Chapter 3 – Charge of GST

Taxable Event
• Taxable Event means the basis for charging any tax.
• The taxable event under GST is “supply”.
• CGST and SGST/UTGST is levied on Intra-State supplies.
• IGST is levied on Inter-State supplies.
• A supply is said to “Intra-State” when the location of the supplier and the place of supply of
goods or services are in the same State/Union Territory.
• A supply is said to “Inter-State” when the location of the supplier and the place of supply of
goods or services are in:
o Two different States, or
o Two different Union Territories, or
o A State and a Union Territory.

Extent of CGST Act, 2017

CGST Act, 2017 extends to the whole of India.

Extent of State Act, 2017

• India is a federal union comprising 28 states and 8 union territories.
• Out of these 8 Union Territories, three Union Territories (Delhi, Jammu & Kashmir, and
Puducherry) have their own State Legislatures.
• Legislature means an organization consisting of people who have been elected to make laws.
• Every state, and union territory having a separate state legislature, has its own SGST Act.
• The SGST Act of a particular state, or a union territory having a separate state legislature,
extents to the whole of that state or union territory.
• For example, Uttar Pradesh GST Act, 2017 extends to whole of the State of Uttar Pradesh.
• Please note that the word “State” includes a Union Territory with Legislature.
• Therefore, for the GST law, when we say “state”, “Delhi, Jammu & Kashmir, and Puducherry”
are also included even though they are Union Territories, because they have their own
legislature.

Extent of UTGST Act, 2017

• UTGST Act, 2017 extends to the Union Territories of Andaman and Nicobar Islands,
Lakshadweep, Dadra and Nagar Haveli and Daman and Diu, Ladakh, Chandigarh and other
territory, i.e., the Union Territories without State Legislature.
• “Other Territory” includes territories other than those comprising in a State and those referred
to above.

IGST Act, 2017

It refers to the Act which provides for principles to determine what is an Inter-State or Intra-State
supply, and levy of tax on Inter-State supply of goods or services or both (other than supply of alcoholic
liquor for human consumption).

CA NISHANT KUMAR 1
Levy and Collection of GST (Section 9 of CGST Act, and Section 5 of IGST
Act)
1. Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods
and services tax on all intra-State supplies of goods or services or both, except on the supply
of alcoholic liquor for human consumption, on the value determined under section 15 and at
such rates, not exceeding twenty per cent, as may be notified by the Government on the
recommendations of the Council and collected in such manner as may be prescribed and shall
be paid by the taxable person.
2. The central tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly
known as petrol), natural gas and aviation turbine fuel shall be levied with effect from such
date as may be notified by the Government on the recommendations of the Council.
3. The Government may, on the recommendations of the Council, by notification, specify
categories of supply of goods or services or both, the tax on which shall be paid on reverse
charge basis by the recipient of such goods or services or both and all the provisions of this Act
shall apply to such recipient as if he is the person liable for paying the tax in relation to the
supply of such goods or services or both.
4. The Government may, on the recommendations of the Council, by notification, specify a class
of registered persons who shall, in respect of supply of specified categories of goods or services
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.
5. The Government may, on the recommendations of the Council, by notification, specify
categories of services the tax on Intra-State supplies of which shall be paid by the electronic
commerce operator if such services are supplied through it, and all the provisions of this Act
shall apply to such electronic commerce operator as if he is the supplier liable for paying the
tax in relation to the supply of such services. Provided that where an electronic commerce
operator does not have a physical presence in the taxable territory, any person representing
such electronic commerce operator for any purpose in the taxable territory shall be liable to
pay tax: Provided further that where an electronic commerce operator does not have a
physical presence in the taxable territory and also he does not have a representative in the
said territory, such electronic commerce operator shall appoint a person in the taxable
territory for the purpose of paying tax and such person shall be liable to pay tax.

Analysis of Section 9(1)

• According to Section 9(1) of the CGST Act, 2017, the Central Goods and Services Tax (CGST)
will be imposed on all intra-state supplies of goods or services, except alcoholic liquor for
human consumption, at a rate not exceeding 20%, based on the value determined under
Section 15.
• The CGST will be collected in a manner prescribed by the government and paid by taxable
persons, who are either registered or liable to be registered under Section 22 or 24 of the CGST
Act.

Analysis of Section 9(2)

• On the following 5 products, GST shall be levied from such date as may be notified by the
Government on the recommendations of the Council:

CA NISHANT KUMAR 2
 o Petroleum Crude
o High Speed Diesel
o Motor Spirit (commonly known as Petrol)
o Natural Gas, and
o Aviation Turbine Fuel
• The levy under section 9(1) is subject to the provisions of section 9(2).

Analysis of Sections 9(3) and 9(4)

• CGST/IGST shall be paid by the recipient of goods or services or both, on reverse charge basis,
in the following cases:
o Supply of such goods or services or both, as notified by the Government on the
recommendations of the GST Council.
o Supply of specified categories of goods or services or both by an unregistered supplier
to specified class of registered persons, as notified by the Government on
recommendation of GST Council.
• All the provisions of the CGST/IGST Act shall apply to the recipient in the aforesaid cases as if
he is the person liable for paying the tax in relation to the supply of such goods or services or
both.

Reverse Charge Mechanism

• Generally, the supplier of goods or services is liable to pay GST. This is known as Forward
Charge.
• However, under the reverse charge mechanism, the liability to pay GST is on the recipient of
the goods or services.
• Under normal circumstances, the statutory liability to deposit GST and undertake compliances
[i.e., to obtain registration under GST, deposit the tax with the Government, filing returns, etc.]
is on the supplier.
• Under reverse charge mechanism, the statutory liability to deposit GST and undertaking
compliance requirements, [i.e., to obtain registration under GST, deposit the tax with the
Government, filing returns, etc.] in on the recipient.
• Supplies of goods taxable under reverse charge: Goods like
o cashewnuts [not shelled/peeled],
o bidi wrapper leaves,
o tobacco leaves and
o raw cotton (when supplied by an agriculturist to any registered person),
o supply of lottery (when supplied by State Government, Union Territory or any local
authority to lottery distributor or selling agent),
o silk yarn (when supplied by manufacturer of silk yarn to any registered person),
o used vehicles,
o seized and confiscated goods,
o old and used goods,
o waste and scrap (when supplied by Central Government, State Government, Union
Territory or any local authority to any registered person), etc.
are taxable under reverse charge. Therefore, on such purchases, the recipient is supposed to
pay tax.

CA NISHANT KUMAR 3
 • Supply of services taxable under reverse charge: There’s a notification “Notification No.
13/2017”, which has notified some categories of supply of services, wherein whole of the tax
shall be paid by the recipient under reverse charge basis.

Goods Transport Agency (Entry 1 of Notification 13/2017)

• An agency providing the services of transportation of goods from one place to another is said
to be a Goods Transport Agency.
• GTA services are taxable at the following two rates:
o If the GTA has not taken ITC on goods or services used in supplying transportation of
goods by road, the rate applicable is 5% (2.5% CGST + 2.5% SGST/UTGST or 5% IGST).
o If the GTA has taken ITC on goods or services used in supplying transportation of goods
or services, the rate applicable is 12% (6% CGST + 6% SGST/UTGST or 12% IGST).
• From the second sub-bullet above, it is clear that if the GTA wants to avail ITC of goods or
services used in supplying the services of transportation, then GTA will have to pay GST @ 12%.
• If, however, GTA doesn’t want to avail ITC of goods or services used in supplying the services
of transportation, then GST shall be paid by the recipient under reverse charge mechanism,
and the rate applicable will be 5%. However, GTA can exercise the option to pay tax under
forward charge mechanism. In such a case, GTA has to take registration under the CGST Act,
2017 and has to issue a tax invoice to the recipient charging GST @ 5% and has to make a
prescribed declaration on such invoice issued by him.
• The reverse charge provisions are applicable only if the recipient is a specified recipient.
• Specified Recipients are any of the following:
o any factory registered under, or governed, by the Factories Act, 1948; or
o any society registered under the Societies Registration Act, 1860, or, under any other
law for the time being in force in any part of India; or
o any cooperative society established by or under any law; or
o any person registered under the CGST Act or the IGST Act or the SGST Act or the UTGST
Act; or
o any body-corporate established, by or under any law; or
o any partnership firm whether registered or not under any law including association of
persons; or
o any casual taxable person; located in the taxable territory.
• RCM is not applicable if the recipient is registered only for deducting tax at source: Reverse
charge mechanism (RCM) shall not apply to services provided by a GTA, by way of transport of
goods in a goods carriage by road to-
o a department/establishment of the Central Government/State Government/Union
territory; or
o local authority; or
o Governmental agencies,
which has taken registration under the CGST Act only for the purpose of deducting tax under
section 51 and not for making a taxable supply of goods or services.

CA NISHANT KUMAR 4
However, even when GST is payable @5%, GTA can exercise the option to pay tax under forward charge
mechanism. In such a case, GTA has to take registration under the CGST Act, 2017 and has to issue a
tax invoice to the recipient charging GST @ 5% and has to make a prescribed declaration on such
invoice issued by him.

Question 1 – November, 2018 – 3 Marks; MTP May, 2019 (Similar)

Decide which person is liable to pay GST in the following case, where the recipient is located in the
taxable territory. Ignore the Aggregate Turnover and Exemption available. ‘Safe Trans’, a Goods
Transport Agency, transported goods of Kapil & Co., a partnership firm which is not registered under
GST.

Solution

As per Entry 1 of Notification 13/2017, supply of services by a goods transport agency (GTA) in respect
of transportation of goods by road to any partnership firm whether registered or not under any law
shall be liable to be taxed under reverse charge mechanism and the recipient of service shall be liable
to pay GST. Thus, Kapil and Co., shall be liable to pay GST under reverse charge mechanism. However,
GTA can exercise the option to pay tax under forward charge mechanism. In such a case, GTA has to
take registration under the CGST Act, 2017 and has to issue a tax invoice to the recipient charging GST
@ 5% and has to make a declaration of paying tax under forward charge mechanism on such invoice
issued by him. Besides this, if GST is paid @ 12% by GTA, then Goods Transport Agency is liable to pay
tax under forward charge mechanism.

Question 2 – November, 2020 – 2 Marks

In the following case, decide who is liable to pay GST, if any. You may assume that recipient is located
in the taxable territory. Ignore the aggregate turnover and exemption available. ‘Veer Transport’, a

CA NISHANT KUMAR 5
registered Goods Transport Agency (GTA) paying IGST @ 12%, transported goods by road of Dilip &
Company, a sole proprietary firm (other than specified person) which is not registered under GST or
any other law.

Solution

In case of a GTA service, where GST is payable @ 5% and recipient is one of the specified recipients,
tax is payable by the recipient of service under reverse charge, unless GTA has exercised the option to
pay GST under forward charge mechanism.

However, where GST is payable @ 12%, tax is payable under forward charge by the supplier of service.
Therefore, in the given case, tax is payable under forward charge by “Veer Transport”, a registered
GTA.

Note: In the given case, since the recipient of service is other than specified recipient, i.e., unregistered
sole proprietorship firm, GTA service is exempt from GST. However, in the above answer, the said
exemption has been ignored since the question specifically requires the students to ignore the
exemptions, if any available.

Legal Services (Entry 2 of Notification 13/2017)

• Legal service means any service provided in relation to advice, consultancy, or assistance, in
any branch of law, in any manner; and includes representational services before any court,
tribunal, or authority.
• Service Supplier:
o Individual Advocate (including a Senior Advocate), or
o A firm of advocates
• Service Recipient: Business Entity located in the taxable territory.
• If a business entity located in the taxable territory is the litigant, applicant, or the petitioner, it
shall be treated as the person who receives the legal services.
• Therefore, if an individual advocate (including a Senior Advocate) or a firm of advocates
provide legal services to a business entity located in the taxable territory, GST is paid by the
business entity under reverse charge.

Question 3

State with reason, person liable to pay GST in the following case. Assume recipient is located in taxable
territory. Legal fees received by Mr. Sushrut, a senior advocate, from M/s Tatva Trading Company
having turnover of ₹50 lakhs in preceding F.Y.

Solution

When services are provided by a senior advocate by way of legal services, directly or indirectly to any
business entity located in the taxable territory, reverse charge mechanism is applicable and business
entity is liable to pay GST. In this case, M/s Tatva Trading Company will be liable to pay GST.

Arbitral Tribunal (Entry 3 of Notification 13/2017)

• When two or more parties are aggrieved on something, and they don’t want to take the
matters to court, they turn to something known as an Arbitral Tribunal.
• Arbitral Tribunal is a panel of unbiased adjudicators which resolves the dispute by way of
arbitration.

CA NISHANT KUMAR 6
 • An adjudicator is someone who presides, judges, and arbitrates during a formal dispute or
competition.
• Arbitration is a way to resolve disputes outside the judiciary courts.
• An arbitration decision is legally binding on both sides and enforceable in the courts, unless all
parties stipulate that the arbitration process and decision are non-binding.
• Service Supplier: An Arbitral Tribunal
• Service Recipient: Any business entity located in the taxable territory.
• Therefore, if an arbitral tribunal provides arbitration services to a business entity located in
the taxable territory, GST is paid by the business entity under reverse charge.

Sponsorship Services (Entry 4 of Notification 13/2017)

• Sponsor means a person or organization that pays for or contributes to the costs involved in
staging a sporting or artistic event in return for advertising.
• Suppose IPL needs money to run its tournament. For that, it needs money. It goes to
Unacademy, and Unacademy offers the money. In return, Unacademy banners and boards are
place all around the cricket stadium. Here, Unacademy has sponsored the event; IPL has
received the consideration and provided the services of sponsorship to Unacademy.
Therefore, the service supplier is IPL, and the service recipient is Unacademy.
• If any person supplies sponsorship services to any body corporate or partnership firm located
in the taxable territory, GST is paid by the body corporate or partnership firm under reverse
charge.

Question 4 – November, 2018 – 3 Marks; MTP May, 2019 (Similar)

Decide which person is liable to pay GST in the following case, where the recipient is located in the
taxable territory. Ignore the Aggregate Turnover and Exemption available. Mr. Raghu provided
sponsorship services to WE-WIN Cricket Academy, an LLP.

Solution

As per Entry 4 of Notification 13/2017, services provided by way of sponsorship to any body corporate
or partnership firm shall be liable to be taxed under reverse charge mechanism and the recipient of
service shall be liable to pay GST. For the purpose of this notification, a “limited liability partnership”
formed and registered under the provisions of the Limited Liability Partnership Act, 2008 shall also be
considered as a partnership firm or a firm. Thus, WE-WIN Cricket Academy shall be liable to pay GST.

Services Supplied by Government (Entry 5 of Notification 13/2017)

• When any services are supplied by the Government to a business entity located in the taxable
territory, GST is paid by the business entity under reverse charge.
• Here, Government means:
o Central Government, or
o State Government, or Union Territory, or Local Authority.
• However, if the government provides the services of renting of immovable property, reverse
charge doesn’t apply.
• Also, if the government provides services by the Department of Posts, the provisions of reverse
charge do not apply.
• Also, if the government provides services in relation to an aircraft or a vessel, inside or outside
the precincts of a port or an airport, the provisions of reverse charge do not apply.

CA NISHANT KUMAR 7
 • Also, if the government provides services of transport of goods or passengers, the provisions
of reverse charge do not apply.

Renting of Immovable Property by Government to a Registered Person

(Entry 5A of Notification 13/2017)
When the services of renting of immovable property are provided by the Government (Central
Government, State Government or Union Territory or Local Authority) to a person registered under
CGST Act, 2017, the registered person is required to pay GST under reverse charge.

Question 5

State with reason, person liable to pay GST in the following case. Assume recipient is located in taxable
territory. Rental income received by Tamil Nadu State Government from renting an immovable
property to Mannappa Pvt. Ltd. (turnover of the company was ₹42 lakhs in the preceding F.Y.)

Solution

As per Entry 5A of Notification No. 13/2017-CT (Rate), in case of services supplied by the Central
Government, State Government, Union territory or local authority by way of renting of immovable
property to a person registered under the CGST Act, 2017, the recipient registered under the CGST Act,
2017 will be liable to pay GST. Hence, Mannappa Pvt. Ltd. will be liable to pay GST under reverse charge
mechanism.

Renting of Immovable Property by Any Person to a Registered Person

(Entry 5AA of Notification 13/2017)
When the services of renting of residential dwelling are provided by any person to a registered person,
the registered person is required to pay GST under reverse charge.

Transfer of Development Rights or Floor Space Index (Entry 5B of

Notification 13/2017)
• It is a common practice for landowners to give their land to builders (called promoters) to
develop a real estate project.
• In consideration, the landowner receives a share in the developed property which may or may
not be accompanied by some other cash consideration as well.
• Here, the land developer technically transfers the “development rights” to a builder (called
the promoter) to use the “floor space index” for developing the real estate project.
• The floor space index means the total area covered by all the floors of the buildings, divided
by the total area of the plot on which these buildings are constructed.
• When any person supplies the service by way of transfer of development rights or Floor Space
Index (FSI) (including additional FSI) for construction of a project by a promoter, the promoter
is required to pay GST under reverse charge.

Long Term Lease of Land (Entry 5C of Notification 13/2017)

When any person provides long term lease of land (30 years or more) for construction of a project by
a promoter and receives consideration in the form of upfront amount (called as premium, salami, cost,
price, development charges, or by any other name) which may or may not be accompanied by a
periodic rent, then the promoter is required to pay GST under reverse charge.

CA NISHANT KUMAR 8
Director of a Company (Entry 6 of Notification 13/2017)
When the director of a company or a body corporate supplies services to such company or body
corporate located in taxable territory, GST is paid by this company or body corporate under reverse
charge.

Insurance Agent (Entry 7 of Notification 13/2017)

• An insurance agent procures insurance business for the insurer.
• When an insurance agent supplies services to any person carrying on insurance business
located in taxable territory, GST is paid by such person under reverse charge.

Recovery Agent (Entry 8 of Notification 13/2017)

• A recovery agency pursues customers and businesses that owe payments to banks.
• When a recovery agent supplies services to a banking company or a financial institution or a
non-banking financial company located in the taxable territory, GST is paid by such banking
company or financial institution or non-banking financial company under reverse charge.

Music Composer, Photographer, Artist (Entry 9 of Notification 13/2017)

• Music composers, Photographers, Artists create some original dramatic, musical, or artistic
work and then they permit the music companies, producers, etc. to use their creation, for
which they receive some consideration.
• In such a case, GST is to be paid by the music companies, producers, etc. under reverse charge.
• The music company, producers, etc. must be located in taxable territory.

Author (Entry 9A of Notification 13/2017)

• An author writes a book, and then permits a publisher to use his content for a consideration.
• In such a case, GST is to be paid by the publisher.
• Such publisher must be located in taxable territory.
• However, reverse charge won’t be applicable in the following cases:
o if the author has taken registration under the CGST Act, 2017, and
▪ filed a declaration that he exercises the option to pay central tax in accordance
with section 9(1) on such services under forward charge, and
▪ to comply with all the provisions of the Act, and
▪ that he shall not withdraw the said option within a period of 1 year from the
date of exercising such option.
o If the author makes a declaration on the invoice issued by him to the publisher
regarding payment of tax on forward charge.
• Therefore, supply of services by an author by way of transfer or permitting the use or
enjoyment of a copyright covered under Section 13(1)(a) of the Copyright Act, 1957 relating
to original literary works to a publisher is covered under reverse charge mechanism, where the
publisher has to pay the GST.

Question 6 – January, 2021 (Similar) – 5 Marks

Mr. Vicky Frankyn, an unregistered famous author, received ₹3 crore of consideration from Shiv
Bhawan Publications (SBP) located in Indore for supply of services by way of temporary transfer of a
copyright covered under section 13(1)(a) of the Copyright Act, 1957 relating to original literary works
of his new book. He finished his work and made available the book to the publisher, but has yet not

CA NISHANT KUMAR 9
raised the invoice. Mr. Vicky Frankyn is of the view that SBP is liable to pay tax under reverse charge
on services provided by him. SBP does not concur with his view and is not ready to deposit the tax
under any circumstances. Examine whether the view of Mr. Vicky Frankyn is current. Further, if the
view of Mr. Vicky Frankyn is correct, what is the recourse available with Mr. Vicky Frankyn to comply
with the requirements of GST law as SBP has completely refused to deposit the tax.

Solution

Yes, the view of Mr. Vicky Frankyn is correct. GST is payable under reverse charge in case of supply of
services by an author by way of transfer/permitting the use or enjoyment of a copyright covered under
section 13(1)(a) of the Copyright Act, 1957 relating to original literary work to a publisher located in
the taxable territory in terms of reverse charge Notification No. 13/2017. Therefore, in the given case,
person liable to pay tax is the publisher, i.e., SBP.

However, since SBP has completely refused to deposit the tax on the given transaction, Mr. Vicky
Frankyn has an option to pay tax under forward charge on the same. For the purpose, he needs to fulfil
the following conditions:

1. Since he is unregistered, he first has to take registration under the CGST Act, 2017
2. He needs to file a declaration, in the prescribed form, that he exercises the option to pay CGST
on the said service under forward charge in accordance with section 9(1) of the CGST Act, and
to comply with all the provisions as they supply to a person liable for paying the tax in relation
to the supply of any goods and/or services and that he shall not withdraw the said option
within a period of 1 year from the date of exercising such option;
3. He has to make a declaration on the invoice, which he would issue to SBP, in prescribed form.

Question 7 – November, 2020 – 2 Marks

In the following case, decide who is liable to pay GST, if any. You may assume that recipient is located
in the taxable territory. Ignore the aggregate turnover and exemption available. Mr. Kamal Jain, an
unregistered famous author, received ₹20 lakh of consideration from PQR Publications Ltd. for supply
of services by way of temporary transfer of a copyright covered under section 13(1)(a) of the Copyright
Act, 1957 relating to original literary works of his new book.

Solution

Supply of services by an author by way of transfer of a copyright covered under section 13(1)(a) of the
Copyright Act, 1957 relating to original literary works to a publisher located in the taxable territory is
taxable under reverse charge mechanism.

Thus, in the given case, the recipient of service, i.e., PQR Publications Ltd. is liable to pay GST. The tax
can be paid by the author under forward charge if the author is a registered person. Since in the given
case, the author is an unregistered person, the said option is not available to him.

Members of Overseeing Committee (Entry 10 of Notification 13/2017)

If the members of overseeing committee (constituted by RBI) supply services to the RBI, GST is paid by
RBI under reverse charge.

Direct Selling Agents (DSAs) (Entry 11 of Notification 13/2017)

• A direct selling agent or DSA is a person who works as a referral agent for a bank or NBFC.

CA NISHANT KUMAR 10
 • The job of a DSA is to find potential customers for the bank they represent.
• If any services are provided by Individual Direct Selling Agents (other than a Body Corporate,
Partnership, or Limited Liability Partnership) to a banking company or a non-banking financial
company located in the taxable territory, GST is paid by the banking company or the non-
banking financial company under reverse charge.

Business Facilitators (BFs) (Entry 12 of Notification 13/2017)

• In terms of business, business facilitation is the combination of arrangements that ease the
doing of business.
• The people or the organization which provide such facilities to the businesses are known as
‘Business Facilitators’.
• If any services are provided by Business Facilitators to a banking company located in the
taxable territory, GST is paid by the banking company under reverse charge.

Agents of Business Correspondent (Entry 13 of Notification 13/2017)

• Business Correspondent agent is an extended arm of a Bank Branch provides doorstep Banking
and Financial services to customers in remote areas.
• If any services are provided by an agent of business correspondent to a business
correspondent (bank), located in the taxable territory, GST is paid by the business
correspondent under reverse charge.

Security Services (Entry 14 of Notification 13/2017)

• Security services means providing security personnel (security guards, etc.).
• If any person, other than a body corporate, supplies the services by way of supply of security
personnel to a registered person located in the taxable territory, GST is paid by such taxable
person under reverse charge.
• RCM is not applicable if the recipient is registered only for deducting tax at source: Reverse
charge mechanism (RCM) shall not apply to any person providing services by way of supply of
security personnel to:
o a department/establishment of the Central Government/State Government/Union
territory; or
o local authority; or
o Governmental agencies,
which has taken registration under the CGST Act only for the purpose of deducting tax under
section 51 and not for making a taxable supply of goods or services.
• Also, RCM is not applicable if the supplier of services is registered as a composition supplier.

Question 8

State with reason, person liable to pay GST in the following case. Assume recipient is located in taxable
territory. XYZ & Co., a partnership firm provides security services to ABC Ltd. registered under GST.

Solution

Security services (services provided by way of supply of security personnel) provided by any person
other than a body corporate to a registered person is liable to be taxed under reverse charge basis.
Hence, ABC Ltd. registered under GST shall be liable to pay tax on the same.

CA NISHANT KUMAR 11
Renting of Motor Vehicles (Entry 15 of Notification 13/2017)
• Service by way of renting of any motor vehicle designed to carry passengers where the cost of
fuel is included in the consideration charged from the service recipient are taxable at the
following two rates:
o If the supplier of services has taken only limited ITC (of input services in the same line
of business), the rate applicable is 5% (2.5% CGST + 2.5% SGST/UTGST or 5% IGST).
o If the supplier of services has taken ITC on goods or services used in supplying services
of renting of motor vehicles, and the supplier opts to pay GST, the rate applicable is
12% (6% CGST + 6% SGST/UTGST or 12% IGST).
• From the second sub-bullet above, it is clear that if the supplier of services by way of renting
of motor vehicles wants to avail ITC of goods or services used in supplying the services of
transportation, then he only will have to pay GST @ 12%.
• If, however, he doesn’t want to pay GST, then GST shall be paid by the recipient under reverse
charge mechanism, and the rate applicable will be 5%. In this case, only limited ITC (of input
services in the same line of business) can be taken.
• The reverse charge provisions are applicable only if
o the supplier is other than a body corporate
o Does not issue an invoice charging GST @ 12% from the service recipient; and
o Supplies the service to a body corporate.
• The reverse charge provisions are applicable only if the recipient is a body corporate located
in the taxable territory.

Clarification:

• Service of transport of passengers is distinct from service of renting of a vehicle that is used
for transport. Where the body corporate hires the motor vehicle (for transport of employees

CA NISHANT KUMAR 12
 etc.) for a period of time, during which the motor vehicle shall be at the disposal of the body
corporate, the service would fall under Heading 9966, and the body corporate shall be liable
to pay GST on the same under RCM.
• However, where the body corporate avails the passenger transport service for specific
journeys or voyages and does not take vehicle on rent for any particular period of time, the
service would fall under Heading 9964 and the body corporate shall not be liable to pay GST
on the same under RCM.

Lending of Securities (Entry 16 of Notification 13/2017)

• Securities Lending Scheme, 1997 is regulated by SEBI for the purposes of facilitating lending
and borrowing of securities.
• This lending and borrowing takes place through an intermediary (which is approved by SEBI),
and there’s complete anonymity between the borrower and the lender.
• The lender charges some fees from the borrower for lending his securities.
• Since the lender charges some fees from the borrower, this transaction is not a transaction
purely in securities.
• The lender deposits the securities registered in his name, or in the name of any other person
duly authorized on his behalf, with an approved intermediary for the purpose of lending under
the scheme of SEBI.
• The borrower borrows the securities under this scheme through an approved intermediary of
SEBI.
• In this case, GST is paid by the borrower under reverse charge.

Analysis of Section 9(5)

• As per Section 9(5), the Government may, on the recommendations of the Council, by
notification, specify categories of services the tax on Intra-State supplies of which shall be paid
by the electronic commerce operator if such services are supplied through it, and all the
provisions of this Act shall apply to such electronic commerce operator as if he is the supplier
liable for paying the tax in relation to the supply of such services. Provided that where an
electronic commerce operator does not have a physical presence in the taxable territory, any
person representing such electronic commerce operator for any purpose in the taxable
territory shall be liable to pay tax. Provided further that where an electronic commerce
operator does not have a physical presence in the taxable territory and also, he does not have
a representative in the said territory, such electronic commerce operator shall appoint a
person in the taxable territory for the purpose of paying tax and such person shall be liable to
pay tax.
• “Electronic Commerce” means the supply of goods or services or both, including digital
products over digital or electronic network.
• “Electronic Commerce Operator” (ECO) is any person who owns/operates/manages an
electronic platform for supply of goods or services or both.
• Sometimes, ECO itself supplies the goods or services displayed on its electronic portal.
• However, many a times, the products/services displayed on the electronic portal are actually
supplied by some other person to the consumer.
• When a consumer places an order for a particular product/ service on this electronic portal,
the actual supplier supplies the selected product/service to the consumer.
• The price/consideration for the product/service is collected by the ECO from the consumer
and passed on to the actual supplier after the deduction of commission by the ECO.

CA NISHANT KUMAR 13
 • The Government may, on the recommendations of the GST Council, notify specific categories
of services the tax [CGST/SGST/IGST] on supplies of which shall be paid by the electronic
commerce operator (ECO) if such services are supplied through it.
• Few services have been notified.
• For instance, service by way of transportation of passengers by a radio-taxi, motorcab, maxicab
and motorcycle, etc.
• If the electronic service provider doesn’t have physical presence in the taxable territory, its
representative shall be liable to pay tax.
• If the electronic service provider doesn’t have a representative, it shall appoint a
representative who shall be liable to pay tax.

Categories of Service the tax on Intra-State Supplies of Which Shall be

Paid by Electronic Commerce Operator (Notification 17/2017)
• Services by way of transportation of passengers by a radio-taxi, motorcab, maxicab,
motorcycle, omnibus or any other motor vehicle. (Amendment by Notification No. 17/2021,
w.e.f. 01-01-2022) E.g., Ola, Uber.
• Services by way of providing accommodation in hotels, inns, guest houses, clubs, campsites or
other commercial places meant for residential or lodging purposes, except where the person
supplying such service through electronic commerce operator is liable for registration u/s 22(1)
of the said CGST Act. E.g., Oyo Hotels, Make my trip, etc.
• Services by way of house-keeping, such as plumbing, carpentering, etc., except where the
person supplying such service through electronic commerce operator is liable for registration
u/s 22(1) of the said CGST Act. E.g., Urban Clap.
• Supply of restaurant service other than the services supplied by restaurant, eating joints, etc.
located at specified premises. (Amendment by Notification No. 17/2021, w.e.f. 01-01-2022)

Analysis of the Amendment

• “Restaurant Service” means supply, by way of, or as part of any service, of goods, being food
or any other article for human consumption or any drink, provided by a restaurant, eating joint
including mess, canteen, whether for consumption on or away from the premises where such
food or any other article for human consumption or drink is supplied.
• “Specified Premises” means premises providing hotel accommodation service having declared
tariff of any unit of accommodation above ₹7,500 per unit per day or equivalent.
• If a restaurant is supplying restaurant services to a customer through Zomato/Swiggy, then
Zomato/Swiggy will be liable to pay tax.
• However, if the restaurant is located in a hotel in which the tariff of any of the rooms is above
₹7,500, then the restaurant is liable to pay tax, even if it provides services through
Zomato/Swiggy.

Question 9

A restaurant owner provided restaurant services in Rajasthan, through an electronic commerce

operator – Zomato. The restaurant owner is not liable to get registered as per the provisions of Section
22(1) of the CGST Act. Who is the person liable to pay GST in this case? Would your answer be different
if the Electronic Commerce Operator Zomato does not have a physical presence in India?

Solution

CA NISHANT KUMAR 14
As per Section 9(5) of the CGST Act, 2017, Government may notify specific 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. Supply of restaurant service other than the services supplied by restaurant,
eating joints, etc. located at specified premises has been notified under Section 9(5) of the CGST Act,
2017. “Specified Premises” means premises providing hotel accommodation service having declared
tariff of any unit of accommodation above ₹7,500 per unit per day or equivalent.

Thus, person liable to pay GST in this case is the Electronic Commerce Operator Zomato. All the
provisions of the GST law shall apply to such electronic commerce operator as if he is the supplier liable
for paying the tax in relation to the supply of such services.

If Zomato does not have a physical presence in India, person liable to pay tax is the person representing
the Electronic Commerce Operator – Zomato for any purpose in India.

Classification Under GST

• In order to determine the rate applicable on a particular supply of goods or services, one needs
to first determine the classification of such goods or services.
• Classification of goods and services assumes significance since there are different rates
prescribed for supply of different goods and services.
• Therefore, classification is crucial for determining the rate of tax applicable on a particular
product or service.

Classification of Goods
• Classification of goods means identification of the chapter, heading, sub-heading and tariff
item in which a particular product will be classified.
• Chapter, heading, sub-heading and tariff item as referred in the Schedules of rate notification
for goods under GST are the Chapter, heading, sub-heading and tariff item of the First Schedule
to the Customs Tariff Act, 1975.
• Indian Customs Tariff is based on Harmonized System of Nomenclature (HSN).
• It is a multipurpose international product nomenclature developed by the World Customs
Organization (WCO) for the purpose of classifying goods across the World in a systematic
manner.
• It comprises of about 5,000 commodity groups; each identified by a 6-digit code [code can be
extended], arranged in a legal and logical structure and is supported by well-defined rules to
achieve uniform classification.
• India has extended the HSN codes upto 8-digits.
• Along the lines of HSN, the Indian Customs Tariff has a set of Rules of Interpretation of the
First Schedule and General Explanatory notes.
• These rules and the general explanatory notes give clear direction as to how the nomenclature
in the schedule is to be interpreted.
• These Rules for Interpretation including section and chapter notes and the General
Explanatory Notes of the First Schedule apply to the interpretation of the rate notification for
goods under GST also.
• Consequently, under GST, goods are classified on the basis of HSN in accordance with the Rules
for the Interpretation of the Customs Tariff.
• Once classification for a product has been determined on this basis, applicable rate has to be
determined as per the rate prescribed in the rate notification issued under GST.

CA NISHANT KUMAR 15
GST Rates Prescribed for Various Goods
• Broadly, six rates of CGST have been notified in six Schedules of rate notification for goods,
viz., 0.125%, 1.5%, 2.5%, 6%, 9% and 14%.
• SGST/UTGST at the equivalent rate is also leviable.
• With regard to IGST, broadly six rates have been notified in six Schedules of rate notification
for goods, viz., 0.25%, 3%, 5%, 12%, 18% and 28%.
• Certain specified goods have been exempted from tax.

Classification of Services
• A new Scheme of Classification of Services has been devised under GST.
• It is a modified version of the United Nations Central Product Classification.
• Under this scheme, the services of various descriptions have been classified under various
sections, headings and groups.
• Chapter 99 has been assigned for services.
• This chapter has following sections:
Section 5 Construction Services
Section 6 Distributive Trade Services; Accommodation, Food and Beverage Service;
Transport Services; Gas and Electricity Distribution Services
Section 7 Financial and related services; real estate services; and rental and leasing
services
Section 8 Business and Production Services
Section 9 Community, social and personal services and other miscellaneous services
• Each section is divided into various headings which is further divided into Groups.
• Its further division is made in the form of ‘Tariff item’/ Service Codes.
• Rate of tax is determined in accordance with the Service Code in which the service is classified.

GST Rates Prescribed for Various Services

• Broadly, six rates of CGST have been notified for services, viz., 0.75%, 2.5%, 3.75%, 6%, 9% and
14%.
• Equivalent rate of SGST/UTGST will also be levied.
• For IGST, six rates have been notified for services, viz., 1.5%, 5%, 7.5%, 12%, 18% and 28%.
• For certain specified services, NIL rate of tax has been notified.

Levy and Collection of IGST

• Section 5 of the IGST Act, 2017 talks about the levy and collection of IGST.
• We have already seen that the section 9 of the CGST Act and section 5 of the IGST Act are
exactly the same.
• The only difference is that CGST is levied on intra-state supplies and IGST is levied on inter-
state supplies.
• However, there are a few additional points regarding IGST.
• Import of Services – Any import of services is considered to be an inter-state supply, and IGST
is levied on such import in accordance with the Customs Laws.
• Reverse Charge – All the supplies under Notification 13/2017 for CGST are also applicable for
IGST with the following two additions:
o Any service supplied by any person who is located in a non-taxable territory to any
person located in the taxable territory other than non-taxable online recipient.

CA NISHANT KUMAR 16
 ▪ When a service is supplied by any person who is located in a non-taxable
territory to any taxable person in the taxable territory, the recipient of such
services is required to pay IGST under reverse charge.
▪ Please note that if the recipient a non-taxable person, then he is not required
to pay GST under reverse charge even if he is in the taxable territory.
o Services supplied by a person located in non-taxable territory by way of transportation
of goods by a vessel from a place outside India upto the customs station of clearance
in India.
▪ This simply means that if goods are being transported by any person outside
India to a person in India (called the importer), then importer is liable for
paying GST on this under reverse charge.

Supplies in Territorial Waters

• If the location of supplier is in territorial waters, then the location shall be deemed to be in the
coastal State or Union Territory where the nearest point of the appropriate base line is located.
• If the place of supply is territorial waters, then the place of supply shall be deemed to be in the
coastal State or Union Territory where the nearest point of the appropriate base line is located.

CA NISHANT KUMAR 17