based on PAN)
(d) GSTPIN (Unique Identification Pin)
Ans (b)
6. Article ________ in Constitution of India makes provision for constitution of GST

Council?
(a) 279A
(b) 366
(c) 269A
(d) 246A
Ans (a)
7. GST Council is the __________________ Constitutional Authority to decide policies

of GST.
(a) Complex
(b) Apex
(c) Secondary
(d) Base
Ans (b)
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8. Who shall be the Chairman of the GST Council?

(a) Union Finance Minister
(b) State Finance Minister
(c) Prime Minister
(d) Lieutenant Governor
Ans (a)
9. How shall the Vice chairperson of the GST Council be elected?

(a) GST Council shall elect from its Members
(b) President shall nominate
(c) Prime Minister shall nominate
(d) States shall with majority elect the Vice chairperson
Ans (a)
10. Which Article of the Indian Constitution defines the GST?

(a)
Article 279A (b) Article 366(12A)
(c)
Article 265 (d) Article 270
Ans (b)
11. Goods and Services tax means a tax on __________________ of goods or services
or both.
(a)
Sale (b) Transfer
(c) Supply (d) All of the above
Ans (c)
12. __________________ shall be levied on inter – State branch transfers.

(a)
IGST (b) CGST
(c)
UTGST (d) SGST
Ans (a)
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13. Which Article of the Indian Constitution empowers the Government of India to levy
IGST in case of inter – State supply?
(a) Article 246A
(b) Article 279
(c) Article 269A(1)
(d) Article 366(26A)
Ans (c)
14. Tobacco products shall be subject to which of the following taxes?

(a) Excise duty
(b) GST
(c) Excise Duty plus GST
(d) VAT
Ans (c)
15. Can tax be imposed on entertainment & amusement by the Municipality, panchayat,
Regional Council & District Council after implementation of GST?
(a) Yes
(b) No
(c) Yes, with prior permission of President
(d) May be
Ans (a) [Tax by local bodies is not subsumed under GST]
16. What can be the maximum rate of IGST that can be levied?
(a) 28%
(b) 40%
(c) 20%
(d) 50%
Ans (b)
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17. Which website is used for filing GST returns?

(a)
www.cbic.gov.in (b) www.gst.gov.in
(c) www.gstcouncil.gov.in (d) www.cbdt.gov.in
Ans (b)
18. What is the meaning of the cascading effect?

(a) Charging tax on tax (b) Dual taxation
(c) Non – eligible of ITC (d) None of the above
Ans (a)
19. Which of the following tax is not subsumed in GST?

(a)
Stamp duty (b) Central Excise
(c)
Octroi (d) VAT
Ans (a)
20. The definition of goods under section 2(52) of the CGST Act does not include
(a) Grass
(b) Money and securities
(c) Actionable claims
(d) Growing crops
Ans (b)
21. As per the CGST Act, 2017, the term “works contract” includes:
(a) Construction, fabrication, completion, erection, installation, etc. of movable
property
(b) Construction, fabrication, completion, erection, installation, etc. of immovable
property
(c) Both (a) and (b)
(d) None of the above
Ans (b)
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22. Who are the members of the GST Council? Enumerate any two recommendations
that can be made by the GST Council.
Solution:
The GST Council shall consist of the following members, namely: —
(a) the Union Finance Minister is the Chairperson;

(b) the Union Minister of State in charge of Revenue or Finance is the Member;
(c) the Minister in charge of Finance or Taxation or any other Minister nominated by each
State Government are the Members.
The recommendations that can be made by GST Council are as under: -
(i) the taxes, cesses and surcharges levied by the Union, the States and the local bodies
which may be subsumed in GST;
(ii) the goods and services that may be subjected to, or exempted from GST;
(iii) model GST Laws, principles of levy, apportionment of GST levied on supplies in the
course of inter-State trade or commerce and the principles governing the place of
supply;
(iv) the threshold limit of turnover below which goods and services may be exempted from
GST;
(v) the rates including floor rates with bands of GST;
(vi) any special rate(s) for a specified period, to raise additional resources during any
natural calamity/disaster;
(vii) special provision with respect to Special Category States;
(viii) the date on which the GST be levied on petroleum crude, high speed diesel, motor
spirit (commonly known as petrol), natural gas and aviation turbine fuel;
(ix) any other matter relating to the GST, as the Council may decide.
(i) Briefly discuss Article 246A of the Constitution of India.
(i) Article 246A grants power to the Parliament and Legislature of every State to
make laws with respect to GST imposed by Centre/such State.
Parliament has the exclusive power to make laws with respect to GST in case of inter-State
supply of goods and/or services.
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However, in respect of petroleum crude, high speed diesel, motor spirit (commonly known
as petrol), natural gas and aviation turbine fuel, the aforesaid provisions shall apply from
the date recommended by the GST Council.
23. Why was there a need for making a constitutional amendment for introduction of
GST? Discuss significant provisions of Constitution (101st Amendment) Act, 2016.
Solution:
There was a need for making constitutional amendment for introduction of GST so as to
enable integration of the central excise duty, additional duties of customs, State VAT and
certain State specific taxes and service tax into a comprehensive Goods and Services Tax
and to empower both Centre and the States to simultaneously levy and collect it.
The significant provisions of Constitution (101st Amendment) Act, 2016 are as under: -
(i) Concurrent powers on Parliament and State Legislatures to make laws governing
taxes on goods and services.
(ii) Levy of IGST on inter-State transactions of goods and/or services to be levied and
collected by the Central Government and apportioned between the Union and States
in the manner provided by Parliament by law as per the recommendation of the GST
Council.
(iii) Principles for determining the place of supply and when a supply takes place in the
course of inter-State trade/commerce shall be formulated by the Parliament, by law.
(iv) GST will be levied on all supply of goods and services except alcoholic liquor for human
consumption.
(v) On the following products, GST shall not be levied till a date to be notified on the
recommendations of the GST Council:
• Petroleum Crude
• High Speed Diesel
• Motor Spirit (commonly known as Petrol)
• Natural Gas
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• Aviation Turbine Fuel
(vi) The Union Government shall retain the power to levy duties of excise on the aforesaid
products besides tobacco and tobacco products manufactured or produced in India.
(vii) President is empowered to constitute a joint forum of the Centre and States namely,
Goods & Services Tax Council (GST Council).
(viii) The Union Finance Minister is the Chairman of GST Council and Ministers in charge
of Finance/Taxation or any other Minister nominated by each of the States & UTs
with Legislatures are its members. Besides, the Union Minister of State in charge of
Revenue or Finance is also its member.
(ix) The function of the GST Council is to make recommendations to the Union and the
States on important issues like tax rates, exemptions, threshold limits, dispute
resolution etc.
(x) The provisions relating to GST Council came into force on 12th September, 2016.
President constituted the GST Council on 15th September, 2016.
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Chapter 2 - Supply
1. What is the taxable event under GST?

a. Manufacturing of goods
b. Sales of goods
c. Provision of Services
d. Supply
Ans (d)
2. Supplier within the meaning of supply includes

a. Person supplying goods
b. Person providing services
c. Both
d. None of the above
Ans (c)
3. Flow of consideration is not a mandatory field under supply, in case of:

a. Imports
b. Activities specified under schedule I
c. Both
Ans (b)
4. Can an activity be considered supply even when not made in course or furtherance
of business?
a. Yes
b. No
c. Prior permission by the Government
d. Not applicable
Ans (a)
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5. A Holding entity made certain transfer of fixed asset on permanent basis to its
subsidiary entity without any consideration. Does the same classify as a supply
under GST?
a. Yes
b. No
c. On prior Permission of Government
d. Not any
Ans (a)
6. What are the transactions to be classified as supply even if made without

consideration?
a. Permanent transfer or disposal of business asset
b. Supply between related or distinct person when made in the course or
furtherance of business
c. Import of services from related persons or from any of his other establishment
outside India
d. All of the above
Ans (d)
7. Supply of goods or other similar articles for human consumption as a part of service,
shall be classified as:
a. Supply of goods b. Supply of services
c. Both d. None of the above
Ans (b)
8. What type of supply shall transfer of title in goods under works contract constitute?
a. Supply of Goods
b. Supply of services
c. Either of the two at the option of authority
Ans (b)
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9. A job worker performed certain dyeing operations on fabrics. Does the given operation
qualify as supply?
a. Yes
b. No
c. On the prior approval of Government
Ans (a)
10. Mr. A, being a Director of ABC Pvt. Ltd. Is provided a car which he uses for his personal
purpose. Does the same classify as supply? If yes under which group?
a. Yes, supply of goods
b. Yes, supply of services
c. Does not qualify as supply
Ans (b)
11. What shall be the proper classification of Renting of immovable property under
supply?
a. Supply of Goods
b. Supply of Services
Ans (b)
12. ABC Ltd. offers a software to businesses for smooth processing of returns and
accounts. Such software shall be considered as:
a. Supply of Goods
c. Does qualify as supply
Ans (b)
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13. A local club supplies lunch to its members during its quarterly meetings at subsidized
rates. The same for the purpose of the Act, is classified as:
a. Supply b. Sale
c. Does not qualify as supply d. None of the above
Ans (a)
14. Transaction falling outside the ambit of supply are provided in:
a. Schedule I b. Schedule II
c. Schedule III d. None of the above
Ans (c)
15. Schedule III of the CGST Act includes which of the following?
a. Funeral, Burial, Crematorium b. Functions performed by MP’s, MLA’s
c. Services by any court or tribunal d. All of the above
Ans (d)
16. The Government of Haryana took initiative to develop Khadi, Village and Rural
Industries in various Panchayats and municipalities as public authorities under
article 243G of the constitution. The same provision is covered under:
a. Supply of Goods
c. Neither of the two
d. At the option of Appropriate Authority
Ans (c)
17. Which of the following is the feature of mixed supply?

a. Supply made at a single price
b. Non taxable Goods supplied
c. Naturally Bundled
d. Persons in same industry follow same practices
Ans (a)
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18. Which of the following is not a composite supply?

a. Goods are packed and transported with insurance
b. Supplier of machinery providing erection and commissioning services
c. Goods transport agency arranging for loading and unloading facility
Ans (d)
19. What does mixed supply means under GST?

a. Combination of two or more goods or services made together for a single price.
b. Each of supply made together are not naturally bundled.
c. Both (a) and (b)
Ans (c)
20. What shall constitute the main item under composite supply?
a. Principal Item of the supplies naturally bundled
b. Item with Highest tax rate
c. As per the option of the taxpayer
Ans (a)
21. What shall be the tax rate under mixed supply?

a. Tax rates as applicable on principal supply
b. Highest tax rate of all items bundled in supply
c. Either (a) or (b), at the option of taxpayer
Ans (b)
22. A person purchases laptop from a vendor along with laptop bag. What types of
supply it shall constitute?
a. Composite supply
b. Mixed supply
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d. As per recommendation of Government
Ans (a)
23. “Principal supply”, the term used in Composite supply means the supply of goods or
services which constitutes the __________________ of a composite supply and to
which any other supply forming part of that composite supply is __________________
a. Ancillary element, predominant
b. Usual element, ancillary
c. Predominant element, ancillary
d. Predominant element, important
Ans (c)
24. Mr. B had a capital asset on which he did not avail ITC instead claimed depreciation
on it. Now he has permanently transferred the same to Mr. D without consideration.
Is this a supply?
a. Yes
b. No
c. Maybe
Ans (b)
25. Mr. A of Kolkata is transferring stock to its branch in UP. Is this transaction taxable?
a. Yes
b. No
c. Maybe
Ans (a)
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26. What kind of supply is this transaction: Food supplied to the in – patients as advised
by the doctor in the hospital.”
a. Composite Supply
b. Mixed Supply
c. Works Contract Service
Ans (a)
27. Comment on the tax rate applicable in case of composite supply?

a. Tax rate as applicable on principal supply
b. Tax rate as applicable on ancillary supply
c. Tax rate as applicable on respective supply
Ans (a)
28. Mr. A, a director of ABC Pvt. Ltd sends some goods to Mr. B for his personal use. Will
this constitute a supply?
a. Yes, transaction between related parties
b. No
c. Maybe
Ans (b)
29. Free food is supplied in the religious institutions. Is the same taxable?
a. Yes
b. No
c. Maybe
Ans (b)
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30. As per section 2(102) of the CGST Act 2017, “services” means anything other than
goods. Does this means that immovable property is also included in services?
a. Yes b. No
c. Maybe d. None of the above
Ans (a)
31. Mr. A gave Rs. 2000 note to Mr. C, who in return gave 4 notes of Rs.500 back to Mr.
A. Does this qualify “service” definition as per GST Law?
a. Yes b. No
Ans (b)
32. Recipient of supply of goods or services means

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.
d. All of the above
Ans (d)
33. ABC Ltd. donates old computers on which they had availed ITC, to a charitable
institution after they purchased new computer systems. Such donation of computers
on permanent basis is:
a. Supply under GST
b. Shall not be a supply
c. On prior approval of Government
d. Not any
Ans (a)
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34. ABC Ltd. provides certain services to Mr. Joy who holds 35% of the voting right in the
company. The transfer made was without any consideration. Does the same qualify
as supply?
a. Yes, if made in the course or furtherance of business
b. No, since made without any consideration
c. Not a supply
d. Yes
Ans (a)
35. Any gift made by an employer to an employee shall be considered as supply. What
is the limit prescribed for the same?
a. Less than or equal to 50,000
b. More than 50,000
c. Exactly 50,000
d. 50,000 and above
Ans (b)
36. Transfer of rights in goods has been considered as supply under Schedule II. What
type of supply is it?
a. Supply of goods
c. Either of two at the option of authority
Ans (b)
37. Any transfer made of title in goods shall be considered as:

a. Supply of services
b. Supply of goods
d. At the option of taxpayer
Ans (b)
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38. Mr. C a taxable person initiates action of winding up his business due to any non
– compliance clause under legal verdict of court. As a result of such incidence, he
shall cease to be taxable person under GST. All the stocks standing as on date of
winding up of business shall hence be classified as:
a. Supply of Goods
Ans (a)
39. Temporary transfer or permitting use of intellectual right or property is classified as:
a. Supply of goods
d. Supply on the prior permission of Government
Ans (b)
40. Mr. A agreed with B Pvt. Ltd. to withdraw the suit filed against the company, if
principle amount of loan paid by him to company is returned to him. Does the
withdrawal of the suit qualify as supply?
a. Yes
b. No
c. At the approval of Government
Ans (a)
41. Items provided under the ambit of Schedule III are not considered as:
a. Supply of Goods
c. Both
Ans (c)
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42. What is the classification of sale of land and building under GST?
a. Supply of Goods b. Supply of Services
c. Does not qualify as supply d. None of the above
Ans (c)
43. Mr. A, a whole time director in ABC Pvt. Ltd. provides certain services in the course of
employment to the company. The consideration received in respect of such services
has been taxed under reverse charge mechanism. Is the classification justified?
a. Yes, Services of Director has been considered under Reverse charge Mechanism
b. No, since he is an employee and the same fall under the ambit of Schedule III
c. At the option of the Company
Ans (b)
44. XYZ Pvt. Ltd. manufactures the jeans on order of ABC Pvt. Ltd. Further, after
manufacturing, it also gets it delivered to ABC Ltd. & gets the in transit insurance
done. What kind of supply is this?
a. Mixed supply
b. Composite supply
c. None of the above
d. Don’t know
Ans (b)
45. Mr. A went into ABC outlet and purchased a gift wrap containing canned foods,
sweet, chocolates, cakes, dry fruits, aerated drink and fruit juices. What type of
supply it shall constitute?
a. Composite supply
b. Mixed supply
c. Non taxable supply
d. Not a supply under GST
Ans (b)
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46. A person purchase a bundle of toothpaste along with Tooth brush. Toothpaste under
this case is liable to GST at 12% and tooth brush for instance is liable to GST at 18%
and is sold as a single unit for a single price. What shall be the tax rate applicable
in case of such supply?
a. 18% b. 12%
c. Nil d. None of the above
Ans (a)
47. All the activities covered under actionable claims are not liable to tax as are entirely
covered under Schedule III. Do you agree?
a. Yes, as provided under schedule III.
b. No, Lottery, Betting and gambling is covered under GST
c. As per the opinion of appropriate authority
Ans (b)
48. Consideration within the meaning of supply consists of:

a. Money
b. Any payment made in kind
c. Forbearance of any act
d. All of the above
Ans (d)
49. ABC Pvt. Ltd. makes certain supplies to Mr. X and Mr. Z. Both of them hold 51% of
the voting rights in the company and exercise major stake in the decision making.
Does the same supply stands as related party transaction?
a. Yes
b. No
c. As per the opinion of the appropriate authority
Ans (a)
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50. Mr. A purchased a car for personal consumption which after two years of use was
sold to a car dealer, ABC Motors for certain consideration. Does the same qualify as
supply?
a. No, since the supply is not made in course or furtherance of business
b. Yes, since it is made for consideration
d. As per the opinion of appropriate Authority
Ans (a)
51. Mr. Amar being a managing director of Alpha Project Pvt. Ltd. made gifts to his
employees worth of INR 60,000 each for assisting in the architectural work of his
house. Does the same be considered supply?
a. Yes, since the value of gift exceeds the provided limit of INR 50,000
b. No, since the gift is not made in course or furtherance of business
c. As per the option of appropriate authority
d. No
Ans (b)
52. ABC enterprises made gifts to its employees worth 51,000 each, in consideration of
execution of a particular project of the company. Does the same qualify as supply?
a. Yes, since the value exceed 50,000 per employee
b. No, since such gift is made against a consideration
Ans (a)
53. Any agreement entered into as of hire purchase or instalment purchase of any goods
shall be classified as:
a. Supply of Goods b. Supply of Services
c. Neither of the two d. At the option of taxpayer
Ans (a)
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54. Mr. P has been paid Rs.50,000 by Mr. D for not selling the goods in his vicinity for a
month. Does this constitute a supply?
a. Yes
b. No
c. At the option of Government
Ans (a)
55. Illustrations on scope of Supply:
Illustration 1: An electronics dealer sells a laptop for ` 50,000 to earn a profit. Does
it qualify as a supply?
Ans: Yes. As per Section 7(1)(a) of CGST Act, 2017, Supply includes all forms of supply of
goods or services or both such as sale, transfer, barter, exchange, license, rental, lease
or disposal made or agreed to be made for a consideration by a person in the course of
furtherance of business. Hence, in the above case it will be treated as supply and liable to
GST.
Illustration 2: Mr. A (An unregistered person) plans to pursue his higher education
in US. He receives career consultancy services from a US based consultant for ₹
5,00,000. Does it qualify as supply?
Ans: Yes. As per Section 7(1)(b) of CGST Act, 2017, Supply includes import of services for a
consideration whether or not in the course or furtherance of business. Hence, in the above
case it will be treated as supply.
Illustration 3: Mr A, a manufacturer of goods donated old computers to Charitable

Schools on account of renovation of office. The company has taken input tax credit
on the computers so donated. Does it qualify as a supply?
Ans: Yes. As per Section 7(1)(c) read with Schedule I of CGST Act, 2017, Permanent transfer
or disposal of business assets where input tax credit has been availed shall be treated as
supply even if made without consideration. Hence, donation of old computers to Charitable
Schools shall qualify as supply since input tax credit has been availed by Mr A.
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Illustration 4: A Limited provides management consultancy services without charge

to B Limited in which A Limited has controlling rights. The said consultancy has been
provided for benefit of entire group. Does it qualify as supply?
Ans: Yes. As per Section 7(1)(c) read with Schedule I of CGST Act, 2017, Supply of goods or
services between related persons is treated as supply even if it is without consideration. As
per explanation to Section 15 of CGST Act, 2017, persons shall be deemed to be “related
persons” if “one of them directly or indirectly controls the other”. Since A Ltd Has controlling
rights of B Ltd, they will be treated as related person and the said transaction will qualify
as supply.
Illustration 5: A Ltd gives gift worth `5,00,000 to an employee. Does it qualify as

supply? Would your answer be different if gifts of ` 45,000 has been given to the
employee?
Ans: As per Section 7(1)(c) read with Schedule I of CGST Act, 2017, Supply of goods or
services between related persons is treated as supply even if it is without consideration
when made in course or furtherance of business. As per explanation to Section 15 of CGST
Act, 2017, persons shall be deemed to be “related persons” if such persons are employer
and employee. Thus, gift worth `5,00,000 to an employee will qualify as supply and such
supply would be leviable to GST.
If gifts of ` 45,000 has been given instead of `5,00,000, the same will not qualify as supply
since it has been specifically provided that gifts not exceeding `50,000 in value in a financial
year by an employer to employee shall not be treated as supply of goods or services or
both.
Illustration 6: A Motors Ltd. engages B Ltd. as an agent to sell cars on its behalf and
the agent will bill it in his own name. For the purpose, A Motors Ltd. has supplied
200 cars to the showroom of B Ltd. located in Rajasthan. Does it qualify as supply?
Ans. As per Section 7(1)(c) read with Schedule I of CGST Act, 2017, Supply of goods by a
principal to his agent where the agent undertakes to supply such goods on behalf of the
principal shall be treated as supply even if made without consideration. In view of the same
supply of cars by A Motors Ltd. to B Ltd. will qualify as supply.
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Illustration 7: A Ltd. (a registered taxable person) receives architectural design

supplied by a foreign architect to design a residential house to be built in Hyderabad
for a consideration of `50,00,000. Does it qualify as supply?
Ans: As per Section 7(1)(b) of CGST Act, 2017, Importation of Services for a consideration
whether or not in the course or furtherance of business is covered under supply. In the
above case it will be treated as supply and will be liable to GST.
Illustration 8: Mr. A, a famous actor, recorded a song sung by him for a music
company and sold the audio CD. The consideration for such sale was to be donated
to a Charitable Trust. Will the sale of CD to music company by the actor qualify as
supply.
Ans: Any activity undertaken in course/for furtherance of business would constitute a

supply. Since, ‘business’ includes vocation, sale of goods or service even as a vocation is
a supply under GST. Hence, the sale of CD to music company by the actor will qualify as
supply.
Illustration 9: A Ltd., an NBFC transfers bad loans (unsecured) to B Ltd. Does it qualify
as supply?
Ans: Actionable claims are covered in the definition of goods. However, Schedule III
excludes actionable claims other than lottery, gambling and betting from the scope of
supply. Transfer of Unsecured loans, therefore, would not, amount to supply.
Illustration 10: A Ltd. having head office in Mumbai (Maharashtra) supplied goods
worth `10,00,000 to its Branch Office in Jaipur (Rajasthan). Does it qualify as supply.
Ans: As per Section 7(1)(c) read with Schedule I of CGST Act, 2017, Supply of goods or
services or both between distinct persons as specified in Section 25, when made in the course
or furtherance of business will be treated as supply even if made without consideration.
As per Section 25(5) of CGST Act, 2017, 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. Hence, branch
transfer of goods worth `10,00,000 for Maharashtra to Rajasthan will qualify as supply.
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Chapter 3 – Charge of GST, Composition and RCM
1. What are the supplies to which the reverse charge mechanism could be applied?
a. Inward supplies of Goods or Services or both
b. Outward supplies of Goods or Services or both
c. Both the above
Ans (a)
2. Input tax credit in case of reverse charge mechanism can be availed by:
a. Supplier of the Goods / Services
b. Recipient of Goods / Services
c. Both
d. None
Ans (b)
3. Is the below statement correct: “A person is not required to obtain registration if he

is required to pay tax under reverse charge but he has not exceeded his threshold
limit”
a. Incorrect, the person is required to take registration & pay tax under reverse
charge irrespective the fact that threshold is crossed or not.
b. Incorrect, if the person is required to pay tax under reverse charge he shall
obtain registration only if the value of supply under reverse charge exceeds the
threshold limit.
c. Above statement is correct
d. Correct, a person is required to obtain registration if he is required to pay tax
under reverse charge and, he is making taxable supplies irrespective of the
threshold limit.
Ans (a)
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4. Is ITC available to the supplier, supplying goods / services under Reverse Charge
Mechanism
a. Yes
b. No
c. Not applicable
d. Yes, if permitted by the authority
Ans (b)
5. Mr. A is liable to pay tax under Reverse Charge Mechanism. What shall be the
threshold limit applicable for registration of Mr. A.
a. 20 lakhs
b. 10 lakhs
c. 50 lakhs
d. No threshold
Ans (d)
6. What is the amount of Input tax credit available to a composition dealer falling
under Reverse charge mechanism?
a. 100% of tax paid
b. 50% of tax paid
c. Nil
d. Some portion of tax paid
Ans (c)
7. What is the manner of payment of tax under Reverse charge?

a. Through Input available in the electronic credit ledger
b. Through Cash ledger
c. Through both mediums
d. None
Ans (b)
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8. Mr. A has supplied services to Mr. B which are covered under RCM. Both of them are
located in Maharashtra. Which tax shall be paid?
a. CGST & SGST
b. IGST
c. CGST & UTGST
d. CGST & IGST
Ans (a)
9. Goods transportation agency (GTA) is registered and does not avail the ITC. He
provides GTA services to another registered person. Will this transaction fall under
RCM? What shall be the GST Rate?
a. RCM applicable, Rate – 5%
b. RCM applicable, Rate – 12%
c. RCM not applicable, Rate – 18% under forward charge
d. Not taxable
Ans (a)
10. ABC Pvt. Ltd. has taken consultancy services from an engineer in USA. Who shall be
liable to pay tax and under what head?
a. ABC Pvt. Ltd. will pay the tax, IGST
b. ABC Pvt. Ltd. will pay the tax, CGST and SGST
c. Engineer will pay the tax, IGST
d. Engineer will pay the tax, CGST & SGST
Ans (a)
11. Mr. A, a lawyer provides representational services to ABC Pvt. Ltd. having a turnover
of Rs.15 lakhs. Is RCM applicable?
a. Yes
b. No
c. Maybe
d. Mr. A needs to pay tax
Ans (b)
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12. Central Government gave a piece of land on rent to M/s ABC Pvt. Ltd., registered in
Delhi who shall pay tax? Is RCM applicable?
a. Central Government, RCM Applicable
b. Central Government, RCM not Applicable
c. M/s ABC Pvt. Ltd., RCM Applicable
d. M/s ABC Pvt. Ltd., RCM not Applicable
Ans (c)
13. ABC Pvt. Ltd. appointed Mr. A as their independent director and paid him the sitting
fees. Is this supply covered under RCM?
a. Yes
b. No
c. Not taxable at all
d. Taxable under forward charge
Ans (a)
14. Comment on the correctness of the sentence – “Person can take the credit of the tax
paid under RCM only when he has paid the tax.”
a. Correct
b. Incorrect
c. Partially correct
Ans (a)
15. Reverse Charge is applicable on ____________

a. Inter and Intra – state supplies
b. Only on inter – state supplies
c. Supplies in States
d. Supplies in non taxable territory
Ans (a)
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16. Can Input tax credit standing in the Electronic credit ledger be utilized for payment
of tax under Reverse Charge Mechanism?
a. Yes
b. No
c. Not Applicable
d. May be
Ans (b)
17. Ola being an E – commerce operator provides cab services to the passengers through
various local service providers. The liability to pay tax on such services shall be
applicable to:
a. Ola
b. Passengers
c. Local Service Providers
d. None
Ans (a)
18. What is the tax rate applicable on a Composition dealer falling under Reverse
Charge Mechanism?
a. As applicable to a Composition dealer
b. As applicable to a normal taxpayer
c. Exempt
Ans (b)
19. Which of the following services are covered under RCM?

a. Advocate services
b. Goods transportation services
c. Insurance agent services
d. All of the above
Ans (d)
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20. If an unregistered GTA gives services to an unregistered person other than specified
person. Who shall pay tax?
a. Unregistered GTA
b. Unregistered person under RCM
c. None of them
d. Both of them
Ans (c)
21. Mr. A, a lawyer provides representational services to ABC Pvt. Ltd. having a turnover
of Rs. 25 lakhs. Is RCM applicable?
a. Yes
b. No
c. Maybe
d. Mr. A need to pay tax
Ans (a)
22. ABC Pvt. Ltd. appointed Mr. A as their whole time director and paid salary regularly
on time. Is this supply covered under RCM?
a. Yes
b. No
c. Not taxable at all
d. Taxable under forward charge
Ans (c)
23. Is RCM applicable on supplies procured by a composition dealer?

a. Yes
b. No
c. Maybe
Ans (a)
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24. Mr. B, a GTA in Delhi supplied services of Rs. 60,000 to Mr. Q, a registered person in
Delhi and the entire amount was being paid to the GTA. What shall be tax amount
to be paid under RCM?
a. Rs. 1,500 each in CGST and Delhi GST
b. Rs. 3,000 in IGST
c. Rs. 2,857 each in CGST and Delhi GST
d. Rs. 2,857 in IGST
Ans (a)
25. ABC Ltd., a manufacturer has got itself registered in Delhi on 1.2.20XX in composition
scheme. It makes a supply to XYZ Ltd., a registered entity in Delhi. It is confused in
respect to what is the GST rate applicable on it under CGST?
a. 0.5% b. 1%
c. 2% d. 2.5%
Ans (a)
26. ABC Pvt. Ltd. is having place of business in 3 states namely Haryana, Punjab &
Rajasthan each having turnover of Rs. 60 lacs, 60 lacs, 80 lacs respectively. Which
State is eligible to opt for composition scheme?
a. Haryana b. Punjab
c. Rajasthan d. None of the above
Ans (d)
27. What document shall a person under composition scheme issue to its customer?
a. Bill of supply b. Tax invoice
c. Invoice d. Payment Voucher
Ans (a)
28. Which of the following returns is to be filed by the composition dealer?

a. GSTR – 1 b. GSTR – 3B
c. GSTR – 2 d. None of the above
Ans (d)
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29. Can the option to pay tax under composition levy be exercised at any time of the
year?
a. Yes
b. No
c. Any one of the above (depending on situation)
d. Yes, subject to prior approval of the Central Government
Ans (b)
30. Can a person paying tax under composition levy, withdraw voluntarily from the
scheme?
a. Yes
b. No
c. Maybe
d. Yes, subject to prior approval of the Central Government
Ans (a)
31. Calculate the tax to be paid by Mr. A, a composition dealer who is involved in trading
of garments. Details of his business is as below:
Purchases = Rs. 30,000 (including GST of 4,500)
Cost of products sold = Rs. 7,00,000
Invoice value = Rs. 9,00,000
a. Rs. 3,000 b. Rs. 7,000
c. Rs. 9,000 d. Rs. 2,542
Ans (c)
32. Mr. A, a garment trader is also providing certain exempt services like extending
deposits, loans etc. Can he opt for composition scheme?
a. Yes b. No
Ans (a)
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33. A person registered in composition scheme in FY 17–18. Now, he again wants to

operate in this scheme in FY 18 – 19. Does he need to file a fresh declaration for the
same?
a. Yes b. No
Ans (b)
34. ABC Ltd., a trader has got itself registered in Delhi on 1.2.20XX in composition
scheme. In the month of Aug 20XX, it makes supply of taxable goods worth Rs. 3
lacs and exempted goods worth Rs. 1 lac. On what value it shall pay the GST to the
Government?
a. Rs. 1 lac b. Rs.3 lacs
c. Rs.4 lacs d. Rs.2 lacs
Ans (b)
35. Who is not eligible to opt for composition scheme?

a. Cotton Manufacturer
b. Ice cream Manufacturer
c. Restaurant service provider
d. Ice cream trader
Ans (b)
36. ABC Pvt. Ltd., has started his business in Delhi and has got himself registered in
Composition Scheme. He has purchased capital goods worth Rs. 1,28,000 (tax
amount Rs. 28,000) and inputs worth Rs. 50,000 (tax amount Rs. 7,000). What is
the eligible amount of ITC that it can claim?
a. Rs. 28,000 b. Rs. 7,000
c. Rs. 35,000 d. Zero
Ans (d)
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37. Whether a restaurant serving alcohol along with other foods etc. to its customers
can opt for composition scheme under Section 10?
a. Yes b. No
c. None of the above d. Maybe
Ans (b)
38. Which return has to be filed by the composition dealer?

a. GSTR – 4 b. GSTR – 4A
c. GSTR – 3B d. GSTR – 1
Ans (a)
39. What are the other conditions and restrictions subject to which a person is allowed
to avail composition scheme?
a. He must not be engaged in manufacture of notified goods.
b. He must mention the words ‘composition taxable person, not eligible to collect
tax on supplies’ at the top of bill of supply issued by him
c. Mention ‘composition taxable person’ on every notice or signboard displayed at
every prominent place of business
d. All of the above
Ans (d)
40. ABC Pvt. Ltd., a Mumbai based manufacturer of the pan masala, has started
manufacturing biscuits within same PAN. His threshold of Rs. 20 lacs is crossed
but is expected to be below Rs. 80 lacs in the current financial year. Can he opt for
composition scheme?
a. Yes
b. No
c. Maybe
d. Yes, with prior approval
Ans (b)
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41. Will composition supplier make the payment of CGST & SGST in separate heads or
shall make one combined payment?
a. Yes, pay under separate heads
b. No, pay a consolidate amount
c. Maybe
d. Make payment under IGST
Ans (a)
42. What are the notified goods that have been kept outside the purview of a composition
dealer?
a. Ice cream and other edible ice, whether or not containing cocoa.
b. Pan masala
c. Tobacco and manufactured tobacco substitutes
d. All of the above
Ans (d)
43. Mr. A, a retailer who keeps no inventories, presents the following expected information
for the year
1. Purchases of Goods : `50 lakhs (GST @ 5%)
2. Sales (at fixed selling price inclusive of all taxes) : `60 lakhs (GST on sales @
5%)
Discuss whether he should opt for composition scheme.
Expenses of keeping detailed statutory records required under the GST Laws will be
`1,20,000 p.a., which shall get reduced to `50,000 if composition scheme is opted
for. Other expenses are `3,00,000 p.a.
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Solution : The cost to the ultimate customer under two schemes is as under –

Particulars Normal GST Composition
Scheme Scheme
Cost of goods sold (*No credit under composition
scheme, hence, cost of goods sold will be higher) 50,00,000 52,50,000
Add: Costs of maintaining records 1,20,000 50,000
Add: Normal Expenses 3,00,000 3,00,000
Total Costs 54,20,000 56,00,000
Sales (inclusive of all taxes) 60,00,000 60,00,000
Less: Tax (GST=`60 lakh * 5 / 105); (C Tax=`60 2,85,714 60,000
lakh*1%)
Sales (net of taxes) 57,14,286 59,40,000
Profit of the dealer (Sales, net of taxes – Total Costs) 2,94,286 3,40,000
Conclusion: It is apparent that while cost to ultimate consumer, in both the cases remains
same, the profit of the dealer is higher if the dealer opts for composition scheme. Hence,
composition scheme should be opted.
44. Mr. Rajbeer, a registered person at Delhi, is in the business of selling goods relating
to interior decoration under the firm name M/s. Rajbeer & Sons. He has opted for
composition scheme for the Financial Year (FY) 2023-24.
His turnover for FY 2023-24 is ` 80 lakh and is expected to achieve ` 130 lakh in
FY 2024-25. Discuss whether M/s Rajbeer & Sons can still enjoy the benefits of
composition scheme in FY 2024-25.
His son Karan wants to start business of providing services relating to interior
decoration, after completing post-graduation course in interior decoration under
same firm name M/s Rajbeer & Sons with effect from 01.04.2024 and wants to enjoy
the benefits of composition scheme under GST.
Advise Mr. Rajbeer and his son Karan.
Solution:
As per section 10 of the CGST Act, 2017, a registered person, whose aggregate turnover in
the preceding financial year did not exceed ` 1.5 crore in a State/UT may opt for composition
scheme, provided he is, inter alia, engaged in supply of goods and/or restaurant service.
However, a person who opts for composition scheme is permitted to supply services other
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than restaurant service of value not exceeding 10% of turnover in a State/UT in the preceding
financial year or ` 5 lakh, whichever is higher.
In the given case, M/s. Rajbeer & Sons(It is assumed that it is a sole proprietor) engaged in
business of selling goods relating to interior decoration, is eligible for composition scheme
in FY 2024-25 since its aggregate turnover in preceding FY (viz. ` 80 lakh) does not exceed
` 1.5 crore.
If Karan wishes to start the business of providing services relating to interior decoration
under the same firm name M/s Rajbeer & Sons, the sole proprietorship needs to be first
converted into a partnership firm. Further, new GST registration under the new PAN is
required to be obtained.
In such a case, the firm can provide services relating to interior decoration up to a value
of ` 5 lakh (10% of zero turnover of last year or ` 5 lakh, whichever is higher) to continue
enjoying the benefit of composition scheme in FY 2024-25.
45. Examine whether the suppliers are eligible for composition scheme in the following
independent cases. Is there any other option available for concessional tax payment
with any of these suppliers, wherever composition scheme cannot be availed?
(a) M/s Devlok, a registered dealer, is dealing in intra-State trading of electronic

appliances in Jaipur (Rajasthan). It has turnover of ` 130 lakh in the preceding
financial year. In the current financial year, it has also started providing repairing
services of electronic appliances.
(b) M/s Narayan & Sons, a registered dealer, is running a “Khana Khazana”
Restaurant near City
Palace in Jaipur. It has turnover of ` 140 lakh in the preceding financial year. In
the current financial year, it has also started dealing in intra-State trading of
beverages in Jaipur (Rajasthan).
(c) M/s Indra & bro, a registered dealer, is providing restaurant services in
Uttarakhand. It has turnover of ` 70 lakh in the preceding financial year. It has
started providing intra-State interior designing services in the current financial
year and discontinued rendering restaurant services.

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(d) M/s Him Naresh, a registered dealer, is exclusively providing intra-state architect
services in Uttarakhand. It has turnover of ` 40 lakh in the preceding financial
year.
Solution:
As per section 10 of the CGST Act, 2017, the following registered persons, whose aggregate
turnover in the preceding financial year did not exceed ` 1.5 crore, may opt to pay tax
under composition levy.
(a) Manufacturer,
(b) Persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule
II (restaurant services), and
(c) Any other supplier eligible for composition levy.
Thus, essentially, the composition scheme can be availed in respect of goods and only one
service namely, restaurant service. However, the scheme permits supply of other marginal
services for a specified value along with the supply of goods and restaurant service, as the
case may be. Such marginal services can be supplied for a value up to 10% of the turnover
in the preceding year or ` 5 lakh, whichever is higher.
Further, the registered person should not be engaged in making any inter-State outward
supplies of goods.
Furthermore, an option of availing benefit of concessional payment of tax has been provided
to a registered person whose aggregate turnover in the preceding financial year is upto ` 50
lakh and who is not eligible to pay tax under composition scheme. Said person can pay tax
@ 3% [Effective rate 6% (CGST+ SGST/UTGST)] on first supplies of goods and/or services
up to an aggregate turnover of ` 50 lakh made on/after 1st April in any financial year (FY),
subject to specified conditions vide Notification No. 2/2019 CT (R) dated 07.03.2019 as
amended. One of such condition is that the registered person should not be engaged in
making any inter-state outward taxable supplies. (Now this provision is part of Section
10(2A) of CGST Act, 2017.
In view of the above-mentioned provisions, the answer to the given independent cases is as
under:-
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(a) The turnover limit for composition scheme in case of Jaipur (Rajasthan) is `1.5 crore.
Thus, M/s Devlok can opt for composition scheme as its aggregate turnover is less
than `1.5 crore. Further, since the registered person opting for composition scheme
can also supply services (other than restaurant services) for a value up to 10% of the
turnover in the preceding year or ` 5 lakh, whichever is higher, in the current financial
year, M/s Devlok can supply repair services up to a value of `13 lakh [10% of `130 lakh
or `5 lakh, whichever is higher] in the current financial year.
(b) In the given case:-

(i) the turnover in the preceding year is less than the eligible turnover limit, i.e. `
1.5 crore.
(ii) the supplier is engaged in providing restaurant service which is an eligible supply
under composition scheme.
(iii) the supplier wants to engage in trading of goods which is also an eligible supply
under composition scheme.
Thus, M/s Narayan & Sons is eligible for composition scheme.
(c) The turnover limit for composition scheme in case of Uttarakhand is ` 75 lakh.
Further, a registered person who is exclusively engaged in supplying services other
than restaurant services are not eligible for composition scheme. Thus, M/s Indra &
bro cannot opt for composition scheme.
Further, the benefit of concessional tax payment under Notification No. 2/2019 CT
(R) dated 07.03.2019 is available in case of a registered person whose aggregate
turnover in the preceding financial year does not exceed ` 50 lakh.
Thus, in view of the above- mentioned provisions, M/s Indra & bro cannot avail the
benefit of concessional tax payment as its aggregate turnover in the preceding
financial year is more than ` 50 lakh.
(d) An exclusive service provider can opt for the composition scheme only if he is engaged
in supply of restaurant services. The composition scheme permits supply of marginal
services for a specified value, but only when the same are supplied along with goods
and/or restaurant service.
Since M/s Him Naresh is exclusively engaged in supply of services other than restaurant
services, it is not eligible for composition scheme even though its turnover in the
preceding year is less than ` 75 lakh, the eligible turnover limit for Uttarakhand.

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However, since M/s Him Naresh is not eligible to opt for composition scheme, its
aggregate turnover in the preceding financial year does not exceed ` 50 lakh and it
is exclusively engaged in supply of services other than restaurant services, M/s Him
Naresh is entitled to avail benefit of concessional payment of tax under Notification
No. 2/2019 CT (R) dated 07.03.2019.

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Chapter 4 - Exemption
1. Which of the following can be issued by Central Government/ State Government to

exempt goods and/or services on which tax is leviable in exceptional cases?
(a) Exemption Notification (b) Special order
(c) Other notifications (d) None of the above
Ans. (b) Special Order
2. Which one of the following is true?

(a) Entire income of any trust is exempted from GST
(b) Entire income of a registered trust is exempted from GST
(c) Incomes from specified/defined charitable activities of a trust are exempted
from GST
(d) Incomes from specified/defined charitable activities of a registered trust (u/s
12AA of Income Tax Act)are exempted from GST
Ans. (d) Incomes from specified/defined charitable activities of a registered trust (u/s
12AA of Income Tax Act) are exempted from GST
3. Select the correct statement?

(a) Transfer of a going concern wholly is not exempt from GST
(b) Transfer of a going concern is partly exempt from GST
(c) Transfer partly as going concern is exempted from GST
(d) Transfer of a going concern is exempt from GST
Ans. (d) Transfer of a going concern is exempt from GST
4. Service by whom, by way of any activity in relation to any function entrusted to a

municipality under Article 243 W of the Constitution, is exempted?
(a) Central Government or State Government or Union territory or Local authority
(b) Governmental authority
(c) Municipality under Article 243 W of the Constitution
(d) All of above

Ans. (d) All of Above
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5. Which is a wrong statement?

(a) All services of Department of Post are exempted
(b) All services by State/Central Governments/local authorities in relation to an
aircraft or a vessel in a Port or an Airport are exempted
(c) All services by State/Central Governments/local authorities in relation to
transport of passengers are exempted
(d) All the above mentioned
Ans. (d) All the above mentioned
6. Services to a single residential unit is, exempted if:

(a) It is pure labour service only
(b) It is works contract only
(c) It is a part of residential complex only
(d) It is on ground floor without further super structure
Ans. (a) It is pure labour service only
7. Which exemption option is right from the following?

(a) For letting out any immovable property
(b) For letting out any residential dwelling for use as residence
(c) For letting out any residential property irrespective of its use
(d) For none of the above
Ans. (b) For letting out any residential dwelling property for use as residence
8. Services by a hotel, inn, guest house, club or campsite are exempted for residential
/ lodging purposes -
(a) If the actual tariff for a unit of accommodation is below ` 10,000
(b) If the actual tariff for a unit of accommodation is below ` 1,000
(c) If the actual tariff for a unit of accommodation is upto ` 1,000
(d) If the actual tariff for a unit of accommodation is above ` 1,000
Ans. (c) If the actual tariff for a unit of accommodation is upto ` 1,000
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9. Transportation of passengers exempted if -

(a) It is by air-conditioned stage carriage
(b) It is by air-conditioned contract carriage
(c) It is by non-air-conditioned stage carriage for tourism, charter or hire
Ans. (d) None of the above
10. Transportation of passengers is exempted -

(a) In an air-conditioned railway coach
(b) In a vessel for public tourism purpose between places in India
(c) In a metered cab/auto rickshaw / e rickshaw
(d) In all the above mentioned
Ans. (c) In a metered cab/auto rickshaw / e rickshaw
11. Transportation of goods is not exempted if it is -

(a) by a goods transport agency / courier agency
(b) by inland waterways
(c) by an aircraft from a place outside India upto the customs station of clearance
in India
(d) by all the above mentioned
Ans. (a) by a goods transport agency / courier agency
12. Transportation of agricultural produces, milk, salt and food grain including flour,
pulses and rice, 'relief materials meant for victims of natural or man-made
disasters, calamities, accidents or mishap', newspaper or magazines registered with
the Registrar of Newspapers - is exempted –
(a) If it is by a goods transport agency
(b) If it is by a rail - within India
(c) If it is by a vessel - within India
(d) If it is by all of the above
Ans. (d) If it is by all of the above
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13. Which of the following is exempted –

(a) Services by way of loading, unloading, packing, storage or warehousing of rice
(b) Services by way of loading and unloading of jute
(c) Services by way of packing and storage or warehousing of rubber
Ans. (a) Services by way of loading, unloading, packing, storage or warehousing of rice
14. Core services of which organization is not exempted -

(a) Services provided by the Insurance Regulatory and Development Authority of
India to insurers
(b) Services provided by the Securities and Exchange Board of India set up under
the Securities and Exchange Board of India Act, 1992 (15 of 1992) by way of
protecting the interests of investors
(c) Services by Port Trusts
(d) Services by the Reserve Bank of India
Ans. (c) Services by Port Trusts
15. If the aggregate turnover of in FY 2021-22 of M/s ABC Enterprises, Kanchipuram,

Tamil Nadu, India was ` 18 lakh, exemption is available for the following services
rendered to ABC Enterprises -
(a) Arbitral Tribunal services
(b) Legal services by firm of advocates
(c) Legal services by senior advocate
(d) All of the above
Ans. (d) All of the above
16. One of the following is exempted from GST -

(a) Any business exhibition
(b) A business exhibition in India
(c) A business exhibition outside India
Ans. (c) A business exhibition outside India
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17. Which of the following is not exempted -?

(a) Health care service to human beings by authorized medical practitioners / para
medics
(b) Health care services to Animals/Birds
(c) Slaughtering of animals
(d) Rearing horses
Ans. (a) Rearing horses
18. Services by educational institution is exempted if the services are to -

(a) Any common man
(b) Its own students, faculty / staff
(c) Both a & b
Ans. (b) Its own students, faculty / staff
19. Services by a Non-Profit entity (Registered or Unregistered) are exempted -

(a) If they are to its own members provided the contribution received is up to `
7500 , per month from a member
(b) If they are to its own members, provided contribution received is up to ` 7500
per month from a member towards sourcing goods/services from any third
person for common use of members
(c) If they are to its own members, provided the contribution is less than ` 7500
per month from a member towards sourcing goods/services from any third
(d) If they are to its own members, provided the contribution is up to ` 7500 per
month per member for common use specified members

Ans. (b) If they are to its own members, provided the contribution received is up to `
7500 per month from a member towards sourcing goods/services from any third
20. Which of the following are exempted services?

(a) Services by an artist by way of a performance in folk or classical art forms of
music/ dance / theatre with consideration therefor not exceeding ` 1 lakh
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(b) Services by an artist by way of a performance in folk or classical art forms of

music/ dance with consideration therefor not exceeding ` 1.5 lakh
(c) Services by an artist by way of a performance in folk or classical art forms of
music/ dance / theatre with consideration therefor not exceeding ` 1.5 lakh
(d) Services by an artist as a brand ambassador by way of a performance in folk
or classical art forms of music/ dance / theatre with consideration therefor not
exceeding ` 1.5 lakh
Ans. (c) Services by an artist by way of a performance in folk or classical art forms of
music/ dance / theatre with consideration therefor not exceeding ` 1.5 lakh
21. Which of the following service by electricity transmission/ distribution is exempt?

(a) Transmission of electricity
(b) Duplication bill charges
(c) rental charges for meter
(d) charges for shifting of meter
Ans: (a) Transmission of electricity
22. Which of the following entry fee of ` 700 is taxable?

(a) Zoo
(b) Museum
(c) Tiger reserve
(d) Circus
Ans: (d) Circus
23. Which of the following exchange of foreign currency are taxable?

(a) Amongst banks
(b) Amongst bank and individual
(c) Amongst foreign exchange dealers
Ans: (b) Amongst bank and individual
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24. Service provided to a school being __________ is taxable

(a) Transportation of students
(b) Canteen services
(c) Renting service
(d) Security services
Ans: (c) Renting service
25. Which of the Services by unincorporated body to members is taxable?

(a) As a trade union
(b) By Residential association upto amount 7500 per month per member for
maintenance
(c) By Residential association for letting out party hall
Ans: (c) By Residential association for letting out party hall
26. IIM providing __________ service is taxable

(a) Fellow programme in management
(b) 5 year integrated programme in management
(c) 2 year full time Post Graduation programme
(d) Executive development programme for less than 1 year
Ans: (d) Executive development programme for less than 1 year
27. Which health care services is not exempt?

(a) Cosmetic surgery of accident victim
(b) Cosmetic surgery to restore anatomy
(c) Hair transplant
(d) Lip treatment of new born baby
Ans: (c) Hair transplant
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28. Which of the following service related to agriculture is not exempt?

(a) Harvesting of paddy
(b) Storage of rice
(c) Fumigating of warehouse of agricultural product
(d) Commission agent of rice
Ans: (d) Commission agent of rice
29. Which of the hiring of means of transportation is exempt?

(a) Bus to a state transport undertaking
(b) School bus for marriage party
(c) Truck given to an individual driver
Ans: (a) Bus to a state transport undertaking
30. Which of the legal service by lawyer is taxable?

(a) Services to other than business entity
(b) Service to business entity whose previous year turnover is ` 21 lakhs
(c) Services to business entities whose previous year turnover is ` 15 lakhs
Ans: (b) Service to business entity whose previous year turnover is ` 21 lakhs
31. __________ service provided by department of post is exempt

(a)
Speed post (b) Postal Order
(c)
Life Insurance (d) Distribution services
Ans: (b) Postal Order
32. Which of the following transportation of passengers is exempt?

(a) Non AC Local train (b) Metro
(c) AC first class train (d) Flight
Ans: (a) Non AC local train
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33. Transportation of ___________ is not liable to GST

(a)
Milk (b) Paddy
(c)
Pickle (d) Military equipment
Ans: (c) Pickle
34. Which of the following is taxable

(a) Life micro insurance ₹ 75,000
(b) Aam Aadmi Bima Yojana
(c) Pradhan Mantri Jeevan Jyothi Yojana
(d) Air travel insurance
Ans: (d) Air travel insurance
35. Which of the service by artist is exempt?

(a)
Classical Music (b) Folk dance
(c)
Kathak (d) All of the above
Ans: (d) All of the above
36. Identify the correct statement

(a) Service provided to RBI is exempt
(b) Service provided to embassy is exempt
(c) Service provided by RBI is taxable
Ans: (d) None of the above
37. Which of the service to recognized sports body is taxable?

(a) Players
(b) Umpire
(c) Commentator
(d) Coach
Ans: (c) Commentator
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38. Tour operator providing ___________ service is exempt

(a) To a foreigner for foreign tour
(b) To an Indian for Indian tour
(c) To a foreigner for Indian tour
(d) To a Indian for foreign tour
Ans: (a) To a foreigner for foreign tour
39. Which of the following renting of immovable property is taxable?

(a) Vacant land to agriculturalist/farmer
(b) Vacant land with structure to farmer
(c) Renting of bungalow with furniture
(d) Renting of land to school
Ans: (d) Renting of land to school
40. Banks providing ____________ service is exempt

(a) Extending deposits to company (b) Extending loan to farmers
(c) Bill discounting (d) All of the above
41. Which of the following educational services are taxable?

(a)
Private tutions (b) Foreign university
(c) Coaching classes (d) All of the above
42. Which of the following services related to recognized health is taxable

(a) Rent of rooms provided to patients
(b) Food to in patients
(c) Food to others
(d) Consultancy by senior doctors who are not employees
Ans: (c) Food to others
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43. Which of the following is taxable?

(a) Toll charges (b) Commission to Toll agent
(c) Toll charges by way of annuity (d) None of the above
Ans: (b) Commission to toll agent
44. Which of the following GTA services are taxable?

(a) Single consignee ` 600 (b) Single consignee ` 750
(c) Single carriage ` 1500 (d) Single carriage ` 2500
Ans: (d) Single carriage ` 2500
45. Which of the services provided by government is exempt?

(a)
Mining License (b) Driving License
(c) Spectrum allocation charges (d) Security service to business entity
Ans: (b) Driving License
46. Which one of the following shall not be exempted from GST?
a. Fee charged for yoga camp conducted by the trust
b. Amount received for advancement of educational programmes related to
abandoned, orphaned or homeless children
c. Amount received for renting of commercial property owned by the trust
d. Amount received for activities relating to preservation of forests and wildlife.
Ans (c)
47. Service by way of transfer of ___________ is exempt from GST.

a. Going concern
b. Goodwill
c. Patent
d. Copyright
Ans (a)
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48. Services by a person by way of conduct of any ___________ is exempt from GST.
a. Religious Ceremony
b. Marriage Ceremony
c. Festival Ceremony
d. Entertainment Ceremony
Ans (a)
49. Services provided to the Central Government, State Government or Union Territory or
local authority or a Government Authority by way of ______________ are exempt.
a. In relation to any function entrusted to a Panchayat under article 243G of the
Constitution
b. In relation to any function entrusted to a Municipality under article 243W of
the Constitution
c. In relation to any function entrusted to a Municipality under article 243G of the
Constitution
d. Both (a) and (b)
Ans (d)
50. Which of the following services is exempt?

a. Basic mail services
b. Speed post services
c. Express parcel post services
d. Life insurance services
Ans (a)
51. Renting of residential dwelling for any purpose is exempt from GST. Comment.
a. Yes, it can be rented for usage of any purpose.
b. No, it should have been rented for residential purpose only.
c. No, it should have been rented for commercial purpose only
d. No, it should have been rented for charitable purpose only.
Ans (b)
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52. Government granted exemption to PSU’s but did not gave the same to private sector.
Comment.
a. Permissible
b. Not permissible
c. Discriminatory
d. Both (b) and (c)
Ans (a)
53. An entity registered a religious trust u/s 12AA of the Income Tax Act, 1961, , has
furnished you the following details with respect to the activities undertaken by it. You
are required to compute its value of taxable supply from the information given below:
Particulars `
Renting of room where charges are ` 500 per day 6,00,000
Renting of room where charges are ` 1,500 per day 9,00,000
Renting of Community halls where charges are ` 25,000 per day 10,00,000
Renting of kalyan mandapam where charges are ` 5,000 per day 7,50,000
Renting of shops for business where charges are ` 15,000 per month 7,50,000
Solution : Computation of GST Liability of VHP –

Particulars `
Renting of room where charges are ` 500 per day Nil
Renting of room where charges are ` 1,500 per day 9,00,000
Renting of Community halls where charges are ` 25,000 per day 10,00,000
Renting of kalyanmandapam where charges are ` 5,000 per day Nil
Renting of shops for business where charges are ` 5,000 per month Nil
Value of Taxable Supply 26,50,000
Working Note: Services by a person by way of renting of precincts of a religious place
meant for general public, owned or managed by an entity registered as a charitable or
religious trust u/s 12AA of the Income Tax Act, 1961 are exempt. However, this exemption
shall not apply to, -
(a) Renting of rooms where charges are ` 1,000 or more per day;
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(b) Renting of premises, community halls, kalyanmandapam or open area, and the like
where charges are ` 10,000 or more per day;
(c) renting of shops or other spaces for business or commerce where charges are ₹ 10,000
or more per month.
54. A Ltd. (a registered taxable person) provides the following information relating to
their services for the month of November, 2022:

Particulars `
Gross receipts from
Running a Boarding School (including receipts for providing residen- 28,00,000
tial dwelling services `12,00,000)
Conducting private tuition’s 16,00,000
Education services for obtaining a qualification recognised by law of 8,00,000
a foreign country
Conducting modular employable skill course, approved by National 10,00,000
Council of vocational training
Fees from prospective employers for campus interview 6,00,000
Renting of furnished flats for temporary stay to different persons 6,80,000
Compute the value of taxable supply and the amount of GST payable. The above
receipts are exclusive of GST. GST Rate – 18%.
Solution : Computation of Value of taxable supply and GST liability –

Particulars `
Running a Boarding School (including residential dwelling services [WN-1] Nil
Conducting private tuition [WN-2] 16,00,000
Education services for obtaining a qualification recognised by law of a for- 8,00,000
eign country [WN-3]
Conducting modular employable skill course, approved by NCVT [WN-4] Nil
Fees from prospective employers for campus interview (Not covered in 6,00,000
exemption)
Value of renting of furnished flats for temporary stay to different per-
sons[WN-5] 6,80,000
Value of Taxable Supply 36,80,000
GST payable @ 18% 6,62,400
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Working Notes :
1) Running a boarding school is not taxable since education upto higher secondary
school is exempt vide Entry 66 of Notification No. 12/2017-CT (Rate) and renting of
residential dwelling is exempt vide Entry 12 of Notification No. 12/2017-CT (Rate).
2) Private Tuitions is not exempt as they do not lead to grant of a qualification recognised
by law.
3) Education as a part of curriculum for obtaining a qualification recognized by only an
Indian Law and not a foreign law is exempt.
4) Modular Employable Skill Course is an approved vocational education course and is
exempt vide Entry 66 of Notification No. 12/2017-CT (Rate).
5) Short stay by different persons in furnished flats is not renting of residential dwelling
and thus, not exempt.
55. Mr. Nagarjun, a registered supplier of Chennai, has received the following amounts
in respect of the activities undertaken by him during the month ended on 30th
September, 2022:

S. No. Particulars `
(i) Amount charged for service provided to recognized sports 50,000
body as selector of national team.
(ii) Commission received as an insurance agent from insurance 65,000
company.
(iii) Amount charged as business correspondent for the services 15,000
provided to the urban branch of a nationalized bank with
respect to savings bank accounts.
(iv) Service to foreign diplomatic mission located in India. 28,000
(v) Funeral services. 30,000
He received the services from unregistered goods transport agency for his business
activities relating to serial numbers (i) to (iii) above and paid freight of ` 45,000 (his
aggregate turnover of previous year was ` 9,90,000).
Note: All the transactions stated above are intra-State transactions and also are
exclusive of GST.
You are required to calculate gross value of taxable supply on which GST is to be
paid by Mr. Nagarjun for the month of September, 2022. Working notes should form
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part of your answer. (May/Nov 2018)
Solution: Computation of gross value of taxable supply on which GST is to be paid by Mr.
Nagarjun

Particulars `
Supplies on which Mr. Nagarjun is liable to pay GST under forward charge
Amount charged for service provided to recognized sports body as selector 50,000
of national team [Note 1]
Commission received as an insurance agent from insurance company [Note Nil
2]
Amount charged as business correspondent for the services provided to the 15,000
urban branch of a nationalised bank with respect to savings bank accounts
[Note 3]
Services provided to foreign diplomatic mission located in India [Note 4] 28,000
Funeral services [Note 5] Nil

Supplies on which Mr. Nagarjun is liable to pay GST under reverse charge
Services received from GTA [Note 6] 45,000
Value of taxable supply on which GST is to be paid 1,38,000
Notes:
(1) Services provided to a recognized sports body by an individual only as a player, referee,
umpire, coach or team manager for participation in a sporting event organized by a
recognized sports body are exempt from GST vide Exemption Notification No. 12/2017
CT(R) dated 28.06.2017. Thus, service provided as selector of team is liable to GST.
(2) Though commission for providing insurance agent’s services is liable to GST, the tax
payable thereon is to be paid by the recipient of service i.e., insurance company, under
reverse charge in terms of Notification No. 13/2017 CT(R) dated 28.06.2017. Thus,
Mr. Nagarjun will not be liable to pay GST on such commission.
(3) Services provided by business correspondent to a banking company with respect to

accounts in its rural area branch are exempt from GST vide Exemption Notification
No. 12/2017 CT(R) dated 28.06.2017. Thus, such services provided in respect of urban
area branch will be taxable.
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(4) While services provided by a foreign diplomatic mission located in India are exempt
from GST vide Exemption Notification No. 12/2017 CT(R) dated 28.06.2017, services
provided to such mission are taxable.
(5) Funeral services being covered in entry 4 of Schedule III to CGST Act, 2017 are not a
supply and thus, are outside the ambit of GST.
(6) GST on services provided by a GTA (not paying tax @ 12%) to inter alia a registered
person is payable by the recipient of service i.e., the registered person, under reverse
charge in terms of Notification No. 13/2017 CT(R) dated 28.06.2017. The turnover of
previous year is irrelevant in this case.
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Chapter 5.1 – Time of Supply
1. Which section governs the provisions regarding determining time of supply of goods?
a. Section 12
b. Section 13
c. Section 14
d. Section 15
Ans (a)
2. Which section governs the provisions regarding determining time of supply of

services?
a. Section 12
b. Section 13
c. Section 14
d. Section 15
Ans (b)
3. The time of supply fixes the point when the _______________ to / of GST arises.
a. Liability
b. Payment
c. Provision
d. Recovery
Ans (a)
4. Reverse charge means the liability to pay tax by the _______________ of goods or
services or both instead of the _______________ of such goods or services or both.
a. Recipient, Supplier
b. Recipient, Agent
c. Supplier, Recipient
d. Agent, Recipient
Ans (a)
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5. Where amount received is in excess of invoice with amount upto _______________,

supplier has option to choose time of supply as date of issue of fresh invoice for the
said excess amount.
a. Rs.100 b. Rs.1,000
c. Rs.500 d. Rs.10,000
Ans (b)
6. On 04.09.20XX, supplier invoices goods taxable on reverse charge basis to ABC &
Co. ABC & Co. receives the goods on 12.09.20XX and makes payment on 30.9.20XX.
Determine the time of supply.
a. 04.09.20XX b. 04.10.20XX
c. 12.09.20XX d. 30.09.20XX
Ans (c)
7. ABC Ltd. has purchased for its customers 50 vouchers dated 20.8.20XX worth Rs.100
each from PQR Ltd., a footwear manufacturing company which can be used only for
a specific type of footwear. The vouchers were issued by ABC Ltd. on 20.09.20XX. The
vouchers can be encashed at retail outlets of PQR Ltd. The employees of ABC Ltd.
encashed the same on 01.10.20XX. Determine the time of supply of vouchers.
a. 20.08.20XX b. 20.09.20XX
c. 01.10.20XX d. Supply is not identified
Ans (b)
8. Ms. A purchased a gift voucher (it can be redeemed against any product of the
departmental store) from a super market worth Rs.2,000 on 30.7.20XX and gifted
it to her friend on the occasion of her marriage on 05.08.20XX. her friend encashed
the same on 01.09.20XX for purchase of a watch. Determine the time of supply.
a. 30.07.20XX b. 05.08.20XX
c. 01.09.20XX d. Supply is identified
Ans (c)
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9. What is the time of supply of goods in residuary cases, in case where a periodical
return has to be filed?
a. Date on which return is to be filed
b. Actual date of filing of return
c. Date of payment of tax
d. Date of collection of tax
Ans (a)
10. What is the time of supply in case of addition in the value of way of interest, late fee
or penalty or any delayed payment of consideration?
a. Last date on which such late fees / penalty has been charged
b. Date of payment of such additional amount
c. Date of collection of whole amount
d. It doesn’t constitute supply
Ans (b)
11. Date of receipt of advance is the time of supply in case of advance received for
supply for services especially when the invoice and provisioning of service is done
post advance receipt. Comment.
a. True b. False
c. Partially correct d. None of the above
Ans (a)
12. Continuous supply of services means a supply of services which is provided, or agreed
to be provided, continuously or on recurrent basis, under a contract, for a period
exceeding _____________ with ________________ payment obligations.
a. 1 year, annual b. 3 months, periodic
c. 6 months, half yearly d. 1 year, periodic
Ans (b)
377
13. Mr. X has received the payment, but has not deposited the cheque in the bank
account, what is the date of receipt of payment?
a. Date of receipt of payment
b. Date of credit in the bank account
c. Date on which payment is entered in the books of account of the supplier
d. Earlier of (b) and (c)
Ans (d)
14. Is composition dealer required to pay tax on the advance received by it in respect to
supply of goods?
a. Yes b. No
Ans (a)
15. The relaxation of non payment of taxes on the advance receipt is only to the supplier
of goods and not to the providers of service.
a. Correct b. Incorrect
Ans (a)
16. Mr. A entered into a contract with Mr. C and agreed to make the payment by 30th
September, 20XX. If the payment is not made in time, then he shall pay late fees
Rs.100 / day. No payment of late fees has been made so far. What shall be the time
of supply in respect of the late fees due on Mr. A?
a. September 20XX
b. October 20XX
c. Time of supply has not arisen
Ans (c)
378
17. What is time of supply of goods, in case of forward charge?

a. Date of issue of invoice
b. Due date of issue of invoice
c. Date of receipt of consideration by the supplier
d. Earlier of (a) & (b)
Ans (d)
18. What is time of supply of goods, in case of supplier opting for composition levy
under Section 10 of the CGST Act, 2017?
a. Date of issue of invoice
b. Date of receipt of consideration by the supplier
c. Later of (a) & (b)
d. Earlier of (a) & (b)
Ans (d)
379
Chapter 5.2 – Value of Supply
1. Value of supply shall be the transaction value, if __________________

a. Transaction is between unrelated parties
b. Price is the sole consideration
c. Both (a) and (b)
Ans (c)
2. What is transaction value under GST?

a. Price actually paid or payable for supply of goods
b. Price actually paid for supply of services
c. Price as such paid between unrelated parties
d. All of the above
Ans (d)
3. Mr. A supplied goods worth of 1,00,000 for which he received payment in US dollars.
Does the consideration as received falls within the ambit of money
a. Yes
b. No
c. As per the opinion of Appropriate authority
Ans (a)
4. Consideration excludes:
a. Payment in money or otherwise for supply
b. Monetary value of an act or forbearance
c. Subsidy by the Central and State Government
d. All of the above
Ans (c)
380
5. Value of supply is considered to exclude:

a. Taxes, duties, cesses and fees levied under any other Act
b. SGST and UTGST
c. Compensation Cess
d. Both (b) and (c)
Ans (d)
6. Value of supply shall be construed to include:

a. Any taxes, duties, cess, fees and charges levied under any Act, except GST
b. Any amount that the supplier is liable to pay which has been incurred by the
recipient and is not included in the price.
c. All the incidental expenses, subsidies linked to supply and other interest, late
fee and penalty
d. All of the above
Ans (d)
7. What are the deductions allowed in case of transaction value consideration?

a. Discounts specified in the invoice
b. Any payment made by customer on behalf of supplier
c. Packing charges
d. All of the above
Ans (a)
8. Mr, A is selling a product for Rs.1,050 inclusive of GST. Rate of CGST and SGST will be
2.5%. Determine the value of supply.
a. INR 1,000
b. INR 1,025
c. INR 1,050
Ans (a)
381
9. ABC Pvt. Ltd. gives discount of 30% on the list price to its distributors as per its
contract. As per invoice raised on the items supplied per carton, the list price on the
same amounts to INR 600. What shall be the taxable value of such supply, given
that the discount is allowed at the time of supply and shown in invoice?
a. INR 300
b. INR 420
c. INR 600
Ans (b)
10. Surya Agencies has agreed to supply goods to customer's premises. Goods valued ₹
80,000 are taxable @ 5% IGST as it is an inter-State supply. It also pays freight and
transit insurance of ` 12,000. GTA is a registered entity and has charged GST (6%
CGST and 6% SGST) under forward charge.
(i) Compute the invoice value of supply including IGST.
(ii) What will be the invoice value of supply including IGST, if the supply was under
ex-factory basis instead of door-delivery basis?
Solution:
Computation of invoice value of supply

(i) When supplier agrees to supply the goods at customer’s premises, i.e. freight and
transit insurance are paid by the supplier, invoice value of supply will be computed as
follows:

Particulars Amount (`)
Value of goods supplied 80,000
Add: Freight and transit insurance 12,000
[Since the supplier has agreed to deliver the goods at the customer’s prem-
ises and to pay for freight and insurance, the contract of supply becomes a
composite supply, the principal supply being the supply of goods.]
Total 92,000
Add: IGST @ 5% 4,600
[Being a composite supply, GST at the rate applicable for principal supply
will be charged]
Invoice value of supply 96,600
382
(ii) When supplier agrees to supply the goods on ex-factory basis, i.e. the buyer pays the
freight and transit insurance, invoice value of supply will be computed as follows:

Add: IGST @ 5% of ` 80,000 4,000

Note: The above answer is based on the view that part (ii) of the question is an
independent case and thus, the information provided in the first paragraph of the
question regarding payment of freight and transit insurance by Surya Agencies
does not apply to it. Moreover, when the contract is ex-factory, it implies that the
freight and insurance will be the buyer’s responsibility and seller will have no role,
whatsoever, in delivering the goods to the customer’s premises.
383
(ii) When supplier agrees to supply the goods on ex-factory basis, i.e. the buyer pays the
freight and transit insurance, invoice value of supply will be computed as follows:

Add: IGST @ 5% of ` 80,000 4,000

Note: The above answer is based on the view that part (ii) of the question is an
independent case and thus, the information provided in the first paragraph of the
question regarding payment of freight and transit insurance by Surya Agencies
does not apply to it. Moreover, when the contract is ex-factory, it implies that the
freight and insurance will be the buyer’s responsibility and seller will have no role,
whatsoever, in delivering the goods to the customer’s premises.
384
Chapter 6 – Input tax credit
1. Which of the following is included for computation of taxable supplies for the purpose
of availing credit?
(a) Zero-rated supplies
(b) Exempt supplies
(c) Both
Ans. (a) Zero Rated supplies
2. Whether definition of Inputs includes capital goods.

(a) Yes
(b) No
(c) Certain capital goods only

Ans. (a) No
3. Is it mandatory to capitalize the capital goods in books of Accounts?

(a) Yes
(b) No
(c) Optional
Ans. (a) Yes
4. Whether credit on capital goods can be taken immediately on receipt of the goods?
(a) Yes
(b) No
(c) After usage of such capital goods
(d) After capitalizing in books of Accounts
Ans. (a) Yes
385
5. The term “used in the course or furtherance of business” means?

(a) It should be directly co-related to output supply
(b) It is planned to use in the course of business
(c) It is used or intended to be used in the course of business
(d) It is used in the course of business for making outward supply
Ans. (c) It is used or intended to be used in the course of business
6. Under section 16(2) of CGST Act how many conditions are to be fulfilled for the
entitlement of credit?
(a) All four conditions
(b) Any two conditions
(c) Conditions not specified
Ans. (a) All four conditions
7. Whether credit on inputs should be availed based on receipt of documents or receipt

of goods
(a) Receipt of goods
(b) Receipt of Documents
(c) Both
(d) Either receipt of documents or Receipt of goods
Ans. (c) Both
8. In case supplier has deposited the taxes but the receiver has not received the
documents, is receiver entitled to avail credit?
(a) Yes, it will be auto populated in recipient monthly returns
(b) No as one of the conditions of 16(2) is not fulfilled
(c) Yes, if the receiver can prove later that documents are received subsequently
Ans. (b) No as one of the conditions of 16(2) is not fulfilled
386
9. Input tax credit on capital goods and Inputs can be availed in one installment or in
multiple installments?
(a) In thirty-six installments
(b) In twelve installments
(c) In one installment
(d) In six installments
Ans. (c) In one installment
10. The time limit to pay the value of supply with taxes to avail the input tax credit?
(a) Three months
(b) Six Months
(c) One hundred and eighty days
(d) Till the date of filing of Annual Return

Ans. (c) One hundred and eighty days
11. What is the time limit for taking input tax credit by a registered taxable person?
(a) No time limit
(b) 1 year from the date of invoice
(c) Due date of furnishing of the return under section 39 for the month of September
following the end of financial year to which such invoice or invoice relating to
such debit note pertains
(d) Due date of furnishing of the return under section 39 for the month of September
such debit note pertains or furnishing of the relevant annual return, whichever
is earlier.
Ans. (d) Due date of furnishing of the return under section 39 for the month of September
such debit note pertains or furnishing of the relevant annual return, whichever is
earlier.
387
12. Can the recipient avail the Input tax credit for the part payment of the amount to
the supplier within one hundred and eighty days?
(a) Yes, on full tax amount and partly value amount
(b) No, he can’t until full amount is paid to supplier
(c) Yes, but proportionately to the extent of value and tax paid
(d) Not applicable is eligible to claim refund in respect of exports of goods le
Ans. (c) Yes, but proportionately to the extent of value and tax paid
13. Whether depreciation on tax component of capital goods and Plant and Machinery
and whether input tax credit is Permissible?
(a) Yes
(b) No
(c) Input tax credit is eligible if depreciation on tax component is not availed
Ans. (c) Input tax credit is eligible if depreciation on tax component is not availed
14. What is the maximum time limit to claim the Input tax credit?
(a) Till the date of filing annual return
(b) Due date of September month which is following the financial year
(c) Earliest of (a) or (b)
(d) Later of (a) or (b)
Ans. (c) Earliest of (a) or (b)
15. Capital goods include-

(a) Goods, the value of which is capitalized in the books of accounts
(b) Goods which are used or intended to be used in the course or furtherance of
business
Ans. (c) Both (a) and (b)
388
16. Banking company or Financial Institution have an option of claiming:

(a) Eligible Credit or 50% credit
(b) Only 50% Credit
(c) Only Eligible credit
(d) Eligible credit and 50% credit
Ans. (a) Eligible Credit or 50% credit
17. Can Banking Company or Financial Institution withdraw the option of availing actual
credit or 50% credit anytime in the financial year?
(a) Yes
(b) No
(c) Yes, with permission of Authorized officer
(d) Not applicable
Ans. (b) No
18. An assessee obtains new registration, voluntary registration, change of scheme

from composition to regular scheme and from exempted goods/ services to taxable
goods/services. It can avail credit on inputs lying in stock. What is the time limit for
taking said credit?
(a) 1 year from the date of invoice
(b) 3 years from the date of invoice
(c) 5 years from the date of invoice

Ans. (a) 1 year from the date of invoice
19. Credit on Input services or capital goods held in stock can be availed in case of new
Registration/Voluntary Registration
(a) Yes
(b) No
(c) Yes, on Input services only
(d) Yes, on capital goods only
Ans. (b) No
389
20. In case of Compulsory registration, input tax credit can be availed on

(a) stocks held on the day immediately preceding the date from which he becomes
liable to pay tax under the provisions of this Act, provided application for
registration is filed within 30 days from the due date
(b) Stocks held on the day immediately preceding the date of grant of registration
under the provisions of this Act.
(c) Stocks held on the day immediately preceding the date of application of
registration under the provisions of this Act.
Ans. (a) Stocks held on the day immediately preceding the date from which he becomes
liable to pay tax under the provisions of this Act, provided application for registration
is filed within 30 days from the due date
21. In case of Voluntary registration input tax credit can be availed

(a) On stocks held on the day immediately preceding the date from which he
becomes liable to pay tax under the provisions of this Act
(b) On stocks held on the day immediately preceding the date of grant of registration
(c) On stocks held on the day immediately preceding the date of application of
registration under the provisions of this Act.
Ans. (b) On stocks held on the day immediately preceding the date of grant of registration
22. Eligibility of credit on capital goods in case of change of scheme from Composition
scheme to Regular scheme
(a) Eligible during application for Regular scheme
(b) Not eligible
(c) Yes, immediately before the date from which he becomes liable to pay tax
under the Regular scheme
Ans. (c) Yes, immediately before the date from which he becomes liable to pay tax under
the Regular scheme
390
23. Can the unutilized input tax credit be transferred in case of change in constitution of
business?
(a) Not possible
(b) No, it will be exhausted
(c) Yes, it will be transferred only if there is provision for transfer of liabilities
(d) It will be transferred only if it is shown in books of Accounts of transferor
Ans. (c) Yes, it will be transferred only if there is provision for transfer of liabilities
24. Is it mandatory that the tax on the supply has to be paid by the supplier so that the
recipient can claim credit?
(a) No
(b) Yes
(c) Optional
(d) Not Applicable
Ans. (b) Yes
25. Input Tax credit as credited in Electronic Credit ledger can be utilized for
(a) Payment of Interest
(b) Payment of penalty
(c) Payment of Fine
(d) Payment of Taxes
Ans. (d) Payment of Taxes
26. ITC can be availed on

(a) Possession of prescribed invoice/ debit note
(b) Receipt of goods/services
(c) Tax on such supply has been paid to government and return being furnished by
the supplier
(d) Fulfilling all the above conditions
Ans. (d) Fulfilling all the above conditions
391
27. ITC on motor vehicle can be claimed by

(a) Any registered person
(b) Registered person engaged in same line of business
(c) Any registered person engaged in exempted supply
(d) Any of above

Ans. (b) Registered person engaged in same line of business
28. Person registered under Composition scheme can avail ITC on

(a) Supply of taxable goods/services
(b) Receipt of goods/services on specified time period
(c) Payment to suppliers
(d) None of above
Ans. (d) None of above
29. ITC can be claimed on goods/services for personal use if

(a) Payment to supplier has been made (b) Return being filed
(c) All of above (d) No ITC can be claimed
Ans. (d) No ITC can be claimed
30. ITC on works contract service can be availed only if

(a) Engaged in same line of business
(b) Service related to movable property
(c) Service related to immovable property
(d) All of above
Ans. (a) Engaged in same line of business
31. An unregistered person can avail ITC on stock if he applies for registration within
(a) 60 days of becoming liable to register under GST
(b) Immediately after becoming liable to register under GST
(c) 30 days of becoming liable to register under GST
(d) Cannot avail ITC on stock
Ans. (c) 30 days of becoming liable to register under GST
392
32. On sale, demerger, transfer, amalgamation, transferee is allowed to utilize ITC which
is
(a) Unavailed in transferor books
(b) Unutilized in e-ledger of transferor
(c) Total ITC available to transferor
(d) None of above
Ans. (b) Unutilized in e-ledger of transferor
33. In case of supply of plant & machinery on which ITC is taken, tax to be paid on is
(a) Amount equal to ITC availed less 5% for every quarter or part thereof
(b) Tax on transaction value
(c) Higher of above two
(d) Lower of above two
Ans. (c) Higher of above two
34. Which of the following are covered in the definition of input tax?
i. Tax paid under RCM
ii. IGST on imports
iii. Taxes on composition levy
iv. CGST
Mark the correct option:
a. (i) & (ii)
b. (i), (ii) & (iv)
c. (i), (ii) & (iii)
d. All of the above
Ans (b)
35. Input can be availed if the following particulars are mentioned in the invoice:
i. GSTIN of supplier & recipient
ii. Place of supply
iii. Tax amount
iv. Description of goods or services
Which one is the correct option?
393
a. (i), (ii) & (iv)

b. (i) only
c. (i) & (iii) only
d. (i), (ii), (iii) & (iv)
Ans (d)
36. The input tax credit on purchase invoice dated 2nd May 20XX was omitted to be
taken. The accountant realized this mistake on 1st November 20XX of next year. Can
he now claim the credit?
a. Yes
b. No
c. Yes, with permission of Jurisdictional officer
d. Maybe
Ans (b)
37. Mr. A, a registered person omitted to take the ITC of the August 20XX month. He has
filed his GST annual return on 30th June, 20XX. By when he could have availed the
ITC?
a. 30th June, 20XX
b. 20th October, 20XX
c. 30th September, 20XX
d. 31st July, 20XX
Ans (a)
38. Mr. A received an order worth Rs.1 crore from Mr. X. he received an advance of Rs.10
lacs in this regard and accordingly paid the tax to the Government under reverse
charge. Can Mr. X claim ITC in respect to tax paid on advance by Mr. A?
a. Yes
b. No
c. Maybe
d. Yes, with permission of Jurisdictional officer
Ans (b)
394
39. Mr. A of Delhi placed an order with Mr. B of Delhi on 1st April 20XX and asks him to
deliver the goods to Mr. C of UP. The goods get delivered to Mr. C on 3rd May 20XX.
Who shall be eligible to claim the credit on this supply?
a. Mr. A
b. Mr. B
c. Mr. C
d. Either (a) or (c)
Ans (a)
40. In above question, in which month the eligible person book the credit in its electronic
ledger?
a. April 20XX
b. May 20XX
c. September 20XX
d. Either (a) or (b)
Ans (b)
41. Is there any time limit for re-availing the credit?

a. One month
b. One year
c. 180 days
d. No time limit
Ans (d)
42. Mr. A, a practicing Chartered Accountant purchased 3 laptops each having tax
elements of Rs.40,000 in his firm name. two laptops he utilized in his office whereas
one laptop he gifted to his sister. What is the amount of ineligible ITC?
a. Rs.40,000
b. Rs.50,000
c. Rs.75,000
Ans (a)
395
43. Mr. A, non-resident taxable person bought goods from USA for the trade fair to be
organized in Pune. At the customs, he paid IGST. Will he get the credit of the IGST
paid?
a. Yes b. No
c. Maybe d. Yes, with permission of Customs
Ans (a)
44. Mr. A purchased goods from Mr. B a composition dealer worth Rs.2,00,000. Since Mr.
B was trader so he was supposed to pay only 1% of his turnover as his tax. The item
so purchased was otherwise taxable at 12%. What is the amount of credit which Mr.
A is eligible to take?
a. Rs. 2,000 b. Rs. 24,000
c. Rs. 1,000 d. Not eligible to claim credit
Ans (d)
45. ABC Pvt. Ltd. is engaged in making Chocolates. The company on Diwali, distributed
the same chocolates to its employees. Can the company claim ITC in respect to the
inputs used in making such gifts?
a. Yes b. No
c. Maybe d. Company’s discretion
Ans (b)
46. True or false: A person cannot take ITC with respect to goods given as gifts or free
samples.
a. True b. False
Ans (a)
47. ITC shall be allowed in which of the following options

i. Excavators
ii. Road rollers
iii. Tippers
396
iv. Dumpers
Tick the correct option.
a. (i) & (ii)
b. (iii) & (iv)
c. (i), (ii) & (iii)
d. (i), (ii), (iii) & (iv)
Ans (d)
48. ITC in respect to pipelines laid outside the factory and telecommunication towers
fixed to earth by foundation or structural support including foundation and structural
support are __________ for the ITC.
a. Eligible
b. Not eligible
c. Eligible, with permission of Jurisdictional officer
Ans (b)
49. Situations:
i. Health insurance of factory employees
ii. Composite service used for installation of plant and machinery
iii. Purchase of car used by director for the business meetings only
Comment on the eligibility of the credit in below mentioned cases.
a. Not eligible, eligible, not eligible b. Not eligible, not eligible, not eligible
c. Eligible, not eligible and not eligible d. Eligible, eligible and not eligible
Ans (a)
50. “Credit of ITC may be availed for making zero rated supplies, even if such supply is
an exempted supply.” – Comment
a. Correct b. Incorrect
Ans (a)
397
51. A person has a single GST registration in respect of two different trade names. Can
he set off input tax credit from one trade name against the output tax liability of the
other?
a. Yes
b. No
c. Maybe
Ans (a)
52. Whether Input tax credit is available in respect of Input tax paid on use of mobile
phones / laptops / as given to employees?
a. Yes
b. No
c. Maybe
Ans (a)
53. Determine the eligibility of ITC in the following cases:

CASE ADMISIBILITY
Goods purchased without invoice Not available
Goods purchased from A Ltd. (Full payment is made by the Not available
recipient to A Ltd. but tax has not been deposited by A Ltd.)
Goods purchased from A Ltd. (invoice received in previous month Not available
while goods are yet to be received)
Electrical transformers used in the Factory Available
Pollution control equipment used in the factory Available
Moulds & Dies used in the Factory Available
Capital goods used as parts purchased from a supplier who paid Not available
tax of ` 10,000 under composition scheme
Food and Beverages purchased for Dealer’s meet Not available
Inputs stolen from the Factory Store Not available
Goods used for providing Service during Warranty period Available
398
Goods used for setting up Tele-communication towers being Not available

immovable property
Goods used in constructing an additional floor of Office Building Not available
Packing Materials used in the Factory Available
Goods destroyed due to Natural Calamity Not available
Goods used for repairing the office building & cost of such repairs Available
is debited to Profit & Loss Account
Paper for photocopying machine used in office Available
Inputs used for tests or quality control check Available
Inputs used in trial runs Available
Cement used for making foundation and structural support to Available
plant and machinery
Sales promotion service Available
Quality control service Available
Healthcare Service availed to upkeep the health of employees Not available
Accounting and auditing service Available
Health insurance services for employees (Services are not provided Not available
under Government obligation)
Hotel accommodation and conveyance facility for employee on Not available
vacation
Works contract services for construction of office building Not available
Health insurance of factory employees. Not Available
Purchase of manufacturing machine directly sent to job worker’s Available
premises under challan
Purchase of car used by director for the business meetings only. Not Available
Outdoor catering service availed for business meetings. Not Available
399
Chapter 7 - Registration
1. The term ‘agriculturist’ includes the following persons who undertake cultivation of
land:
(a) An individual
(b) A Hindu Undivided Family
(c) A co-operative society
(d) Both (a) and (b)
Ans. (d) Both (a) and (b)
2. The term ‘casual taxable person’ includes:

(a) A person occasionally supplying goods or services or both in a State or a Union
territory where he has no fixed place of business.
(b) A person occasionally supplying goods or services or both in a State or a Union
territory where he has fixed place of business.
Ans. (a) A person occasionally supplying goods or services or both in a State or a Union
territory where he has no fixed place of business.
3. Mr. X of Delhi is participating in Hitex Furniture Expo in Haryana where he has no fixed
place of business and exhibiting his products. During the expo, the said products will
be sold to the people attending and intending to purchase such products. In such
scenario, Mr. X shall obtain which of the following registration under the CGST Act,
2017:
(a) Non–resident taxable person registration
(b) Casual taxable person registration
(c) Regular taxpayer registration
(d) No registration under GST required.
Ans. (b) Casual taxable person registration.
400
4. A person who occasionally undertakes transactions involving supply of goods or

services or both, whether as principal or agent or in any other capacity, but who has
no fixed place of business or residence in India is:
(a) Non–resident taxable person
(b) Composition dealer
(c) Registered person
(d) Casual taxable person
Ans. (a) Non–resident taxable person
5. How the aggregate turnover of ` 20 Lakh is calculated?

(a) Aggregate value of all taxable supplies (excluding the value of inward supplies
on which tax is payable by a person on reverse charge basis), exempt supplies,
export of goods/services and interstate supplies of a person having same PAN
computed on all India basis.
(b) Aggregate value of all taxable supplies(excluding the value of inward supplies
export of goods/services and interstate supplies of a person computed for each
state separately.
(c) Aggregate value of all taxable intrastate supplies, export of goods/services
and exempt supplies of a person having same PAN computed for each state
separately.
(d) Aggregate value of all taxable supplies(excluding the value of inward supplies
computed on all India basis and excluding taxes if any charged under CGST Act,
SGST Act and IGST Act.
Ans. (d) Aggregate value of all taxable supplies(excluding the value of inward supplies
on which tax is payable by a person on reverse charge basis),, exempt supplies,
computed on all India basis and excluding taxes if any charged under CGST Act,
SGST Act and IGST Act
401
6. The term “place of business” includes:

(a) Place from where business is ordinarily carried out including godown,
warehouse, etc.
(b) Place where a taxable person maintains his books of account
(c) Place where taxable person is engaged in business through an agent
(d) All the above
Ans. (d) All the above
7. ‘P’ Ltd. has its registered office under the Companies Act, 2013 in the State of
Maharashtra. It also has a corporate office in the State of Telangana. What will be
the place of business of ‘P’ Ltd. under the CGST Act, 2017?
(a)
Telangana (b) Maharashtra
(c) Both (a) and (b) (d) None of the above
Ans. (c) Both (a) and (b)
8. P Ltd. has a contract with X Ltd. to provide book keeping services to Q Ltd. Q Ltd. is
a subsidiary of P Ltd. The liability to discharge consideration for such book keeping
service is of P Ltd. As per the CGST Act, 2017, who will be the recipient of the above
service?
(a)
P Ltd. (b) Q Ltd.
(c) X Ltd. (d) Both (a) and (b)
Ans. (a) P Ltd.
9. Aggregate turnover does not include-

(a) Inward supplies on which tax is payable on reverse charge basis
(b) Exempt supplies
(c) Export of goods or services or both
(d) Inter-State supplies of persons having the same PAN number

Ans. (a) Inward supplies on which tax is payable on reverse charge basis
402
10. ABC ltd. has provided following information for the month of Sep, 20XX:
(i) Intra-State outward supply ` 8,00,000/-
(ii) Inter-State exempt outward supply ` 5,00,000/-
(iii) Turnover of exported goods ` 10,00,000/-
(iv) Payment made to GTA ` 80,000/-
Calculate the aggregate turnover of ABC Ltd.
(a)
` 8,00,000/-
(b)
` 23,80,000/-
(c) ` 23,00,000/-
(d)
` 18,00,000/-
Ans. (c) ` 23,00,000/-
11. Whether all persons are mandatorily required to obtain registration?

(a) Yes
(b) Not required if he is an agriculturist or person exclusively engaged in supplying
exempt goods or services, if specified threshold limit does not exceed in a
financial year.
(c) Not required if he is an agriculturist or person exclusively engaged in supplying
exempt goods or services.
(d) No, only if specified threshold exceeds in a financial year then only need to
obtain.
Ans. (c) Not required if he is an agriculturist or person exclusively engaged in supplying

exempt goods or services.
12. Which one of the following is true?

(a) A person can’t collect tax unless he is registered.
(b) Registered person not liable to collect tax till his aggregate turnover exceeds
`20 lakhs/ `10 Lakhs as the case may be.
(c) A person can collect the tax during the period of his provisional registration.
(d) Both (a) and (b) are correct.
Ans. (a) A person can’t collect tax unless he is registered
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13. Within how many days a person should apply for registration?
(a) Within 60 days from the date he becomes liable for registration.
(b) Within 30 days from the date he becomes liable for registration.
(c) No Time Limit
(d) Within 90 days from the date he becomes liable for registration.
Ans. (b) Within 30 days from the date he becomes liable for registration
14. Which one of following statements are correct?

(a) Voluntary registration is not possible under GST.
(b) Voluntarily registered person not liable to comply with all the provisions of the
GST.
(c) A person may get himself registered voluntarily and shall comply with all the
provisions of GST.
(d) None of the above.
Ans. (c) A person may get himself registered voluntarily and shall comply with all the
provisions of GST
15. What is the validity of the registration certificate?

(a) One year
(b) No validity
(c) Valid till it is cancelled.
(d) Five years.
Ans. (c) Valid till it is cancelled
16. What is the validity of the registration certificate issued to casual taxable person
and non-resident taxable person?
(a) 90 days from the effective date of registration
(b) Period specified in the application for registration
(c) Earliest of (a) or (b) above
(d) 180 days from the effective date of registration.
Ans. (c) Earliest of (a) or (b) above
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17. Which of the following requires amendment in the registration certificate?

(a) Change of name of the registered person
(b) Change in constitution of the registered person
(c) Addition, deletion or retirement of partners or directors, Karta, Managing
Committee, Board of Trustees, Chief Executive Officer or equivalent, responsible
for the day to day affairs of the business
18. When can a voluntarily registration be cancelled?

(a) If the person does not start business within six months from the date of
registration.
(b) Business has been discontinued or transferred for any reason.
(c) Non-filing of returns for a continuous period of six months or for three
consecutive tax period in case of Composition dealer.
19. Which of the following statements are correct?

(i) Revocation of cancellation of registration under CGST/SGST Act shall be deemed
to be a revocation of cancellation of registration under SGST/CGST Act.
(ii) Cancellation of registration under CGST/SGST Act shall be deemed to be a
cancellation of registration under SGST/CGST Act.
(iii) Revocation of cancellation of registration under CGST/SGST Act shall not be
deemed to be a revocation of cancellation of registration under SGST/CGST Act.
(iv) Cancellation of registration under CGST/SGST Act shall not be deemed to be a
cancellation of registration under SGST/CGST Act.
(a) (i) and (ii)
(b) (i) and (iv)
(c) (ii) and (iii)
(d) (iii) and (iv)
Ans. (a) (i) and (ii)
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20. Which of the below statements are incorrect in finding out the effective date of
registration?
(a) From the date on which a person becomes liable to registration, where
application is submitted within 30 days from such date.
(b) Date of grant of registration, where application is submitted after 30 days from
such date.
(c) From the date of grant of provisional registration, in case of persons registered
under earlier law.
(d) Date of issue of certificate of registration.
Ans. (d) Date of issue of certificate of registration
21. An Unique Identity Number will be allotted to the following persons upon submitting
an application:
(a) All the taxable persons can apply.
(b) Only unregistered persons can apply.
(c) Specialized agency of the UNO or any multilateral financial institution or
consulate or embassy of foreign countries.
(d) No such concept under CGST/SGST Act.
Ans. (c) Specialized agency of the UNO or any multilateral financial institution or
consulate or embassy of foreign countries
22. Every registered taxable person shall display his certificate of registration in a
prominent location at his principal and at every other place of business also GSTIN
shall be displayed on the name board at the entry of such places.
(a) No, certificate of registration to be displayed only at a registered place of
business and GSTIN need not be displayed on the name board.
(b) Yes, above statement is correct.
(c) No, GSTIN to be displayed only on the invoices.
(d) Above statement is correct subject to certificate of registration to be displayed
only at registered place of business.
Ans. (b) Yes, above statement is correct
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23. Does a Medical Service Provider needs to get registered under GST, if his aggregate
turnover (u/s 2 (6) is more than ` 20 Lakhs but has taxable supply of only an amount
of `2.4 Lakh p.a.?
(a) No
(b) Yes

Ans. (b) Yes [he should get registered and also pay GST on taxable supply.]
24. Who will take registration on services in relation to transportation of goods (including
used household for personal use) if, GTA avails ITC on supplies made by him
(a) GTA, forward charge
(b) GTA, RCM
(c) Service receiver, forward charge
(d) Service receiver, RCM
Ans. (a) GTA, forward charge
25. Do I, a Mutual fund Distributor working in Delhi, need to register under GST, having
income less than ` 20 Lakhs but working for offices that are registered in Mumbai
and have branch offices in Delhi?
(a) No
(b) Yes
Ans. (b) No [Section 24 read Notification No. 10/2017 – Integrated Tax dated 13.10.2017]
26. A. SEZ Unit are required to register separately under GST.

B. Input Service Distributor shall make a separate application for registration as
such Input Service Distributor.
Comment on the above statements,
a. A – correct, B – incorrect
b. A – incorrect, B – correct
c. Both A & B – correct
d. Both A & B – incorrect
Ans (c)
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27. A person applying for registration as a casual taxable person shall be given a
temporary reference number by the Common Portal ______ .
a. For making advance deposit of tax
b. After validation of email and phone number with OTP
c. For making proper signature with DSC
Ans (a)
28. The application shall be forwarded to the _________ who shall examine the
application and the accompanying documents for GST registration.
a. Proper Officer b. GSTN
c. GSTP d. GST Portal
Ans (a)
29. The application for registration after being examined by the proper officer, if the
same are found to be in order, approve the grant of registration to the applicant
within ________________ from the date of submission of application if Aadhar
authentication is complete and the proper officer does not consider physical
verification necessary before grant of registration.
a. 3 working days b. 5 working days
c. 7 working days d. 10 working days
Ans (c)
30. The applicant shall furnish any clarification, sought electronically by the proper officer
regarding deficiency in application, in form GST REG – 04, within ____________
from the date of receipt of such notice.
a. 3 working days
b. 7 working days
c. 10 working days
d. 15 working days
Ans (b)
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31. The application for grant of registration shall be deemed to have been approved, if
the proper officer fails to take any action.
a. Within 7 working days from the date of submission of application in case of
Aadhar authentication completed
b. Within 7 working days from the date of receipt of clarification, information or
documents furnished by the applicant
c. Both (a) or (b)
Ans (c)
32. What is the full form of GSTIN?

a. Goods and Services Tax Identification Number
b. Goods and Services Tax Information Number
c. Goods and Services Type Identity Number
d. Goods and Services Type Information Number
Ans (a)
33. The Number of Digits in the PAN based GSTIN registration Number will be:
a. 10 Digits b. 12 Digits
c. 14 Digits d. 15 Digits
Ans (d)
34. Arrange the following in an order to form proper GSTIN, -

a. Ten characters for the PAN or the Tax Deduction and Collection Account Number
b. One checksum character
c. Two characters for the entity code
d. Two characters for the State code
a. c, a, d, b
b. a, d, c, b
c. d, c, b, a
d. d, a, c, b
Ans (d)
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35. What is the effective date of registration where the application for registration has
been submitted within 30 days from being liable to get registered?
a. Date of becoming liable to registration
b. Date of making application in GST REG – 01
c. Date of grant of registration
d. Date of first sale made after registration
Ans (a)
36. What is the effective date of registration in case the person voluntarily opts to take
registration in GST?
a. Date of becoming liable to registration
b. Date of making application in GST REG – 01
c. Date of grant of registration
d. Date of first sale made after registration
Ans (c)
37. What is the prescribed time period to apply for registration by a non – resident
taxable person?
a. Within 7 days after total turnover crosses 20 lakhs
b. Within 7 days prior to the commencement of business
c. Within 30 days from being liable to registration
d. At least 5 days prior to the commencement of business
Ans (d)
38. M/s ABC & Co. crossed their threshold limit for registration on 30.8.20XX. but it
applied for GST registration on 5.9.20XX and he was granted GST registration on
8.9.20XX. What will be his effective date of registration?
a. 30.8.20XX
b. 5.09.20XX
c. 8.9.20XX
d. 30.9.20XX
Ans (a)
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39. A. Voluntary registration can be cancelled any time.

B. Tax must be paid once voluntary registration is obtained, even if annual turnover
is less than Rs. 20 lakhs.
Comment on the above statements,
a. A – correct, B – incorrect
b. A – incorrect, B – correct
c. Both a and b – correct
d. Both a and b – incorrect
Ans (c)
40. What is the full form of UIN?

a. Un – identified Nation
b. United Identity Number
c. Unique Identity Number
d. United in Nation
Ans (c)
41. The threshold limit for inter state supply of goods is

(a) 10 lakh
(b) 20 lakh
(c) 75 lakh
(d) No limit – Fully taxable
Ans: (d)
42. Mr. A (Delhi) supplied goods to Kangra (Himachal Pardesh), he is eligible for GST
threshold limit amounting to Rs...?
(a) 10 lakh
(b) 20 lakh
(c) 75 lakh
Ans: (d)
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43. Mr. A (Manipur) supplied goods to Mr. B (Manipur), he is eligible to threshold limit of
Rs.....?
(a) 10 lakh
(b) 20 lakh
(c) 75 lakh
Ans: (a)
44. Mr. A (Jammu) supplied goods to Mr. B (Delhi), he is eligible to threshold limit of ₹
....?
(a) 10 lakh
(b) 20 lakh
(c) 75 lakh
Ans: (d)
45. Mr. A (Uttarakhand) supplied goods to Mr. B (Uttarakhand), he is eligible to GST

threshold limit amounting to Rs...?
(a) 10 lakh
(b) 20 lakh
(c) 75 lakh
Ans: (b)
46. A Ltd. of Jaipur, Rajasthan has effected intra-state supplies of taxable goods
amounting to ` 12,00,000 till 31.12.2022. On 01.01.2023 it has effected inter-state
supply of taxable goods amounting to `1,00,000. A Ltd. is of the opinion that it is not
required to get registered under GST Law since its aggregate turnover is not likely to
exceed `20,00,000 during financial year 2022-23. As a consultant of the company
you are required to advise the company relating to registration requirements.
Solution: The opinion of A Ltd. is not correct. As per Section 24 of CGST Act, 2017, person
making inter state taxable supply of goods are compulsorily required to obtain registration.
Thus, Section 24 is an overriding section that makes it mandatory to obtain registration
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by certain prescribed persons. even though the conditions prescribed u/s 22 are not met.
Hence, A Ltd. is mandatorily required to register.
47. With the help of the following information in the case of M/s Jayant Enterprises,
Jaipur (Rajasthan) for the year 2022-23, determine the aggregate turnover for the
purpose of registration under the CGST Act, 2017.

S. No. Particulars Amount `
(i) Sale of diesel on which Sale Tax (VAT) is levied by Rajasthan 1,00,000
Govt
(ii) Supply of goods, after completion of job work, from the 3,00,000
place of Jayant Enterprises directly by principal.
(iii) Export supply to England (U.K.) 5,00,000
(iv) Supply to its own additional place of business in Rajasthan. 5,00,000
(v) Outward supply on which GST is to be paid by recipient under 1,00,000
reverse charge.
All the above amounts are excluding GST.

You are required to provide reasons for treatment of various items given above.
(May/Nov 2018)
Solution: Computation of aggregate turnover of M/s Jayant Enterprises for the FY 2022-23

Particulars Amount `
Supply of diesel on which Sales Tax (VAT) is levied by Rajasthan 1,00,000
Government [Note-1]
Supply of goods, after the completion of job work, from the place of Nil
Jayant Enterprises, directly by the principal [Note-2]
Export supply to England [Note-3] 5,00,000
Supply to its own additional place of business in Rajasthan [Note-4] Nil
Outward supply on which GST is to be paid by recipient under reverse 1,00,000
charge [Note-5]
Aggregate turnover 7,00,000
Notes:-
1. As per section 2(47) of the CGST Act, 2017, exempt supply includes non-taxable
supply. Thus, supply of diesel, being a non-taxable supply, is an exempt supply
and exempt supply is specifically includible in aggregate turnover in terms of
section 2(6) of the CGST Act, 2017.
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2. Supply of goods after completion of job work by a registered job worker shall
be treated as the supply of goods by the principal in terms of explanation (ii)
to section 22 of the CGST Act, 2017.
3. Export supplies are specifically includible in the aggregate turnover in terms of

section 2(6) of the CGST Act, 2017.
4. Supply made without consideration to units within the same State (under same
registration) is a not a supply and hence not includible in aggregate turnover.
5. Outward supplies taxable under reverse charge would be part of the “aggregate
turnover” of the supplier of such supplies. Such turnover is not included as
turnover in the hands of recipient.
Section 22(1) of the CGST Act, 2017 provides that a supplier whose aggregate
turnover in a financial year exceeds ` 20 lakh [`10 lakh in Special Category
States other than Jammu and Kashmir] in a State/UT is liable to be registered.
The applicable turnover limit for registration, in the given case, will be ` 20
lakh as Rajasthan is not a Special Category State. Although, the aggregate
turnover of M/s Jayant Enterprises does not exceed ` 20 lakh, it is compulsorily
required to register in terms of section 24(i) of the CGST Act, 2017 irrespective
of the turnover limit as it is engaged in making inter-State supplies in the form
of exports to England.
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Chapter 8 – Tax invoice, debit note credit note, E way bill
1. Tax invoice must be issued by________

(a) Every supplier
(b) Every taxable person
(c) Registered persons not paying tax under composition scheme
(d) All the above
Ans. (c) Registered persons not paying tax under composition scheme
2. Law permits collection of tax on supplies effected prior to registration, but after
applying for registration:
(a) Yes, but only on intra-State supplies, if the revised invoice is raised within one
month
(b) Yes, but only on intra-State supplies effected to unregistered persons, if the
revised invoice is raised within one month
(c) Yes, on all supplies, if the revised invoice is raised within one month
(d) No, tax can be collected only on supplies effected after registration is granted.
Ans. (c) Yes, on all supplies, if the revised invoice is raised within one month
3. A bill of supply can be issued in case of inter-State and intra-State:

(a) Exempted supplies
(b) Supplies to unregistered persons
(c) Both of above
(d) None of the above.
Ans. (a) Exempted supplies
4. An invoice must be issued:

(a) At the time of removal of goods
(b) On transfer of risks and rewards of the goods to the recipient
(c) On receipt of payment for the supply
(d) Earliest of the above dates.
Ans. (a) At the time of removal of goods.
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5. An acknowledgement must be given on receipt of advance payment in respect of

supply of goods or services:
(a) Yes, in the form of a proforma invoice
(b) Yes, as a receipt voucher
(c) Yes, the invoice must be raised to that extent
Ans. (b) Yes, as a receipt voucher.
6. The recipient must issue an invoice in the following cases:

(a) The supplier fails to issue an invoice
(b) The supplier is unregistered
(c) The goods or services received are notified for tax on reverse charge basis

Ans. (b) & (c)
7. A payment voucher need not be raised if the supplier is an unregistered person.

(a) True, as the recipient is required to issue an invoice in that case
(b) True, if the unregistered person does not require it
(c) False, a payment voucher is the only document to evidence the supply
(d) False, payment voucher should be issued in addition to raising an invoice for
the inward supply
Ans. (d) False, payment voucher should be issued in addition to raising an invoice for the
inward supply
8. The time limit for issue of tax invoice in case of continuous supply of goods:
(a) At the time of issue of statement of account where successive accounts are
involved
(b) At the time of receipt of payment, if payments are received prior to issue of
accounts
(c) On a monthly basis
(d) As and when demanded by the recipient.
Ans. (a) At the time of issue of statement of account where successive accounts are
involved
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9. In case of goods sent on sale on approval basis, invoice has to be issued:

(a) while sending the goods; another Invoice has to be issued by the recipient while
rejecting the goods
(b) while sending the goods but the recipient can take credit only when the goods
are accepted by him
(c) when the recipient accepts the goods or six months from the date of removal
whichever is earlier
(d) when the recipient accepts the goods or three months from the date of supply
whichever is earlier
Ans. (c) when the recipient accepts the goods or six months from the date of removal,
whichever is earlier.
10. If Supply of Services has ceased under a contract before the completion of supply:
(a) Invoice has to be issued within 30 days on the basis of ‘Quantum Meruit’ from
the date of cessation
(b) Invoice has to be issued at the time of cessation to the extent of the supply
effected
(c) Invoice has to be issued for the full value of the contract after deducting a
percentage thereof as prescribed
(d) Invoice cannot be issued as the matter will be sub-judice.
Ans. (b) Invoice has to be issued at the time of cessation to the extent of the supply
effected.
11. The tax invoice should be issued _______the date of supply of service:
(a) Within 30 days from
(b) Within 1 month from
(c) Within 15 days from
(d) On

Ans. (a) Within 30 days from
12. A person who has applied for registration can:

(a) Provisionally collect tax till his registration is approved, on applying for
registration, if he has applied for registration within prescribed time
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(b) Neither collect tax nor claim input tax credit

(c) Issue ‘revised invoice’ and collect tax within 1 month of date of issuance of
certificate of registration, subject to conditions
(d) All of the above.
Ans. (c) Issue ‘revised invoice’ and collect tax within 1 month of date of issuance of
certificate of registration, subject to conditions.
13. The name of the State of recipient along with State code is required on the invoice
where:
(a) Supplies are made to unregistered persons
(b) Supplies are made to unregistered persons where the value of supply is `50,000
or more
(c) Inter-state supplies are made to unregistered persons where the value of supply
is ` 50,000 or more
(d) Supplies are made to registered persons
Ans. (b) Supplies are made to unregistered persons where the value of supply is ` 50,000
or more
14. A credit note is issued by ________ and it is a document accepted for GST purposes:
(a) Supplier, for reducing the tax/ taxable value
(b) Recipient, for reducing the tax/ taxable value
(c) Supplier, for increasing the tax/ taxable value
(d) Recipient, for increasing the tax/ taxable value
Ans. (a) Supplier, for reducing the tax/ taxable value.
15. For an increase in the tax/ taxable value, a debit note for GST purposes:
(a) Should be issued by the supplier
(b) Should be issued by the recipient
(c) May be issued by the supplier
(d) May be issued by the recipient
Ans. (a) Should be issued by the supplier.
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16. The last date for declaring the details of a Credit Note issued on 25-Jun-20XX for a
supply made on 19-Sep-20XX is:
(a) 31-Dec-20XX – Last date for filing annual return
(b) 20-Jul-20XX – Actual date for filing annual return
(c) 20-Jan-20XX – Due Date of Filing of December Return
(d) 20-Oct-20XX – Due Date of Filing of September Return
Ans. (d) 20-Oct-20XX – Due Date of Filing of September Return
17. The receipt voucher must contain:

(a) Details of goods or services
(b) Invoice reference
(c) Full value of supply
Ans. (a) Details of goods or services.
18. A registered person, Mr. A supplies goods worth Rs.175 to Mr. B an unregistered
person. Is it mandatory to issue tax invoice separately?
a. Yes
b. No
c. No, even if Mr. B asks for it
Ans (b)
19. “Removal”, in relation to goods, means –

a. Dispatch of the goods for delivery by the supplier
b. Collection of the goods by the recipient
c. Either (a) or (b)
d. Receipt of goods by the recipient
Ans (c)
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20. Tax Invoice must be issued within ______________ from the date of removal of
goods sent or taken on approval for sale or return.
a. 3 months
b. 30 days
c. 15 days
d. 6 months
Ans (d)
21. Which documents is to be issued by the consignor instead of tax invoice for
transportation of goods for job work?
a. E – way bill
b. Delivery Challan
c. Debit Note
d. Receipt Voucher
Ans (b)
22. Delivery Challan should be issued at the time of ________ of goods.

a. Sale
b. Purchase
c. Removal
d. Supply
Ans (c)
23. Bill of Supply is issued by the registered person –

a. Paying tax under composition scheme
b. Supplying exempted goods or services or both
c. (a) and (b) both
Ans (c)
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24. Invoice cum Bill of Supply may be issued by registered person

a. Supplying taxable as well as exempted goods and / or services
b. Supplying taxable goods and exempted services
c. Supplying taxable services and exempted goods
d. Supplying taxable as well as exempted services
Ans (a)
25. Revised invoice is an invoice which is issued against the invoice already issued
a. During the period beginning with the date of application till the effective date
of registration
b. During the period beginning with the effective date of registration till the date
of issuance of registration certificate
c. During the period beginning with the date of application till the date of issuance
of registration certificate
d. During the whole period prior to registration
Ans (b)
26. Goods may be transported without issue of invoice in case of

a. Supply of liquid gas where the quantity at the time of removal from the place
of business of the supplier is not known,
b. Transportation of goods for job work
c. Transportation of goods for reasons other than by way of supply
d. All of the above
Ans (d)
27. A registered taxable person shall, on receipt of advance payment w.r.t. any supply,
issue
a. Debit note
b. Credit note
c. Receipt voucher
d. Tax invoice
Ans (c)
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28. No tax is payable on receipt of advance payment w.r.t. any supply of __________.
a. Goods b. Services
c. Goods or Services or both d. Input services
Ans (a)
29. When payment is made by recipient of supply to supplier in respect of supplies

where tax is payable under reverse charge, _________ is required to be issued
a. Debit note b. Credit note
c. Receipt voucher d. Payment voucher
Ans (d)
30. If prices are increased after renegotiations, the supplier should issue
a. Credit note with GST
b. Debit note without GST
c. Credit note without GST
d. Debit note with GST
Ans (d)
31. Credit note is issued when ______________

a. Tax invoice is found to exceed the taxable value or tax payable
b. Goods supplied are returned by the recipient
c. Goods or services supplied are found to be deficient
d. All of the above
Ans (d)
32. When due date of payment is ascertainable, tax invoice shall be issued on or before.
a. Due date of payment
b. The date when supplier receives the payment
c. (a) or (b), whichever is earlier
d. (a) or (b), whichever is later
Ans (a)
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33. When due date of payment is not ascertainable, tax invoice shall be issued on or
before.
a. Due date of payment
b. The date when supplier receives the payment
c. (a) or (b), whichever is earlier
d. (a) or (b), whichever is later
Ans (b)
34. In case of taxable supply of services, tax invoice shall be issued within __________
from the date of supply of service provided that the supplier is other than an insurer
/ banking company / financial institution / non – banking financial company.
a. 15 days
b. 30 days
c. 45 days
d. 60 days
Ans (b)
35. What are the cases in which there is supply without movement of goods?
a. Agent who is in possession of certain goods decides to buy the goods
b. On – site installation of machinery
c. Sale and lease back transactions
d. All of the above
Ans (d)
36. Mr. A had a contract for suppling man power for 20 days for Rs. 20,000. However,
after 20 days, the service has stopped i.e. the service started on 11.9.20XX and
ceased on 30.9.20XX. When should the invoice be raised?
a. 11.09.20XX
b. 30.09.20XX
c. 11.10.20XX
d. Any of the above
Ans (b)
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37. Mr. A had made a supply in April, 20XX. The party returned the goods in May 20XX.
In which month the credit note is to be reflected?
a. April, 20XX
b. May 20XX
c. By 10th April, 20XX
Ans (b)
38. Some of the customers of a registered taxpayer asks the supplier not to mention the
tax amount instead show a consolidated price in the invoice. Is this valid?
a. Yes
b. No
c. It doesn’t make a difference
Ans (b)
39. Mr. A, a registered artist took the painting from his gallery on basis of ________ to
an art house for subsequent sale. There he issued __________ to a customer while
selling his art work.
a. Delivery challan, tax invoice
b. Delivery challan, bill of supply
c. Invoice, bill of supply
d. E way bill, bill of supply
Ans (a)
40. Concept of revised invoice was introduced so as to enable customer to _____________.

a. Avail input tax credit
b. Utilize input tax credit
c. Both (a) and (b)
d. Either (a) or (b)
Ans (a)
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41. Refund Voucher shall be issued if supply is not made and tax invoice not issued
against
a. Debit note
b. Receipt voucher
c. Credit note
d. Bill of supply
Ans (b)
42. The validity period of E – way Bill is said to initiate when:

a. Part A is completely filled
b. Part B is completely Filled
c. Both Parts are filled completely
Ans (c)
43. What shall be the validity of E – way bill in vase of vehicles other than over
dimensional cargo?
a. One day per 200 kms.
b. One day per 20 kms.
c. Both (a) and (b)
Ans (a)
44. Mr. A generated an E – way bill at 00 : 10 hrs. on 17th September. When shall be the
first day be considered to end for validity consideration?
a. At 11 : 50 p.m. of 17th September
b. At 12 : 00 Midnight of 18th September
c. At 12 : 10 am to 18th September
Ans (b)

425
45. What are the governing provisions of E – way bill under GST?
a. Section 68 of CGST Act b. Rule 138 of CGST Rules, 2017
c. Both (a) and (b) d. None of the above
Ans (c)
46. Can a transporter furnish information in Part A of Form GST EWB – 01?
a. No, since the same can be filled only by the Registered person causing movement
of goods
b. Yes, on an authorization received from registered person
Ans (b)
47. Mr. A got his goods transported through an ecommerce operator worth of Rs.
1,00,000. Mr. A however was not able to fill Part A of Form GST EWB – 01. What are
the alternatives to stand the viability of such movement of goods?
a. Movement of goods shall stand cancelled
b. E – commerce operator on an authorization from Mr. A shall generate e – way bill
c. Either A and B at the option of proper officer
Ans (b)
48. Mr. A transported certain goods through railways which in aggregate values to
Rs.1,00,000. Mr. filled Part A of Form GST EWB – 01, but did not fill Part B of Form
GST EWB – 01, anticipating the same to be fulfilled by the railway department. Does
he justify such course of action?
a. Yes
b. No
c. As per the option of proper officer
Ans (b)
426
49. Who is responsible to fill Part A of Form GST EWB – 01 in case of transportation of
goods through E – commerce operator?
a. Consignor
b. E – commerce operator on the authorization of consignor
c. Both (a) and (b)
Ans (c)
50. What shall be limit of generation of e – way bill in case of inter – State movement
of goods by a principal to a Job worker?
a. Rs. 50,000
b. Rs. 1,00,000
c. Rs. 20,000
d. No limit
Ans (d)
51. Is it feasible for consignor or consignee to furnish details in Part B and generate E –
way bill?
a. Yes, where such transportation is made by the consignor or consignee in their
own vehicle
b. No, since the same shall be filled by the transporter
c. Either (a) or (b) at the option of proper officer
Ans (a)
52. When can an e – way bill be generated in case of transportation of goods by railways
or airways?
a. Before commencement of movement of such goods
b. After commencement of movement of such goods
Ans (c)
427
53. What are the instances where E – way bill generation is mandatory?
a. Inter – State transportation of goods by Principal to Job Worker
b. Inter – State transportation of goods by any supplier of handicraft goods
c. Goods worth Rs. 2,00,000 are being sent from Delhi to Mumbai
d. All of the above
Ans (d)
54. Mr. A because of motor vehicles strike transported goods worth Rs. 60,000 through
Hand pulled cart. Does he need to generated e – way bill in the given case?
a. Yes, since the value of goods being transported exceeds the limit of Rs. 50,000
b. No, since generation of e way bill is exempted in case of non – motorized conveyance.
Ans (b)
55. Is it mandatory to generate an e way bill in case where goods are transported within
a State from the place of consignor to the place of transporter and the distance as
such is less than 50 kms.
a. Yes b. No
c. Optional d. None of the above
Ans (c)
56. An Army battalion took a shift from Maharashtra to Kashmir. As a consequence

there was movement of goods from such place. Is the Ministry of Defence liable to
generate e – way bill under this case?
a. Yes
b. No
c. As notified by the appropriate authority
Ans (b)
428
57. Does transportation of empty cargo containers require generation require generation
e – way bill?
a. Yes b. No
c. At the option of Government d. None of the above
Ans (b)
58. Government of Maharashtra for the purpose of certain construction in Maharashtra,

transported sandstones from MP through rail transport. Does such transportation
require generation of E – way bill by the government?
a. Yes
b. No
c. As notified by the Central Government
Ans (b)
59. Mr. A transported certain goods worth Rs. 2 lakhs to Mr. B. the goods initially were
transported by a truck. However, due to some technical faults, truck failed to reach
the destination. As a consequence the goods were shifted to other lorry. Is updating
e – way bill mandatory under the given case?
a. Yes
b. No
c. At the option of proper officer
Ans (a)
60. What is the significant of consolidated E – way bill?

a. Useful where single consignment is being transported through multiple vehicles
b. Useful where multiple consignments are being transported in one conveyance
c. Useful in both the cases
Ans (b)
429
61. Who can create consolidated E – way bill under the GST regime?
a. Consignor
b. Consignee
c. Transporter
d. All of the above
Ans (c)
62. M/s ABC enterprises from Pune is assigned to repair a boiler at the premises of M/s
XYZ of Ahmedabad. For this Job he needs to move his tools and equipment valuing
above Rs. 50,000. Does such movement require generation of E – way Bill?
a. Yes
b. No
Ans (a)
63. What is the time limit provided for cancellation of E – way bill?
a. Within 15 hours of generation of E – way bill
b. Within 24 hours of generation of E – way bill
c. Within 48 hours of generation of E – way bill
Ans (b)
64. An over dimensional cargo containing a consignment or goods or cargo, takes a

visit of 58 km in total. What shall be the validity of E way bill generated as per the
provision under this case?
a. 2 days
b. 3 days
c. 4 days
Ans (b)
430
65. A vehicle containing a consignment or goods or cargo, takes a visit of 360 km in

total. What shall be the validity of E way bill generated under this case?
a. 4 days b. 3 days
c. 2 days d. 1 day
Ans (c)
66. What is the time period provided for acceptance of details of E – way bill by the
supplier or recipient under rule 138(1)?
a. Within 72 hours of such details provided on the portal
b. Time of delivery of goods
c. Earlier of two
Ans (c)
67. Mr. A being a supplier sends a consignment to Mr. B on 25th March, 20XX. E way bill
relating to such goods was generated on 25th March and the details as such are
made available on the common portal by 3 pm. The consignment was delivered to
Mr. B on 27th March, 20XX. What shall be the last date for acceptance or rejection
of details of such e – way bill generated?
a. By 27th March, 20XX b. By 28th March, 20XX
c. At the choice of Mr. A d. None of the above
Ans (a)
68. Mr. A as a result of transfer, shifted from Haryana to Pune. He got all his household
items and person effects transported consequently. Does he requires to generate E –
way bill in such case?
a. Yes
b. No
Ans (b)
431
69. How many E – way bill is required to be generated under the Bill to Ship to
Transactions?
a. 1
b. 2
c. 3
d. Nil
Ans ( a)
70. M/s ABC Associates, a CA firm of Pune provides certain services to their clients who
are unregistered under GST. Who shall generate e – way bill in the given case?
a. M/s ABC Associates
b. Client
c. Not applicable in case of services
Ans (c)
71. A Pharmaceuticals company supplies free samples to a charitable hospital. Does

such supply requires generation of E – way bill?
a. Yes
b. No
Ans (a)
72. M/s ABC having unit 1 at central location of Pune, transfers goods to his unit 2
at industrial area, worth of Rs. 3,00,000. The distance being covered under such
movement is less than 50 kms. Whether E – way bill is required to be generated?
a. Yes
b. No
Ans (a)
432
73. ABC Road lines is carrying goods accompanied by a consolidated E – way Bill. In
route his truck meets an accident. Consequently another truck was arranged and
the consolidated e – way bill was required to be updated. How shall such bill be
updated?
a. Through E – way bill portal
b. By making an application to the appropriate authority concerned
c. Both (a) and (b)
d. Through GST portal
Ans (a)
74. Mr. A sold certain goods to Mr. B. However, when the goods reached the godown,
they were checked and Certain goods were found defective and thus were returned.
Does such sales return require generation of E – way Bill?
a. Yes
b. No
c. At the option of appropriate authority
Ans (a)
75. Is it possible to club multiple invoices in one E – way bill?

a. Yes b. No
c. At the option of proper officer d. None of the above
Ans (b)
76. What happens when there is change in the transporter company involved in movement
of goods?
a. Part A shall be updated with new transporter details
b. Part B shall be updated and modified with new transporter details
Ans (b)
433
77. For the purpose of making E – way Bill, what type shall be selected from the below
options in case the goods which are being sent for fair or exhibition?
a. Exports
b. Job work
c. Other than supply
d. Sales
Ans (c)
78. E – way bill is required in transportation of which of the below mentioned items?
a. Jewellery
b. Petroleum crude
c. Pearls
Ans (d)
434
Chapter 9 – Payment of tax
1. Which of these registers/ledgers are maintained online?

(a) Tax liability register
(b) Credit ledger
(c) Cash ledger
(d) All of them
Ans. (d) All of them
2. Payment made through challan will be credited to which registers/ledgers?

(a) Electronic Tax liability register
(b) Electronic Credit ledger
(c) Electronic Cash ledger
(d) All of them
Ans. (c) Electronic Cash ledger
3. What is deemed to be the date of deposit in the electronic cash ledger?

(a) Date on which amount gets debited in the account of the taxable person
(b) Date on which payment is initiated and approved by the taxable person
(c) Date of credit to the account of the appropriate Government
(d) Earliest of the above three dates
Ans. (c) Date of credit to the account of the appropriate Government
4. Balance in electronic credit ledger can be utilized against which liability?

(a) Output tax payable
(b) Interest
(c) Penalty
(d) All of them
Ans. (d) Output tax payable
435
5. Balance in electronic credit ledger under IGST can be used against which liability?
(a) IGST Liability only
(b) IGST and CGST liability
(c) IGST, CGST and SGST liability
(d) None of them
Ans. (c) IGST, CGST and SGST liability
6. Balance in electronic credit ledger under CGST can be used against which liability?
(a) CGST Liability only
(b) CGST and IGST liability
(c) CGST, IGST and SGST liability
(d) None of them
Ans. (b) CGST and IGST liability
7. Balance in electronic credit ledger under SGST can be used against which liability?
(a) SGST Liability only
(b) SGST and IGST liability
(c) SGST, IGST and CGST liability
(d) None of them
Ans. (b) SGST and IGST liability
8. What should the taxable person do if he pay’s the wrong tax i.e. IGST instead of
CGST/SGST or vice versa?
(a) Remit tax again and claim refund
(b) It will be auto-adjusted
(c) It will be adjusted on application/request

Ans. (a) Remit tax again and claim refund
436
9. What should the taxable person do if he pay’s tax under wrong GSTIN?
(a) Pay again under right GSTIN and claim refund
(b) Auto-adjustment
(c) Adjustment on application/request
(d) Raise ISD invoice and transfer
Ans. (a) Pay again under right GSTIN and claim refund

10. What is the due date for payment of tax?
(a) Last day of the month to which payment relates
(b) Within 10 days of the subsequent month
(c) Within 20 days of the subsequent month
(d) Within 15 days of the subsequent month
Ans. (c) Within 20 days of the subsequent month
11. What is the validity of challan in FORM GST PMT-06?

(a) 1 day
(b) 5 days
(c) 15 days
(d) Perpetual validity

Ans. (c) 15 days
12. A taxable person failed to pay tax and/or file returns on time. He should pay interest
on?
(a) Gross tax payable
(b) Gross tax payable & input credit claimed
(c) Net tax payable
(d) No interest payable, if reasonable cause is shown

Ans. (c) Net tax payable
437
13. For payment of IGST input tax credit can be utilised in the following manner only :
(a) IGST, CGST or SGST/UTGST in any order and any proportion
(b) IGST, SGST/UTGST, CGST
(c) CGST, SGST/UTGST, IGST
(d) Any of the above manner
Ans. a) IGST, CGST or SGST/UTGST in any order and any proportion
32. What is the full form of CPIN?

a. Challan Identification Number
b. Common Portal Identification Number
c. Challan Pin Identification Number
d. Common Pin Identification Number
Ans (b)
33. What is the full form of CIN?

a. Challan Identification Number b. Common Portal Identification Number
c. Common Inquiry Number d. Challan Inquiry Number
Ans (a)
34. What is the full form of BRN?

a. Bank Reconciliation Number b. Bank Reconciliation Notification
c. Bank Reference Notification d. Bank Reference Number
Ans (d)
35. What is Electronic – Focal Point Branch?

a. Authorized branches of banks to collect payment of GST
b. Prescribed banks to distribute GST forms
c. Prescribed banks for GST workshops
d. All of the above
Ans (a)
438
36. Mr. A was liable to pay GST of Rs.10,000 on 20.7.20XX but he failed to pay. Later he
decided to pay tax on 25.09.20XX. what would be the amount of interest that has
to be paid by him?
a. Rs. 325
b. Rs. 330
c. Rs. 434
d. Rs. 441
Ans (b)
37. Any payment required to be made by a person who is not registered under the Act,
shall be made on the basis of a_______________ .
a. Temporary Identification Number
b. Transaction Reference Number
c. Challan Identification Number
d. Bank Reference Number
Ans (a)
38. Mr. A was liable to pay GST of Rs.10,000 on 20.8.20XX but he failed to pay. Later he
decided to pay tax on 26.10.20XX. what would be the period for which interest has
to be paid by him?
a. 66 days b. 67 days
c. 68 days d. 70 days
Ans (b)
439
Chapter 10 - Returns
1. The details of outward supplies of goods or services shall be submitted by

(a) 10th/11th of the succeeding month
(b) 18th of the succeeding month
(c) 15th of the succeeding month
(d) 20th of the succeeding month
Ans. (a) 10th/11th of the succeeding month
2. Details of Outward supplies shall include

(a) Invoice
(b) Credit and Debit notes
(c) Revised invoice issued in relation to outward supplies
(d) All the above
3. Which of the following is correct?

(a) Non-Resident taxable person shall file the return by 20th of succeeding month
in Form GSTR 5
(b) Input Service Distributor shall furnish the return by 13th of the succeeding
month in Form GSTR 6
(c) The person deducting tax at source shall furnish the return by 10th of the
succeeding month in Form GSTR 7
(d) All the above
4. The First return shall be filed by every registered taxable person for the period from
(a) The date on which he became liable for registration till the date of grant of
registration
(b) The date of registration to the last day of that month
(c) The date on which he became liable for registration till the last day of that
month
440
Ans. (a) The date on which he became liable for registration till the date of grant of
registration
5. Every registered taxable person shall be entitled to take credit of input tax in his
return and such input tax credit shall be credited to
(a) Personal Ledger Account
(b) Refund account
(c) Electronic Cash Ledger
(d) Electronic Credit Ledger
Ans. (d) Electronic Credit Ledger
6. The annual return shall be filed by the registered taxable person (other than dealers
paying tax under section 10) in form
(a) GSTR 7
(b) GSTR 9
(c) GSTR 9A
(d) GSTR 10
Ans. (b) GSRT 9
7. The final return shall be filed by the registered taxable person within
(a) 3 months of the date of cancellation
(b) 3 months of the Date of order of cancellation
(c) Later of the (a) or (b)
(d) Earlier of the (a) or (b)
Ans. (d) Later of (a) or (b)
8. Which of the following is correct?

(a) Failure to file annual return within due date attracts a late fee of ` 100 per day
up to 0.25% of his turnover
(b) Failure to file annual return within due date attracts late fee of 1% of his
turnover till the failure continues
441
(c) Failure to file annual returns within due date attracts a late fee of ` 100 per
day up to 1% of his turnover.
(d) On failure to file annual return within due date the proper officer shall issue a
notice of non-filing on such person
Ans. (a) Failure to file annual return before due date attracts a late fee of ` 100 per day
up to 0.25% of his turnover
9. Output tax in relation to a taxable person under the CGST Act, 2017 includes:
(a) Tax chargeable on taxable supplies made by him
(b) Tax chargeable on taxable supplies made by his agent
(c) Tax payable by him under reverse charge
(d) Both (a) and (b)
Ans. (d) Both (a) and (b)
10. A goods and service tax practitioner can undertake the following activities if
authorized by the taxable person
(a) Furnish details inward and outward supplies
(b) Furnish monthly / quarterly return
(c) Furnish Annual and Final return
15. In a case there is no transaction during the relevant period, Nil return is required to
be filed by all___________.
a. Taxable persons
b. Persons liable to pay tax
c. Registered persons
d. Composition dealer
Ans (c)
442
16. In case of monthly returns, taxes will be payable _________.

a. Before filing the return
b. At the time of filing return
c. After or at the time of filing return
d. Before or at the time of filing return
Ans (d)
17. Details of outward suppliers of goods or services by registered person paying tax
under composition scheme shall be submitted in
a. FORM GSTR-1
b. FORM GSTR-4
c. FORM GSTR-6
d. FORM GSTR-7
Ans (b)
18. Registered person paying tax under normal scheme shall submit GSTR-3B monthly
a. Within 7 days after the end of such month
b. Within 10 days after the end of such month
c. Within 18 days after the end of such month
d. Within 20 days after the end of such month
Ans (d)
19. Every registered taxable person who has made outward suppliers in the period
between the date on which he become liable to registration till the date on which is
registration has been granted shall declare the same in the
a. First return filed by him after grant of registration
b. First two return filed by him after grant of registration
c. FORM GSTR-7
d. FORM GSTR-11
Ans (a)
443
20. Every registered taxable person who is required to file return under section 39 of
CGST act and whose registration has been cancelled shall furnish
a. Last return
b. Final return
c. Closing return
Ans (b)
21. Final return shall be furnished in

a. Form GSTR-8
b. Form GSTR-9
c. Form GSTR-10
d. Form GSTR-11
Ans (c)
22. GST practitioners must be:

a. A citizen of India
b. Person of sound mind
c. Non adjudicated as an insolvent
d. All of above
Ans (d)
444

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Inter CA

Welcome to the world of knowledge – JK Shah Classes

I wish you a very happy study time.

DYNAMICS OF Page No.

Corporate Level Page No.

FUNCTIONAL LEVEL Page No.

Strategy Implementation Page No.

Introduction to GST &

Invoice and Other Page No.

Concept 1: Business Policy:

However, the introduction of business policy in the curriculum of business schools or

Utility of Business Policy;

• Starting from day-to-day planning in earlier times, managers tried to anticipate

Business Policy tends to emphasize on the rational-analytical aspect of strategic

Concept 2: Concept of Management:

To understand the concept of strategic management, we need to have a basic understanding

An organisation becomes a unified functioning system when management systematically

Management is an influence process to make things happen, to gain command over

Strategy may be defined as a long-range blueprint of an organisation, what it wants to be?

3.1 Classification of Strategy based on approach;

1. Proactive approach (i.e., Proactive strategy), and

2. Reactive approach (i.e., Reactive strategy).

Q. “Strategy is partly proactive and partly reactive.” do you agree?

In Proactive Strategy, organizations will analyse possible environmental scenarios and

It is based on unanticipated events such as Competitor’s strategies, Market changes require

Hence, strategy is partly proactive and partly reactive.

3.2 Characteristics of Strategy;

• Ways to win over enemy:

• Designed to move to the desired future position:

• Pragmatic and flexible:

• Strategy is partly proactive and partly reactive:

However, if a company’s strategy is developed as a response to unanticipated

• Strategy is not a substitute:

• Strategy can never be perfect, flawless and optimal:

Means strategies may fail if there are loopholes in formulation or implementation of

• Strategy is not a bundle of tricks and magics:

Strategic management is not a bundle of tricks and magic. It is a deliberate managerial

Every organisation whether it is large or small requires strategies. These organisations

Q. “Strategic management is a bundle of tricks and magic. Do you agree?

Hence, strategic management is not a bundle of tricks and magic.

Concept 4: Strategic Management:

In a hyper competitive marketplace, companies can operate successfully by creating

Definition of Strategic Management;

4.1 The overall objectives of strategic management are twofold;

i. To create competitive advantage;

4.2 Importance (Benefits) of Strategic Management;

The major benefits of strategic management are:

• Proactive instead of Reactive:

Strategic management helps organisations to be proactive instead of reactive in

• Framework for all major decisions:

• Corporate Defence Mechanism:

Strategic management serves as a corporate defence mechanism against mistakes and

• Developing Core Competence and Competitive Advantage:

Strategic management helps the organisation to develop certain core competencies

4.3 Limitations (Drawbacks) of Strategic Management;

• Strategic management is a costly process;

Strategic management adds a lot of expenses to an organization. Expert strategic

• Strategic management is a time-consuming process;

• Environment is highly complex and turbulent (i.e., unstable);

In a competitive scenario, where all organisations are trying to move strategically, it

Concept 5: Strategic levels in Organisations:

A typical large organization is a multi-divisional organisation that competes in several

5.1 Corporate level of management consists of;