GST MECHANISM AND BASICS

• GST, which stands for Goods and Services Tax, is an indirect tax system in India. It
replaced several previous taxes like excise duty, VAT, and services tax. The Goods and
Services Tax Act was passed in Parliament on March 29, 2017, and it became effective
on July 1, 2017.
• In simple terms, GST is a tax imposed on the supply of goods and services. It is a
comprehensive and multi-stage tax that is applied at each step of the supply chain.
Unlike the previous tax system, GST is a single tax law that applies to the entire country,
making it a unified tax system for all states and union territories in India.
• Under the GST regime, the tax is levied at every point of sale. In the case of intra-state
sales, Central GST and State GST are charged. All the inter-state sales are chargeable
to the Integrated GST.

Multi-stage Taxation
When a product is created and sold, it goes through several stages in its supply chain. These
stages include the purchase of raw materials, production or manufacturing, warehousing of
finished goods, selling to wholesalers, selling to retailers, and finally, selling to end consumers.
GST is levied at each of these stages, making it a multi-stage tax. The tax is applied to the value
added at each stage to achieve the final sale to the end customer.

Destination-Based Tax
Under GST, the tax is levied at the point of consumption. For example, if goods are
manufactured in Maharashtra and sold to the final consumer in Karnataka, the tax revenue will
go to Karnataka and not Maharashtra. This makes GST a destination-based tax.

The Journey of GST in India

The journey of GST in India started in the year 2000 when a committee was formed to draft
the law. It took 17 years for the law to evolve. In 2017, the GST Bill was passed in the Lok
Sabha and Rajya Sabha, and on July 1, 2017, the GST Law came into force.

Objectives of GST
• To achieve the ideology of 'One Nation, One Tax': GST replaces multiple indirect taxes,
creating a unified tax system across the country.
• To subsume a majority of the indirect taxes in India: GST combines various indirect
taxes into one, reducing the compliance burden for taxpayers and simplifying tax
administration for the government.
• To eliminate the cascading effect of taxes: GST allows for the set-off of tax credits,
eliminating the tax-on-tax effect and promoting a seamless flow of credits.
• To curb tax evasion: GST has stringent laws and a centralized surveillance system,
reducing the chances of tax evasion and fraud.
• To increase the taxpayer base: GST widens the tax base by bringing more businesses
under the tax net.
• To introduce online procedures for ease of doing business: GST simplifies taxpayer
compliance through online processes, such as registration, return filing, and refunds.
• To improve the logistics and distribution system: GST reduces documentation
requirements, improves supply chain efficiency, and lowers logistics costs.
 • To promote competitive pricing and increase consumption: GST facilitates competitive
pricing and boosts consumption by eliminating price imbalances across states and
globally.

Advantages of GST
GST has several advantages, including the removal of the cascading effect of taxes and the use
of technology for streamlined processes such as registration, return filing, and refunds.

Components of GST
Under GST, there are three types of taxes: CGST (Central GST), SGST (State GST), and IGST
(Integrated GST). CGST is levied by the Central Government on intra-state sales, SGST is
levied by the state government on intra-state sales, and IGST is levied by the Central
Government on inter-state sales.

Tax Laws before GST

Before GST, India had multiple indirect taxes levied by both the state and central governments.
Each state had its own set of rules and regulations, leading to overlapping and cascading taxes.
The previous tax regime included taxes such as central excise duty, state VAT, central sales
tax, and various local taxes.

How GST has helped in price reduction?

GST has helped in reducing prices by eliminating the cascading effect of taxes. Under the
previous regime, taxes were levied at each stage of the supply chain, leading

CONSTITUTIONAL PROVISIONS OF GST

The Indian Constitution divides the power to levy taxes between the Central Government and
State Governments through the Union List and the State List. To implement the Goods and
Services Tax (GST) and ensure consistency across the country, a constitutional amendment
was required.

The Constitution (101st Amendment) Act, 2016 introduced changes to the Constitution by
inserting, deleting, and amending certain Articles. These changes addressed various aspects
related to GST:
• Powers and laws related to GST: The Act clarified the powers of the Central and State
Governments to levy and make laws on GST.
• Applicability and scope of GST: The Act defined the scope and applicability of GST,
determining which goods and services are subject to the tax.
• Revenue sharing: It established rules for the apportionment of GST revenue between
the Central Government and the State Governments.
• Creation of the GST Council: The Act authorized the President to establish the GST
Council, a joint forum comprising representatives from the Centre and the States. The
Council is responsible for making recommendations on various aspects of GST.
• Discontinuation of existing taxes: The Act paved the way for the discontinuation of
previous taxes to make room for GST.
• Compensation to States: It included provisions for compensating the States for any
revenue loss they might experience due to the implementation of GST. This led to the
enactment of the Goods and Services Tax (Compensation to States) Act, 2017.

The Act introduced several new Articles and amended existing ones:
 • Article 246A: This new Article grants the Parliament and the State/Union Legislatures
the power to make laws on GST. However, the Parliament has exclusive authority over
inter-state supplies. It also temporarily excludes certain products from the scope of
GST, subject to the recommendation of the GST Council.
• Article 269A: This Article addresses the levy and collection of GST for inter-state
supplies. It empowers the GST Council to frame rules on revenue distribution. It also
enables the Central Government to levy Integrated GST (IGST) on imports, replacing
the previous Countervailing Duty (CVD) system.
• Article 279A: This Article authorizes the President to establish the GST Council as a
joint forum for Centre-State cooperation on GST-related matters.
• Article 286: This existing Article was amended to restrict the states from imposing taxes
on the supply of goods and services outside their boundaries. The term 'supply' replaced
'sale or purchase'.
• Article 366: This existing Article was amended to include definitions related to GST,
such as the definition of Goods and Services Tax and Services.

The Act also includes provisions for compensating the States for any revenue loss resulting
from the implementation of GST. The Seventh Schedule of the Constitution contains three lists
(Union List, State List, and Concurrent List) that specify the areas in which the Centre and
State Governments have the authority to make laws.

Overall, the Constitution (101st Amendment) Act, 2016 laid the foundation for the
implementation of GST in India, defining the powers, scope, and procedures related to the tax
system and establishing the GST Council as a key decision-making body.
 LEVY AND COLLECTION

• Levy and Collection

• Composition levy
• Taxable person
• Power to grant exemption
• Remission of Tax
• Reverse Charge mechanism
* Electronic Commerce

LEVY AND COLLECTION

Section 9 of the Central Goods and Services Tax (CGST) Act, 2017 deals with the imposition
and collection of taxes on the supply of goods and services within the same state.

Section 9(1) states that CGST is levied on all intra-state supplies of goods and services,
excluding alcoholic liquor for human consumption. The tax rates, which will not exceed 20%,
are determined by the government based on the recommendations of the GST Council. The
supplier is responsible for paying this tax. For example, if a manufacturer in Delhi sells goods
to a retailer in Delhi, CGST will be charged on this transaction.

Section 9(2) mentions that specific items like petroleum crude, high-speed diesel, motor spirit
(petrol), natural gas, and aviation turbine fuel will be subject to central tax. The date for the
implementation of this tax will be notified by the government based on the GST Council's
recommendations.

Section 9(3) empowers the government to specify categories of goods or services for which
the recipient is liable to pay the tax on a reverse charge basis. This means that the recipient
becomes responsible for paying the tax directly to the government instead of the supplier. For
example, if legal consultancy services are specified under the reverse charge mechanism, a
company using these services will pay the tax themselves.

Section 9(4) allows the government to specify a class of registered persons who must pay the
tax on a reverse charge basis for certain categories of goods or services received from an
unregistered supplier. In this case, the recipient is considered responsible for paying the tax.
For instance, if a registered business receives specific goods from an unregistered supplier, the
registered business will be liable for paying the tax under the reverse charge mechanism.

Section 9(5) permits the government to specify categories of services for which the tax on
intra-state supplies must be paid by the electronic commerce operator (e.g., e-commerce
platforms like Amazon or Flipkart) if those services are supplied through their platform. The
e-commerce operator is considered the supplier liable for paying the tax. However, if the e-
commerce operator doesn't have a physical presence or representative in the taxable territory,
they must appoint a person in that territory to be responsible for paying the tax.

COMPOSITION LEVY
Explain the provisions relating to the composition scheme under GST.
Who are the persons not eligible for compensation scheme as per Section 10 of CGST Act,
2017?

The Composition Scheme is a simplified and hassle-free option for small taxpayers under GST.
It allows them to avoid complicated GST procedures and pay tax at a fixed rate based on their
turnover. Any taxpayer with a turnover below Rs. 1.5 crore* can choose to opt for this scheme.

Who can opt for the Composition Scheme

• Businesses with a turnover below Rs 1.5 crore* have the option to choose the
Composition Scheme. However, for North-Eastern states and Himachal Pradesh, the
limit is now Rs 75* lakh.
• According to the CGST (Amendment) Act, 2018, composition dealers can also provide
services up to ten percent of their turnover or Rs. 5 lakhs, whichever is higher. This
amendment will be effective from February 1, 2019. Additionally, in its 32nd meeting,
the GST Council proposed an increase in this limit for service providers on January 10,
2019*.
• When calculating the turnover, all businesses registered under the same PAN should be
considered.
• *The Central Board of Indirect Taxes and Customs (CBIC) has notified an increase in
the threshold limit from Rs 1.0 crore to Rs. 1.5 crores.

Who cannot opt for the Composition Scheme (Section 10)

Certain individuals or businesses are not eligible to opt for the Composition Scheme. This
includes:
• Manufacturers of ice cream, pan masala, or tobacco products.
• Individuals or businesses involved in making inter-state supplies, meaning they supply
goods or services from one state to another.
• Casual taxable persons or non-resident taxable persons, who are individuals or
businesses that occasionally engage in taxable activities in a particular state without
having a fixed place of business.
• If you are making supplies of goods that are not taxable under this Act, you cannot opt
for the Composition Levy.
• If you are selling goods through electronic commerce operators who are required to
collect tax under section 52, you cannot opt for the Composition Levy.
• If you are a Non-Resident Foreign Taxpayer who is not a resident of India, you cannot
choose the Composition Levy.
• If you are registered as an Input Service Distributor (ISD), responsible for distributing
input tax credit, you cannot opt for the Composition Levy.
• If you are registered as a TDS Deductor/Tax Collector, responsible for deducting or
collecting tax at source, you cannot choose the Composition Levy.
These categories of people cannot avail themselves of the benefits provided by the Composition
Scheme.

Conditions for availing the Composition Scheme

• No Input Tax Credit: Dealers opting for the composition scheme cannot claim Input
Tax Credit.
 • Taxable Goods: The dealer cannot supply goods that are not taxable under GST, such
as alcohol.
• Reverse Charge Mechanism: The dealer must pay tax at normal rates for transactions
under the Reverse Charge Mechanism.
• Business Segments: If a taxable person has multiple businesses under the same PAN,
they must register all those businesses collectively under the composition scheme or
opt out of the scheme.
• Mention 'Composition Taxable Person': The taxpayer must prominently display the
words 'composition taxable person' on every notice, signboard, and bill of supply issued
by them.
• Service Provision: As per the CGST (Amendment) Act, 2018, manufacturers or traders
can provide services up to ten percent of their turnover or Rs. 5 lakhs, whichever is
higher. This amendment is applicable from February 1, 2019.

To opt for the composition scheme, a taxpayer needs to follow these steps
• File GST CMP-02: The taxpayer must file GST CMP-02 with the government to opt
for the composition scheme. This can be done online through the GST Portal. The
CMP-02 form should be submitted at the beginning of each financial year.
• Guide to File CMP-02: Detailed instructions on how to file CMP-02 on the GST Portal
can be found to help taxpayers through the process.

When it comes to raising bills, a composition dealer has specific requirements:

• Bill of Supply: Instead of a tax invoice, a composition dealer should issue a Bill of
Supply. This is because they cannot charge tax from their customers and must pay the
tax themselves.
• Mention on the Bill: The composition dealer should prominently mention
"composition taxable person, not eligible to collect tax on supplies" at the top of the
Bill of Supply. This informs the customer about the dealer's composition scheme status.

When it comes to GST payment for composition dealers, here's what you need to know:
Payment: Composition dealers have to pay GST out of their own pocket for the supplies they
make. The GST payment includes:
• GST on supplies made.
• Tax on reverse charge.
• Tax on purchases from an unregistered dealer (applies only to specific categories of
goods and services, and to registered persons as notified, effective from 1st Feb 2019).

Regarding the returns to be filed by composition dealers:

• Quarterly Statement: Composition dealers need to file a quarterly statement called
CMP-08 by the 18th of the month following the end of the quarter.
• Annual Return: Composition dealers also need to file an annual return called GSTR-
4 by 30th April of the next financial year starting from FY 2019-20. Additionally,
GSTR-9A, an annual return, should be filed by 31st December of the following
financial year. However, it was waived off for FY 2017-18 and FY 2019-20. It's
important to note that composition dealers are not required to maintain detailed records.

Advantages
 • Lesser compliance burden, including fewer returns, record-keeping, and invoice
issuance.
• Limited tax liability.
• Improved liquidity due to lower tax rates.

Disadvantages
• Limited business territory as inter-state transactions are not allowed.
• No availability of Input Tax Credit for composition dealers.
• Ineligibility to supply non-taxable goods like alcohol and goods through an e-
commerce platform under GST.

TAXABLE PERSON
A "taxable person" under GST is someone who does business in India and is registered or
should be registered under the GST Act. This includes individuals, companies, partnerships,
trusts, government entities, and other organizations engaged in economic activities like trade
and commerce. In simple terms, anyone involved in business or economic activities is
considered a taxable person under GST.
Liable to get registered under GST
Under GST, the following entities are required to register:
• Businesses involved in supplying goods with a turnover exceeding Rs. 40 lakhs (Rs. 20
lakhs for certain states).
• Businesses involved in supplying services with a turnover exceeding Rs. 20 lakhs (Rs.
10 lakhs for certain states).
• Individuals or entities registered under previous tax laws (such as Excise, VAT, Service
Tax) must also register under GST.
• When a registered business is transferred or demerged, the new owner must register
from the transfer date.
• Persons making inter-state supplies.
• Casual taxable persons and non-resident taxable persons.
• Agents of a supplier, reverse charge mechanism taxpayers, and input service
distributors.
• E-commerce operators or aggregators.
• Persons supplying online information and database access or retrieval (OIDAR)
services from outside India to customers in India.
• Exempted goods or services suppliers with no other taxable supplies are exempt from
registration.

In the Budget 2023, there was a change made to the CGST Act. This change states that starting
from July 1, 2017, individuals mentioned in section 23 of the CGST Act do not need to register,
even if they meet the conditions mentioned in sections 22(1) and 24 of the CGST Act. However,
the Central Board of Indirect Taxes and Customs (CBIC) is yet to officially announce and
notify this change.

Who is a Casual Taxable Person under GST?

A casual taxable person is someone who occasionally sells goods or provides services in a
place where GST applies but doesn't have a fixed business location there. For example, if a
person has a business in Bangalore but provides taxable consulting services in Pune where they
don't have a business location, they would be considered a casual taxable person in Pune.
Who is a Non-Resident Taxable person under GST?
A non-resident taxable person is someone who occasionally sells goods or provides services in
a place where GST applies but doesn't have a fixed business location in India. It's similar to a
casual taxable person, but in this case, the person is not a resident of India and has no business
location in the country.

Who is an Input Service Distributor?

An Input Service Distributor is an office of a supplier of goods or services that receives tax
invoices for input services and issues tax invoices to distribute the credit of CGST/SGST/IGST
paid on those services to their branches with the same PAN. This concept allows the
distribution of credit only for input services and not for input goods or capital goods. It is an
optional facility for eligible taxpayers.

Who is a composition taxpayer?

A composition taxpayer is someone registered under the composition scheme, where they don't
collect GST from their customers at normal rates. Instead, they pay tax at a lower nominal rate
based on their turnover or receipts on a quarterly basis. Initially, only suppliers of goods were
eligible for the composition scheme with an annual turnover up to Rs.1.5 crore. From April 1,
2019, service providers with an annual turnover up to Rs.50 lakh can also opt for this scheme.

Who is a QRMP taxpayer?

A QRMP (Quarterly Return Monthly Payment) taxpayer is a registered person with an
aggregate turnover of up to Rs.5 crore in the previous financial year. Under this scheme, they
file GSTR-1 and GSTR-3B once in a quarter while making monthly tax payments using form
PMT-06. If they have B2B sales invoices that need to be uploaded monthly, they can use the
Invoice Furnishing Facility (IFF).

GST Registration by Type of Taxable Person

• Every person liable for GST registration must apply within 30 days of becoming liable.
Casual/non-resident taxable persons should apply at least five days before starting their
business activities.
• A PAN is required for GST registration.
• Separate registration is needed for each state or business vertical. Special provisions
apply for casual taxable persons and non-resident taxable persons, including temporary
registration for a period of 90 days (extendable for another 90 days) and an advance
deposit of GST based on estimated tax liability.

POWER TO GRANT EXEMPTION

Exemptions under GST refer to certain goods and services that are not subject to tax. The
government has the power to grant exemptions based on the recommendations of the GST
Council. There are different provisions for granting exemptions:
• Section 11(1) of the CGST Act allows the government to exempt goods or services,
either completely or with specified conditions, based on the public interest. This
exemption is effective from the date mentioned in the notification issued by the
government.
• Section 11(2) enables the government to grant special exemptions in exceptional
circumstances on specific goods or services, based on the recommendation of the GST
Council. These exemptions can be granted retrospectively and do not require
publication in the Official Gazette.
 • Section 11(3) allows the government to clarify the scope or applicability of exemption
notifications or orders by inserting an explanation within one year of their issuance.
This clarification has a retrospective effect and aims to eliminate any confusion or
ambiguity in the notifications.
An explanation to Section 11(3) states that if an exemption is granted absolutely, the registered
person supplying such goods or services should not collect tax on that supply. This applies
when the exemption notification specifies a nil rate of tax.
It's important to note that there are differences between notifications issued under Section 11
and Section 9 of the CGST Act. Notifications under Section 11 pertain to goods or services
attracting a nil rate of tax or being wholly exempt, while Section 9 deals with the notification
of tax rates for goods and services.
Overall, exemptions under GST provide relief from tax liability for specific goods and services,
ensuring that certain categories of products or services remain tax-free for the benefit of the
public or under exceptional circumstances.

REMISSION OF TAX

• "Remission" means relieving taxpayers from paying tax on goods that are lost or
destroyed due to natural causes.
• Under the Central Excise provisions, remission is allowed under certain conditions. The
GST law also allows for remission of tax on the supply of goods. However, remission
is applicable only when tax is payable as per the law, which means the taxable event
should have occurred and tax should be required to be paid.
• In the case of goods lost or destroyed before supply, the taxable event does not occur,
so remission of tax does not apply. Section 11 of the Model GST law specifically allows
remission only for cases where the supply of goods is deficient in quantity due to natural
causes.

Explain services notified by the government under Reverse Charge Mechanism with relevant
examples.
Who is a recipient? What do you mean by Normal Charge & Reverse Charge under GST? Give
cases where RCM is applicable.
NORMAL CHARGE
GST supplier of goods or services is liable to pay tax to the government and he recovers such
tax from the recipient of goods and services. It is called as normal charge.

Assessment: Under the normal charge mechanism of GST, assessment refers to the process of
determining the tax liability of a taxpayer. It involves calculating the GST amount based on the
taxable value of the goods or services supplied and the applicable GST rate.

Payment to CG: Once the GST liability is assessed, the taxpayer needs to make the payment
to the Central Government (CG). The GST amount collected from the recipient of goods or
services is held by the supplier as GST liability until it is remitted to the government.

Registration: Before engaging in the supply of goods or services, businesses are required to
register for GST if their annual turnover exceeds the threshold limit set by the government.
Registration is a mandatory step to collect and remit GST. The registration process involves
providing relevant details about the business and obtaining a unique Goods and Services Tax
Identification Number (GSTIN).
Due Date of Payment: The due date for payment of GST varies depending on the type of
taxpayer. Regular taxpayers generally need to pay their GST liability on a monthly basis. The
due date for payment is usually the 20th of the following month. However, certain categories
of taxpayers, such as small taxpayers and composition scheme taxpayers, may have different
payment frequency and due dates.

Time of Supply: The time of supply refers to the point in time when GST becomes applicable
on a particular supply of goods or services. It determines the tax period in which the GST
liability should be accounted for. The time of supply generally depends on the earliest of the
following events:
• The date of issuance of invoice or receipt of payment, whichever is earlier.
• The date of completion of the supply or delivery of goods.
• The date of filing the GST return.

Mode of Payment: GST payments can be made through various modes, including online
methods. The common modes of payment include internet banking, debit/credit card,
NEFT/RTGS (National Electronic Funds Transfer/Real-Time Gross Settlement), and over-the-
counter payments at authorized banks. Electronic payment modes are encouraged to ensure
convenience, efficiency, and timely payment of GST.

It is important for taxpayers to adhere to the due dates of payment, maintain proper records,
and comply with the assessment and registration requirements to ensure smooth functioning
under the normal charge mechanism of GST.

REVERSE CHARGE MECHANISM

Meaning
• Reverse Charge Mechanism is a way of changing who pays the tax on goods or services.
Usually, the supplier is responsible for paying the tax. But under reverse charge, the
person who receives the goods or services has to pay the tax instead.
• The purpose of this mechanism is to make sure that more sectors pay the Goods and
Services Tax (GST), even if they are unorganized. It also helps exempt certain suppliers
from this responsibility and allows for the taxation of services imported from outside
India.
• Not all businesses are subject to the reverse charge mechanism.

Situations when RCM is applicable

Reverse Charge Mechanism applies in certain situations as governed by the provisions in the
Central GST, State GST, and Integrated GST Acts.
• According to section 9(3) of the CGST Acts, the CBIC has provided a list of goods and
services on which reverse charge applies. You can refer to the list to know which goods
and services are included.
• Supply from an unregistered dealer to a registered dealer
o If a vendor who is not registered under GST supplies goods to a person who is
registered under GST, reverse charge will be applicable. This means that the
recipient of the goods will have to directly pay the GST instead of the supplier. The
registered buyer must issue a self-invoice for such purchases.
o In case of intra-state purchases, the purchaser has to pay both CGST and SGST
under the reverse charge mechanism. For inter-state purchases, the buyer has to pay
 IGST. The government periodically notifies the goods and services to which this
provision applies.
o In the real estate sector, if a promoter buys inward supplies less than 80% from
registered suppliers, they have to pay GST at 18% under reverse charge for the
shortfall. However, if the promoter purchases cement from an unregistered supplier,
the tax rate is 28%. This calculation is separate from the 80% requirement.
o Promoters are also liable to pay GST on reverse charge for Transferable
Development Rights (TDR) or Floor Space Index (FSI) supplied on or after April
1, 2019. Even if a landowner is not regularly engaged in land-related activities, the
transfer of development rights to a promoter is considered a supply of service and
subject to GST. Additionally, in the case of outward supply of TDR from one
developer to another, GST at 18% is applicable under reverse charge.
• Supply of services through an e-commerce operator
o Businesses can use e-commerce operators to sell products or provide services. If a
service provider uses an e-commerce operator to provide specific services, the
reverse charge applies to the e-commerce operator, and they become liable to pay
GST. This includes services like transportation services by radio-taxis, motor cabs,
maxi cabs, and motorcycles (e.g., Ola, Uber), accommodation services in hotels,
inns, guest houses, clubs, campsites, etc. (e.g., Oyo, MakeMyTrip), and
housekeeping services (e.g., plumbing, carpentry) provided by electronic commerce
operators (e.g., Urban Company) unless they are liable for registration due to
exceeding the turnover threshold.
o If an e-commerce operator does not have a physical presence in the taxable territory,
a person representing the operator will be responsible for paying tax. If there is no
representative, the operator will appoint a representative who will be held liable for
GST payments.

When does Time of Supply apply under Reverse Charge?

Time of supply for goods
• In reverse charge cases, the time of supply for goods will be the earliest of the following
dates:
• The date of receiving the goods
• The date of payment*
• The date immediately after 30 days from the supplier's invoice date
• If it's not possible to determine the time of supply, it will be the date of entry in the
recipient's accounting books.
*Note: This point is no longer applicable based on Notification No. 66/2017 - Central
Tax issued on November 15, 2017.
Example:
• Date of receiving goods: May 15, 2021
• Date of invoice: June 1, 2021
• Date of entry in recipient's books: May 18, 2021
In this case, the time of supply for goods will be May 15, 2021.

Time of supply for services

In reverse charge cases, the time of supply for services will be the earliest of the following
dates:
• The date of payment
• The date immediately after 60 days from the supplier's invoice date
 • If it's not possible to determine the time of supply, it will be the date of entry in the
recipient's accounting books.
Example:
• Date of payment: July 15, 2021
• Date immediately after 60 days from the invoice date (assuming the invoice date is May
15, 2021, then 60 days after this date will be July 14, 2021)
• Date of entry in recipient's books: July 18, 2021
In this case, the time of supply for services will be July 14, 2021.

Registration Rules Under Reverse Charge Mechanism (RCM)

According to Section 24 of the CGST Act, 2017, a person who is liable to pay GST under
reverse charge mechanism must register under GST. The usual threshold limits of Rs. 20 lakh
or Rs. 40 lakh will not apply to them.

Who Should Pay GST Under RCM?

The recipient of goods/services is responsible for paying GST under RCM. The supplier of
goods/services should mention in the tax invoice whether tax is payable under RCM.

Important Points about GST Payments under RCM

• Recipients can claim Input Tax Credit (ITC) on the tax amount paid under RCM only
if the goods or services are used for business purposes.
• Composition dealers must pay tax at normal rates under RCM and cannot claim any
input tax credit.
• GST compensation cess may apply to the tax paid under RCM.
• Suppliers cannot claim GST paid under RCM as ITC, but recipients can avail ITC if
the goods or services are used for business purposes.
• Recipients must pay the output GST on goods or services under reverse charge in cash
and cannot use ITC.

Self-Invoicing
Self-invoicing is required when purchasing goods or services from an unregistered supplier
that falls under reverse charge. Since the supplier cannot issue a GST-compliant invoice, the
recipient becomes liable to pay taxes on their behalf and needs to issue a self-invoice.

Payment Voucher
As per Section 31(3)(g), a recipient liable to pay tax under Section 9(3) or 9(4) must issue a
payment voucher to the supplier at the time of making payment.

E-COMMERCE OPERATOR
• E-commerce, which means buying and selling goods or services online, is defined in
Section 2(44) of the CGST Act, 2017. It includes the supply of goods, services, or
digital products over digital or electronic networks.
• An E-commerce Operator (ECO) is a person who provides services or information
related to the supply of goods or services through an electronic platform. In legal terms,
an Electronic Commerce Operator is defined in Section 2(45) of the CGST Act, 2017
as a person who owns, operates, or manages a digital or electronic facility or platform
for electronic commerce.
Registration under the GST
• According to Section 24 (ix) of the Central Goods and Services Tax Act, 2017, anyone
selling goods or services through electronic commerce operators must register for GST,
without any threshold exemption limit. However, the government has the power to
exempt specific suppliers from registration.
• Service providers who are not covered by Section 9(5) need to register and collect GST
only if their turnover exceeds the threshold limit of 20 lakhs. However, service
providers covered by Section 9(5) are not required to register under GST since the e-
commerce operator is liable to pay GST. On the other hand, anyone selling goods
through an e-commerce operator must register for GST regardless of their turnover.
• Additionally, Section 24(x) of the CGST Act, 2017 states that e-commerce operators
are not eligible for threshold exemption, meaning they must register for GST regardless
of the value of their supplies.

Who is liable to pay GST

• The general rule is that the supplier of goods or services is liable to pay Goods and
Services Tax (GST). However, when the supply is made through an e-commerce
operator, specific provisions come into play. In the case of services specified under
Section 9(5) of the CGST Act, 2017 and provided through an e-commerce operator, the
operator is considered the supplier and is liable to pay GST, even if the payment is not
directly received by the operator.
• For all other cases, the suppliers of goods or services are responsible for paying GST
on their supplies. However, if the e-commerce operator charges a commission from the
suppliers, then the supplier becomes liable for GST. In this case, the normal provisions
apply, and the supplier issues an invoice to the receiver for using their services and
levies GST on the supply.

TCS
• Tax Collection at Source (TCS) is an important provision in the Goods and Services
Tax (GST) specifically for e-commerce transactions. According to Section 52 of the
CGST Act, 2017, every e-commerce operator is required to deduct 1% TCS from the
payment made to the supplier or vendor. This deduction is based on the net value of
taxable supplies.
• The "net value of taxable supplies" refers to the total value of taxable supplies made by
all registered persons through the e-commerce operator during a month, excluding
services on which the e-commerce operator is responsible for paying the entire tax. This
value is reduced by the aggregate value of taxable supplies returned to the suppliers in
the same month.
• The TCS amount deducted is reflected in the electronic cash ledger of the supplier.
However, it is important to note that TCS is only deducted when the supplier is liable
to pay GST. Exempt supplies are not subject to TCS.
• To comply with TCS requirements, an e-commerce operator needs to obtain a separate
registration for TCS, regardless of whether they are already registered under GST as a
supplier or in any other capacity, and have a GSTIN.
 TDS AND TCS
TDS and TCS under GST are abbreviations for tax deduction at source and tax collection at
source. These terms are also used in the Income Tax law. TDS and TCS under GST came into
effect from October 1, 2018.

TDS under GST: Basics and Applicability

• TDS refers to the tax that is deducted when a buyer of goods or services, such as
government departments, makes payments under a business contract.
• Those liable to deduct TDS under GST include government departments, local
authorities, governmental agencies, public sector undertakings, and certain notified
persons or categories of persons.
• The rate of TDS under GST is 2% (1% CGST+1% SGST or 2% IGST) on payments
made to the seller of taxable goods or services.
• TDS is deducted if the total value of supply under a contract exceeds Rs 2.5 lakhs.
• The deductor must make the payment of TDS by the 10th day of the next month using
Form GSTR-7.

Impact of TDS under GST on Government civil contractors

• TDS helps ensure tax compliance by contractors and sub-contractors involved in
government civil contracts.
• It requires small civil or labor contractors to register under GST and fulfill tax
compliance, promoting transparency in government contracts.

TCS in GST for the e-Commerce Sector: Compliance in Gist

• TCS under GST applies to e-commerce aggregators, who are responsible for deducting
and depositing 1% tax from each transaction made by dealers or traders selling goods
or services online.
• The e-commerce aggregators deduct TCS and deposit it by the 10th day of the next
month using Form GSTR-8.
• Online sellers need to get registered under GST for claiming the tax deducted by e-
commerce operators, even if their turnover is below the threshold limit for GST
registration.

Impact of TCS in GST on e-Commerce Operators

• E-commerce operators like Amazon, Flipkart, and Snapdeal have to make changes in
their payment process and administration to implement TCS under GST.
• Sellers supplying through e-commerce operators must compulsorily register under
GST.
• Working capital of these sellers can be blocked until they file their return and claim
excess taxes paid.

Benefits of TDS and TCS under GST

• TDS and TCS under GST help regulate tax evaders and bring unorganized sectors into
tax compliance.
• Deductees can claim credit for tax deducted through TDS, which can be used for other
tax payments.
• TDS and TCS ensure timely deposit of taxes with the government, keeping transactions
in check and preventing frauds.
 GST PAYMENT AND REFUND PROCESS SIMPLIFIED

Under the current GST return filing process, several payments and refunds need to be made.

Payments under GST:

• IGST (Integrated GST): Payable for interstate supplies (paid to the central government).
• CGST (Central GST): Payable for supplies within the state (paid to the central
government).
• SGST (State GST): Payable for supplies within the state (paid to the state government).
• Tax Deducted at Source (TDS): Deducted by the buyer before making payment to the
supplier, applicable for certain transactions.
• Tax Collected at Source (TCS): Applicable to e-commerce aggregators, who deduct tax
before making payment to sellers.
• Reverse Charge: Liability of tax payment shifts from supplier to receiver.

Interest, Penalty, Fees, and Other Payments:

• Calculation of GST payment involves reducing Input Tax Credit (ITC) from the
outward tax liability, and deducting TDS/TCS from the total GST payable.
• Interest and late fees (if applicable) are added to arrive at the final amount.
• ITC cannot be claimed on interest and late fees, which must be paid in cash.

Payment by Different Types of Dealers:

• Regular Dealer: Pays GST on outward supplies, deducting ITC from tax liability.
• Composition Dealer: Pays a fixed percentage of GST based on their business type.
• Dealers under Reverse Charge Mechanism (RCM): Pay tax as per RCM provisions.
• E-commerce Operators: Collect and pay TCS.
• Dealers Deducting TDS: Pay tax after deducting TDS.

Due Date of GST Payment:

• GST payment should be made by the 20th of the following month when filing GSTR-
3.
• Modes of GST Payment:
• Payment can be made through credit ledger (using ITC) for tax payment only, not for
interest, penalty, and late fees.
• Payment can also be made through cash ledger, either online or offline, with a challan
generated on the GST Portal. Online payment is mandatory for tax liabilities exceeding
Rs. 10,000.

Penalties for Non-payment or Delayed Payment:

• Interest at a rate of 18% is applicable for short or delayed payment of GST.
• Penalty is the higher of Rs. 10,000 or 10% of the tax amount that is short paid or unpaid.

Refunds:
• A refund can be claimed when the GST paid exceeds the GST liability.
• Refund process is standardized and online to ensure clarity.
• Time limits are set for refund claims.

Cases for Refund:

• Excess tax payment due to mistakes or omissions.
 • Exporters claiming rebate or refund.
• Accumulation of ITC due to tax-exempt or nil-rated output.
• Tax paid on purchases made by Embassies or UN bodies.
• Tax refund for international tourists.
• Finalization of provisional assessment.

Time Limit for Refund:

• Refund can be claimed within 2 years from the relevant date, which varies depending
on the case.

Reason for claiming refund Relevant Date

Excess payment of GST
Export or deemed export of goods and
services
ITC accumulates as output is tax exempt or
nil-rated
Finalisation of provisional assessment
Date of payment
Date of dispatch/loading/passing the frontier
Last date of financial year to which the credit
belongs
Date on which tax is adjusted

Process to Claim GST Refund:

• File a refund application in Form RFD 01 within 2 years from the relevant date.
• The form should be certified by a Chartered Accountant.
 SUPPLY

Explain composite supply and mixed supply with examples.

What do you mean by continuous supply of good and continuous supply of services. Also
comment on the invoices that are supposed to be issued in such cases as per the provisions of
the GST Act.

Taxable event under GST

Meaning
Section 7 of the CGST Act defines Supply as:
• Various types of transactions involving the exchange of goods or services, such as sale,
transfer, barter, exchange, license, rental, lease, or disposal, etc., that are made for a
payment by a person as part of their business activities.
• Importing services for a payment, whether or not it is part of a business activity.
• Activities listed in Schedule I that are performed without any payment.
• Activities that are considered as the supply of goods or services as mentioned in
Schedule II.
However, there are exceptions:
• Activities or transactions mentioned in Schedule III, and
• Activities or transactions carried out by the Central Government, State Governments,
or local authorities in their capacity as public authorities, as notified by the Government
based on the recommendations of the Council, will not be treated as supplies of goods
or services.
The Government, based on the recommendations of the Council, can specify through a
notification which transactions should be treated as either the supply of goods or the supply of
services, considering the provisions of subsections (1) and (2).

Supply in the context of GST includes various types of transactions like selling, transferring,
exchanging, bartering, licensing, renting, leasing, and disposing of goods or services. If a
person engages in any of these activities as part of their business and receives something in
return, it is considered a supply under GST.

Elements of Supply
Supply has two important elements that need to be present:
• There should be a consideration: This means that there is an exchange of goods or
services for payment or any other form of value.
• It should be done in the course of furthering a business: The supply should be a part
of the activities carried out in the course of running a business or any commercial
activity.
If these two elements are not met, then it is not considered a sale or supply under the CGST
Act.
Examples:
• Mr. A purchases a table for Rs.10,000 for his personal use and later sells it to a dealer
after 10 months. This transaction is not considered a supply under CGST because Mr.
A is not carrying out this activity for the purpose of furthering his business.
 • Mrs. B provides free coaching to students in her neighbourhood as a hobby. This is not
considered a supply because there is no consideration involved in the form of payment
or value received.
However, there are certain activities listed in Schedule I of the GST Act that are considered as
supply even if they are made without consideration.
Activities that are considered as supply even if made without any payment are listed in
Schedule I.
• Permanent transfer or disposal of business assets where input tax credit has been
claimed on those assets. For instance, if XYZ Enterprises transfers its used computers
(purchased for Rs. 25,000 with input tax credit of Rs. 20,000) to an NGO, this transfer
is considered a supply of goods and is subject to GST.
• Supply of goods or services, or both, between related persons or distinct persons in the
course or furtherance of business is considered under GST regulations. However, there
is an exception for gifts given by an employer to an employee, as long as their total
value in a financial year does not exceed fifty thousand rupees.
Related Persons: According to the explanations provided in Section 15, persons are
considered related if:
o They are officers or directors of each other's businesses.
o They are legally recognized partners in a business.
o They have an employer-employee relationship.
o One person directly or indirectly owns, controls, or holds twenty-five percent
or more of the voting stock or shares of both of them.
o One person directly or indirectly controls the other.
o Both persons are directly or indirectly controlled by a third person.
o Together, they directly or indirectly control a third person.
o They are members of the same family.
Distinct Persons: A person who has obtained or is required to obtain multiple
registrations in one or more states or union territories will be treated as distinct persons
for the purposes of the GST Act. Therefore, stock transfers between distinct persons
will be subject to GST.
• Supply of goods:
o When a principal gives goods to an agent who agrees to supply those goods on
behalf of the principal.
o When an agent delivers goods to the principal on behalf of the agent.
• Import of services by a taxable person from a related person or from any of their other
establishments located outside India, as part of their business activities. For example, if
Banna Ltd., a wholesaler for the ABC brand of shoes in India, imports management
services from their establishment in Thailand without paying any consideration, it is
considered a supply under GST. Banna Ltd. will be liable to pay IGST (Integrated
Goods and Services Tax) under GST regulations.

Determining whether an activity is considered a supply of goods or services is outlined in

Schedule II of the GST Act.
• Transfer of 'title' or 'right to use' in goods:
o If there is a transfer of the title in goods, it is considered a supply of goods.
o If there is a transfer of the right in goods or an undivided share in goods without
transferring the title, it is considered a supply of services.
o If there is a transfer of title in goods under an agreement that specifies the property
will pass at a future date upon full payment, it is considered a supply of goods.
• Land and Building:
 o Leasing, tenancy, easement, or license to occupy land is considered a supply of
services.
o Lease or letting out of a building (commercial, industrial, or residential) for business
or commerce, either wholly or partly, is considered a supply of services. However,
renting a residential dwelling for use as a residence is exempt from GST.
• Treatment or process: Any treatment or process applied to someone else's goods is
considered a supply of services.
• Transfer of business assets:
o If goods forming part of a business's assets are transferred or disposed of, it is
considered a supply of goods by the person carrying on the business.
o If goods held or used for business purposes are put to private use or made available
to others for purposes other than business, it is considered a supply of services.
o When a taxable person ceases to be registered, goods forming part of their business
assets are deemed to be supplied, unless the business is transferred as a going
concern or carried on by a personal representative.
• Supply of services: The following activities are considered a supply of services:
o Renting of immovable property.
o Construction of a complex or building, unless the consideration is received after the
issuance of the completion certificate or after the first occupation, whichever is
earlier.
o Temporary transfer or use of intellectual property rights.
o Development, design, programming, customization, etc., of information technology
software.
o Agreements to refrain from an act, tolerate an act or situation, or do an act.
o Transfer of the right to use goods for any purpose, for cash, deferred payment, or
other valuable consideration.
• Composite supply: Certain composite supplies are treated as a supply of services,
including works contracts (building, construction, etc.) and the supply of food and
beverages as part of any service.
• Supply of goods: The supply of goods by an unincorporated association or body of
persons to a member, for cash, deferred payment, or other valuable consideration, is
treated as a supply of goods.
These explanations help determine whether an activity falls under the category of supply of
goods or services for GST purposes.

Schedule III – Negative List

Schedule III of the CGST Act lists activities or transactions that are not considered as the supply
of goods or services.
• Services provided by an employee to their employer as part of their job or related to
their employment.
• Services provided by any court or tribunal established under the law.
• The tasks performed by Members of Parliament, Members of State Legislature,
Members of Panchayats, Members of Municipalities, and Members of other local
authorities.
The responsibilities carried out by individuals holding positions as per the provisions
of the Constitution.
The duties performed by individuals serving as Chairpersons, Members, or Directors in
bodies established by the Central Government, State Government, or local authorities,
who were not considered employees before this clause was implemented.
 • Services related to funerals, burials, crematoriums, mortuaries, including transportation
of the deceased.
• Sale of land and, with certain exceptions mentioned in clause (b) of paragraph 5 of
Schedule II, sale of buildings.
• Transfer of actionable claims, excluding lottery, betting, and gambling. Explanation:
The term "court" mentioned in paragraph 2 includes District Court, High Court, and
Supreme Court for the purpose of this explanation.
Classification of Supply and Types
There are different types of supplies based on how they are made:
• Composite Supply: This type of supply involves two or more goods or services that are
always supplied together. They cannot be sold individually because they are typically
used or consumed together. In a composite supply, there is a main item or service
(principal supply) and other supporting items or services (secondary supply). The tax
rate applicable to the principal supply is applied to the entire supply. For example,
buying a Diwali gift box that includes dry fruits, a box, and a wrapper. The box and
wrapper cannot be sold separately without the main content, which is the dry fruit.
• Mixed Supply: In a mixed supply, two or more goods or services are supplied
independently of each other and are not necessarily sold together. Unlike composite
supply, these items can be sold separately. The tax rate applicable to the highest-taxed
item in the mixed supply is applied to the entire supply. For instance, buying a
Christmas package that includes cakes, aerated drinks, chocolates, Santa caps, and other
gift items. Each of these items can be sold separately and is not dependent on the others.
• Import of Services: When goods or services are imported into a country and payment
is made for them, it is considered as a supply. It doesn't matter if the goods or services
are for personal or business use, they are still treated as a supply for the purpose of
taxation.

Under GST, there are three types of taxes that can be included in an invoice. For intra-state
transactions (within the same state), SGST (State Goods and Services Tax) and CGST (Central
Goods and Services Tax) are charged. For interstate transactions (between different states),
IGST (Integrated Goods and Services Tax) is charged. However, determining whether a
transaction is inter or intrastate can be complex.
To handle such situations, the IGST act provides certain rules called "place of supply rules."
These rules help define whether a transaction is considered inter or intrastate, which then
determines the applicable tax (SGST, CGST, or IGST). These rules help ensure that the correct
taxes are levied based on the location and nature of the transaction.

Time of Supply (Sections 12 to 14 of CGST Act, 2017)

• Time of supply refers to the specific moment when goods or services are considered to
be supplied. Knowing the exact time helps the seller determine the due date for paying
taxes.
• Under GST, the liability to pay CGST/SGST on goods and services arises at the time
of supply.
• The specific rules for determining the time of supply are mentioned in section 12 (for
goods) and section 13 (for services) of the CGST Act.

Time of Supply of Goods

When it comes to the time of supply for goods, it is determined by the earliest of the following:
• The date when the invoice is issued.
 • The last date by which the invoice should have been issued.
• The date when the advance payment is received.

For example, let's consider a situation where Mr. X sold goods worth Rs 1,00,000 to Mr. Y.
The invoice was issued on 15th January, the payment was received on 31st January, and the
goods were supplied on 20th January. In this case, the time of supply would be determined as
follows:
• Date of issue of invoice: 15th January.
• Last date on which the invoice should have been issued: 20th January. Therefore, the
time of supply would be 15th January, as it is the earliest date.

Now, let's consider a scenario where Mr. X received an advance payment of Rs 50,000 on 1st
January in the same example.
In this case, the time of supply for the advance payment of Rs 50,000 would be 1st January
because the date of receipt of advance is before the invoice is issued. For the remaining Rs
50,000, the time of supply would be 15th January, which is when the invoice is issued.

Time of Supply of Services

When it comes to the time of supply for services, it is determined by the earliest of the
following:
• The date when the invoice is issued.
• The date when the advance payment is received.
• The date when the services are provided (if the invoice is not issued within the
prescribed period).
Let's understand this with an example:
Mr. A provided services worth Rs 20,000 to Mr. B on 1st January. The invoice for the services
was issued on 20th January, and the payment for the services was received on 1st February.
In this case, we first need to check if the invoice was issued within the prescribed time. The
prescribed time is 30 days from the date of service, which in this case is 31st January. Since
the invoice was issued on 20th January, it was issued within the prescribed time limit.
The time of supply will be determined as follows:
• Date of issue of invoice: 20th January.
• Date of payment: 1st February.
Therefore, the time of supply for the services will be 20th January, as it is the earliest date
considering the issuance of the invoice.

Time of Supply under Reverse Charge [Section 12(3) of CGST Act, 2017]
Under reverse charge, the time of supply for the service receiver is determined by the earliest
of the following:
• Date of payment: This applies to services only. It means the day when the payment is
made for the services.
• 30 days from the date of issue of the invoice: This applies to goods. It means that if the
invoice is not issued within 30 days of the supply, the time of supply is considered to
be 30 days from the date of the invoice.

For services, the time of supply can also be determined within 60 days from the date of the
invoice.
For example, let's say M/s ABC Pvt. Ltd availed the service of a director, Mr. X, worth Rs.
50,000 on 15th January. The invoice for this service was raised on 1st February, and M/s ABC
Pvt. Ltd made the payment on 1st May.
In this case, the time of supply will be the earliest date among the two options:
• Date of payment: 1st May
• 60 days from the date of the invoice: 2nd April
Therefore, the time of supply for the services is considered to be 2nd April.

Place of Supply for Goods

Normally, when it comes to goods, the place of supply is where the goods are delivered.
In other words, the place of supply for goods is where the ownership of the goods changes
hands.
But what happens if there is no physical movement of the goods? In such cases, the place of
supply is determined based on the location of the goods at the time of delivery to the recipient.
For example, when goods are sold in a supermarket, the place of supply is considered to be the
supermarket itself.
In situations where goods are assembled and installed, the place of supply will be the location
where the installation takes place.
For instance, let's say a supplier from Kolkata delivers machinery to a recipient in Delhi. The
machinery is then installed at the recipient's factory in Kanpur. In this case, the place of supply
for the machinery will be Kanpur.

Place of Supply for Services

In general, the place of supply for services is determined by the location of the service
recipient. It means that the place where the service is provided to the customer is considered
the place of supply.
However, there are some special rules for certain services to determine their place of supply:
• Services related to immovable property: The place of provision of services is
determined by the location of the property itself.
For example, if Mr. Anil from Delhi provides interior designing services to Mr. Ajay
in Mumbai, but the property where the services are being provided is located in Ooty,
Tamil Nadu, then the place of supply will be Ooty.
• Restaurant services: The place of supply for restaurant services is the location of the
restaurant where the services are rendered.
• Admission to events: The place of supply is the location where the event takes place.
• Transportation of goods and passengers: The place of supply depends on the place
from where the transportation service commences.
For instance, if a registered taxpayer offers passenger transport services from
Bangalore to Hampi, and the passengers do not have GST registration, the place of
supply in this case will be Bangalore, as that is the place of departure.
• Telecom services, banking, financial, and insurance services: Special rules apply to
determine the place of supply for these services.

By following these guidelines, the correct place of supply for different types of services can
be determined under GST.

Value of Supply of Goods or services

• The value of supply refers to the amount of money that a seller expects to receive for
the goods or services provided.
• In simple terms, it is the price that the buyer pays to the seller for the goods or services.
 • However, there are certain situations where the parties involved have a close
relationship, or the transaction may involve bartering or exchanging of goods or
services. In such cases, the GST law states that the value on which GST is calculated
should be the "transactional value". This means that the value should be based on what
unrelated parties would normally agree upon in a similar business transaction.
• By using the transactional value, GST can be properly charged and collected, even if
the full value of the transaction has not been paid. This ensures that the correct amount
of GST is applied, maintaining fairness and accuracy in the taxation process.

Continuous Supply
Continuous supply refers to the ongoing provision of goods or services periodically, usually
on a monthly basis. It involves regular supply over an extended period. Examples of continuous
supply include providing bricks to builders or telecom and internet services offered by telecom
companies.

Continuous Supply of Goods

• It involves the supply of goods that are provided continuously or periodically under a
contract.
• The supply can be made through wires, cables, pipelines, or other conduits.
• The supplier sends invoices to the recipient periodically, such as with each batch of
bricks supplied.

Time of Issuing Invoice for Continuous Supply of Goods:

• Invoices are issued before or at the time of each statement of accounts or payment
received.
• For example, the brick supplier issues an invoice along with each batch of bricks sent.

Continuous Supply of Services:

• It refers to the provision of services continuously or periodically for a period exceeding
three months under a contract.
• There are periodic payment obligations associated with the service.

Time of Issuing Tax Invoice for Continuous Supply of Services:

• When the due date of payment can be identified from the contract:
• The invoice is issued before or after the payment is due, but within a specified time.
• The invoice is issued whether or not payment has been received.
• For example, a telecom service provider sends a monthly telephone bill as mentioned
in the contract.

When the due date of payment cannot be identified from the contract:
• The invoice is issued before or after each payment is received, but within a specified
time.
• When the payment is linked to the completion of an event:
• The invoice is issued before or after the completion of that event, but within a specified
time.
• When the supply of services ceases under a contract before completion:
• The invoice is issued at the time when the supply stops, only for the service provided
before cessation.
 • For example, if a works contract was stopped before completion, an invoice is issued
for the work performed until the stoppage date.

Specified Time:
• The invoice must be issued within 30 days from the completion date of each event that
requires the recipient to make a payment, as specified in the contract.

Special Provision for Banks/Financial Institutions/NBFCs:

• Invoices must be issued within 45 days from the date of service supply.

Note:
The government may notify certain supplies of goods or services to be treated as continuous
supply based on their nature.
 INPUT TAX CREDIT

• Input tax credit is the tax paid by a business on the purchase of goods or services. It is
used to reduce the tax liability when making a sale. The Goods and Services Tax (GST)
is based on the principle of value addition, and input tax credit helps to avoid the
duplication of taxes paid on raw materials, consumables, machinery, etc.
• Every business involved in the supply chain collects and remits GST. Input tax credit
allows businesses to offset the tax paid on their purchases against the tax collected on
their sales. This ensures that taxes are not levied multiple times and helps prevent the
tax burden from becoming a part of the production or supply costs.
• By utilizing input tax credit, businesses can achieve a balanced taxation system and
ensure that the tax paid on inputs does not increase the overall cost of production or the
price of goods and services.

Conditions to claim ITC

To claim Input Tax Credit (ITC) under GST, certain conditions must be met:
• The dealer should have a valid tax invoice for the goods or services.
• The dealer should have actually received the goods or services.
• The dealer should have filed the necessary returns.
• The supplier of the goods or services should have paid the tax charged to the
government.
• If the goods are received in multiple installments, ITC can only be claimed when the
final installment is received.
• ITC cannot be claimed if the dealer has already claimed depreciation on the tax
component of a capital good.
• Only when all these conditions are fulfilled, a person registered under GST can claim
Input Tax Credit.

What can be claimed under ITC

Input Tax Credit (ITC) can be claimed for business purposes, but there are certain restrictions
on what can be claimed:
• ITC cannot be claimed for goods or services used exclusively for personal use.
• ITC cannot be claimed for goods or services used for making exempt supplies, which
are supplies that are not subject to GST.
• ITC cannot be claimed for supplies for which ITC is specifically not available as per
GST rules and regulations.

Reversal of Input Tax Credit

ITC can be availed only on goods and services for business purposes. If they are used for non-
business (personal) purposes, or for making exempt supplies ITC cannot be claimed. Apart
from these, there are certain other situations where ITC will be reversed.

ITC will be reversed (not allowed) in the following cases:

• If invoices are not paid within 180 days of issue.
• If a credit note is issued to the Input Service Distributor (ISD) by the seller.
• If inputs are used partly for business and partly for exempt supplies or personal use.
• If capital goods are used partly for business and partly for exempt supplies or personal
use.
 • If the reversed ITC is less than what is required, the difference will be added to the
output liability with interest.

Reconciliation of ITC
The ITC claimed by a person should match the details provided by the supplier in their GST
return. If any discrepancies are found, the supplier and recipient will be notified after the
GSTR-3B filing.

Documents Required for Claiming ITC

To claim ITC, the following documents are needed:
• Invoice from the supplier of goods/services.
• Debit note issued by the supplier (if applicable).
• Bill of entry.
• Invoice issued in certain situations, like a bill of supply for amounts less than Rs 200
or when reverse charge is applicable.
• Invoice or credit note issued by the Input Service Distributor (ISD).
• Bill of supply issued by the supplier of goods and services.

Special Cases of ITC

1. ITC for Capital Goods:
• ITC is available for capital goods under GST.
• However, ITC is not available for capital goods used exclusively for making
exempted goods or for personal use.
• Note: If depreciation has been claimed on the tax component of capital goods, no
ITC will be allowed.
2. ITC on Job Work:
• A principal manufacturer can send goods for further processing to a job worker.
• The principal manufacturer can take credit of tax paid on the purchase of goods sent
for job work.
• ITC is allowed when goods are sent to a job worker from the principal's place of
business or directly from the supplier's place of supply.
• The goods must be received back by the principal within 1 year (3 years for capital
goods) to enjoy ITC.
3. ITC Provided by Input Service Distributor (ISD):
• An Input Service Distributor (ISD) collects input tax credit on purchases made and
distributes it to recipients (branches) under different tax heads.
• ISD can be the head office or branch office of a registered person.
4. ITC on Transfer of Business:
• In cases of amalgamations, mergers, or transfer of business, the transferor will have
available ITC.
• The transferor can pass the ITC to the transferee at the time of the business transfer.

Conditions to claim input tax credit under GST

Section 16 of the CGST Act lays down the conditions to be fulfilled by GST registered buyers
to claim ITC.
• The goods or services purchased must be used for business purposes and not personal
use.
• The buyer must have the tax invoice or debit note as evidence of the purchase. Without
the invoice, the credit cannot be claimed.
 • The invoice or debit note must be filed by the supplier in Form GSTR-1 and appear in
the buyer's Form GSTR-2B.
• Provisional ITC claims are no longer allowed from January 2022. The actual ITC
reported in GSTR-2B will be considered for claiming ITC in GSTR-3B.
• The buyer must have received the goods and/or services. Goods are considered received
when they are delivered by the supplier, and services are considered received when they
are rendered.
• The buyer must file GST returns in Form GSTR-3B.
• If the goods are received in lots or instalments, ITC can be claimed when the last lot or
instalment is received.
• Payment towards the supply of goods and/or services must be made within 180 days
from the invoice date. Failure to do so requires repayment of the claimed ITC with
interest.
• Depreciation claimed on the tax component of purchased capital goods disqualifies the
ITC claim.
• ITC on a tax invoice or debit note must be claimed within the time limit specified by
GST provisions.
• Separate identification and allocation of ITC must be made for exempt and taxable
supplies, as well as for business and non-business activities.
• Certain items, listed as blocked credits under Section 17(5) of the CGST Act, are not
eligible for ITC claims.

Time limit to claim input tax credit under GST

The ITC can be claimed against an invoice or debit note until the earlier of two dates:
• 30th November of the next financial year.
• The date of filing the annual returns in Form GSTR-9 for that financial year.

Items on which ITC is not allowed:

• Motor vehicles (except in specific cases).
• Services like food and beverages, outdoor catering, beauty treatment, health services,
etc. (except when used to deliver the same category of services or as part of a composite
supply).
• Membership in a club, health, and fitness centre.
• Rent-a-cab, health insurance, life insurance (except in specific cases).
• Works contract service for the construction of an immovable property.
• Goods and/or services used for personal use.
• Goods or services received by a non-resident taxable person (except imported goods).
• Goods lost, stolen, destroyed, disposed of as gifts or free samples.
• ITC claimed on tax due to fraud or other specified reasons.
• Standalone restaurants cannot claim ITC on inputs but charge a lower GST rate.
• Expenditure on Corporate Social Responsibility (CSR) initiatives.
 REGISTRATION

Benefit of Registering the GST

The GST is an indirect tax in India that replaces many other indirect taxes. It offers several
benefits:
• No double taxation: GST eliminates the cascading effect, which means goods are not
taxed multiple times, reducing the tax burden on businesses.
• Simplified compliance: GST combines multiple indirect taxes into a single tax regime,
reducing the number of filings and making compliance easier.
• Easy registration: Registration can be done online through the GST portal, saving time
and effort.
• Legal recognition: Registering for GST establishes a person as a recognized supplier
of goods and services in the eyes of the law.
• Input Tax Credit: Registered individuals can claim and utilize input tax credits for
taxes paid on inputs, promoting transparency in the tax collection system.

Documents required to register

To register for GST, you need to provide certain documents:
• PAN Card: You need to provide your Permanent Account Number (PAN) details.
• Aadhar Card: You need to submit a copy of your Aadhar card.
• Business Address Proof: You need to provide proof of the address where your business
is located or where you plan to set it up.
• Bank Account Statement: You need to submit your bank account statement or a
cancelled cheque.
• Digital Signature: You need to have a digital signature for the registration process.
• Letter of Authorization: You may need to provide a letter of authorization or board
resolution if someone else will be signing on behalf of your business.
• Incorporation Certificate: If you have formed a company, you need to submit the
incorporation certificate.
• Directors' Identity and Address Proof: If there are directors in your company, you need
to provide their identity and address proof.

Person liable for Registration (Section 22)

• According to Section 22(1) of the CGST Act, if a supplier's taxable supply exceeds
twenty lakh rupees in a financial year, they must register for GST.
• The aggregate turnover, as defined in Section 2(6), includes the total value of taxable
supplies, exempt supplies, exports of goods or services, and inter-state supplies by
persons with the same PAN, excluding certain taxes. It represents the total turnover of
all branches of the supplier across India.
• For example, if a supplier has two showrooms in Delhi and Haryana and their total sales
exceed twenty lakh rupees, they need to register in both states. However, if they only
make exempt supplies in Haryana and their total sales exceed twenty lakh rupees, they
only need to register in Delhi because they have taxable supplies there.
• In special category states, the threshold for aggregate turnover is ten lakh rupees instead
of twenty lakh rupees. Special category states exclude Jammu and Kashmir, Arunachal
Pradesh, Assam, Himachal Pradesh, Meghalaya, Sikkim, and Uttarakhand.

Persons not liable for Registration (Section 23)

 • According to Section 23 of the CGST Act, certain people are not required to register
for GST.
• If a person is involved in the business of selling goods or providing services and they
are not liable to pay tax or completely exempted from tax under the CGST Act or the
Integrated Goods and Services Tax Act, they do not need to register.
• Agriculture income is already exempted under the Income Tax Act, 1961. Therefore,
farmers who are involved in the supply or production of crops do not need to register
for GST.
• The government, based on the recommendations of the GST Council, can issue
notifications specifying individuals who are not liable for registration or are exempted
from registering under this Act.

Compulsory Registration in certain cases (Section 24)

According to Section 24 of the CGST Act, certain categories of persons are required to register
under the act. These categories include:
• Inter-State taxable supply: If a person is supplying goods and services from one state
to another state, they must register.
• Casual taxable person: When a person conducts business occasionally in a state or
union territory where they have no fixed place of business, they are considered a casual
taxable person and must register.
• Reverse charge mechanism: If a person is liable to pay taxes under the reverse charge
mechanism, they must register.
• Electronic commerce operator: If an electronic commerce operator is involved in
specified services where the tax on intra-state supplies is to be paid by them, they must
register.
• Non-resident taxable person: A non-resident person who occasionally supplies goods
and services in India without a fixed place of business or residence must register.
• Person required to deduct tax: Any person required to deduct tax under Section 51 of
CGST, regardless of separate registration, must register.
• Taxable supply on behalf of another person: If a person makes taxable supplies on
behalf of other taxable people as an agent or otherwise, they must register.
• Input Service Distributor: Businesses that receive invoices for services used by their
branches and distribute the tax by issuing ISD invoices must register as an Input Service
Distributor.
• Collection of tax at source: Electronic commerce operators who are required to collect
tax at source under Section 52 of CGST must register.
• Supplying online information outside India: Persons supplying online information and
database access or retrieval services outside India must register.
The government may also issue notifications specifying other persons who are liable for
compulsory registration based on the recommendations of the GST council.

Procedure for Registration (Section 25)

According to Section 25 of the CGST Act, the procedure for registration is as follows:
• Application for registration: If a person meets the criteria for registration under Section
22 or 24 of the CGST Act, they must apply for registration within 30 days from the date
they become liable for registration in every state or union territory.
• Approval of application: Once the application is submitted, the proper officer must take
action within 3 days of submission or within 7 days of receiving any requested
 clarifications. If no response is received within this time, the application is deemed to
be approved.
• Registration for casual or non-resident taxable person: Casual taxable persons or non-
resident taxable persons must apply for registration at least 5 days before commencing
business.
• Registration in coastal states: If a person supplies goods and services from the
territorial waters of India, they must obtain registration in the coastal state or union
territory nearest to the appropriate baseline.
• Separate registration for multiple businesses: A person engaged in multiple businesses
in a state or union territory must apply for separate registrations.
• Voluntary registration: If a person is not liable to register under Section 22 or 24, they
may still choose to register voluntarily. All applicable provisions for registered persons
will apply to them.
• Treatment as a distinct person: If a person is registered in multiple states or union
territories, they will be treated as a distinct person.
• Permanent Account Number (PAN): To be eligible for registration, a person must have
a PAN issued under the Income Tax Act, 1961.
• Verification and Unique Identity Number (UIN): The authority will verify the
registration details and issue a Unique Identity Number (UIN). If any errors are found
during verification, the authority has the power to reject the registration.
• Certificate of registration: A certificate of registration will be issued in the prescribed
form and with effect from the prescribed date.

Cancellation of Registration (Section 29)

According to Section 29 of the CGST Act, the cancellation of registration is as follows:
• Cancellation by proper officer or application: The registration of a person can be
cancelled by the proper officer on his own accord or based on an application filed by
the registered person or their legal heirs.
• Discretion of proper officer: The proper officer has the discretion to cancel the
registration from either a prospective or retrospective date.
• Debiting electronic cash or credit ledger: When the registration is cancelled, the
registered person must debit the electronic cash ledger or electronic credit ledger by an
amount equal to the Input Tax Credit (ITC) availed or the output tax liability, whichever
is higher.
 INVOICING
What should be the contents of a tax invoice issues under the GST Act.

Under the GST regime, an "invoice" or "tax invoice" refers to the tax invoice mentioned in
section 31 of the CGST Act, 2017. This section requires the issuance of an invoice or a bill of
supply for every supply of goods or services or both. It is necessary for a person providing
goods or services to issue an invoice.
The type of invoice to be issued depends on the category of the registered person making the
supply. For instance, if a registered person is making taxable supplies, they need to issue a tax
invoice. However, if a registered person deals only in exempted supplies or is under the
composition scheme (composition dealer), they need to issue a bill of supply instead of a tax
invoice.
The invoice should include details such as description, quantity, value, and other prescribed
particulars as per rule 46 of the CGST Rules, 2017. An invoice or bill of supply is not required
to be issued if the value of the supply is less than Rs. 200, subject to specified conditions.

Importance of Tax Invoice

• It serves as proof of the supply of goods or services, allowing the recipient to claim
Input Tax Credit (ITC). Without a tax invoice or debit note, a registered person cannot
avail themselves of the input tax credit.
• GST is charged at the time of supply, and the invoice plays a crucial role in determining
the timing. For goods, the time of supply is the date of invoice issuance, while for
services, it is the date of invoice issuance or receipt of payment, whichever comes
earlier.
• It is the primary document that demonstrates the supply made by the supplier and is
essential for the recipient to claim input tax credit.

When a Tax Invoice or a Bill of Supply should be issued by a Registered Person: Goods
• When a registered person is supplying taxable goods, they must issue a tax invoice
before or at the time of removing the goods (if they involve movement) or
delivering/making them available to the recipient. This tax invoice should include
details such as the description, quantity, value of goods, tax charged, and other
prescribed particulars as per the CGST Rules.
• The government has the authority to specify through notification, based on the
recommendations of the Council, the categories of goods or supplies for which a tax
invoice must be issued. The notification will also define the time frame and manner in
which the tax invoice should be issued.

Contents of Invoice
An invoice must contain certain fields as per the Invoice rules, although there is no specific
format prescribed. The following fields (only applicable ones) need to be filled in an invoice:
• Name, address, and GSTIN of the supplier
• A consecutive serial number unique for a financial year
• Date of issue
• Name, address, and GSTIN or UIN of the recipient if registered.
• Name, address, and delivery address of the recipient if unregistered and the value of
taxable supply is ₹50,000 or more.
• HSN code for goods or Accounting Code for services
• Description of goods or services
 • Quantity for goods or unit/Unique Quantity Code
• Total value of the supply of goods or services
• Taxable value considering any discount or abatement.
• Rate of tax (central tax, state tax, integrated tax, union territory tax, or cess).
• Amount of tax charged (central tax, state tax, integrated tax, union territory tax, or cess).
• Place of supply for inter-state trade or commerce.
• Delivery address if different from the place of supply.
• Indication if tax is payable on a reverse charge basis
• Signature or digital signature of the supplier or authorized representative.
However, in the case of electronic invoices, bills of supply, tickets, or similar documents issued
in accordance with the provisions of the Information Technology Act, 2000, the signature or
digital signature of the supplier or authorized representative is not required.

Credit and Debit Notes

Credit Note
• When a tax invoice has been issued for the supply of goods or services, but it is later
discovered that the value or tax charged in the invoice is incorrect or there is a return
of goods, the supplier can issue a credit note to the recipient.
• The supplier needs to declare the details of the credit note in the return for the relevant
month. This declaration should be made no later than September following the end of
the financial year in which the supply was made or the date of furnishing the annual
return, whichever is earlier.
• The tax liability of the supplier will be adjusted based on the credit note issued.
• However, if the tax and interest on such supply have been passed on to another person,
the supplier cannot reduce their output tax liability.
Debit Note
• On the other hand, if a tax invoice has been issued for the supply of goods or services,
but it is later discovered that the value or tax charged in the invoice is less than what is
actually payable, the supplier can issue a debit note to the recipient. The registered
person who issues a debit note needs to declare the details of the debit note in the return
for the relevant month, and the tax liability will be adjusted as prescribed.
• These credit and debit notes serve as adjustments to the original tax invoice when there
are changes in the value or tax charged for the supply of goods or services.

Particulars to be contained:
A credit or debit note, under GST, should include the following details:
• Supplier's name, address, and Goods and Services Tax Identification Number (GSTIN).
• Type of document (credit note or debit note).
• A unique consecutive serial number, not exceeding sixteen characters, for each
financial year.
• Date of issuing the credit or debit note.
• Recipient's name, address, and GSTIN or Unique Identity Number (UIN), if registered.
• Recipient's name, address, and delivery address (along with the State and its code) if
the recipient is unregistered.
• Serial number(s) and date(s) of the corresponding tax invoice(s) or bill(s) of supply.
• Value of the taxable supply of goods or services, the applicable tax rate, and the amount
of tax credited or debited to the recipient.
• Signature or digital signature of the supplier or their authorized representative.
These particulars ensure that the credit or debit note contains all the necessary information
related to the supplier, recipient, corresponding invoice, and the adjustments made in terms of
value and tax amount.

Invoice and Payment Voucher by a Person Liable to Pay Tax under Reverse Charge
When a registered person is responsible for paying taxes under the reverse charge mechanism
(for supplies where tax is payable by the recipient), they need to follow certain requirements.
Firstly, they must issue an invoice for the goods or services received. This invoice includes all
the necessary details of the transaction. Additionally, when making a payment to the supplier,
the registered person must issue a payment voucher as proof of the transaction. These
documents ensure proper record-keeping and compliance with the reverse charge provisions.
 ACCOUNTS AND AUDIT

GST audit involves reviewing and checking the records, returns, and documents of a taxable
person. The goal is to ensure that the declared turnover, taxes paid, refund claims, and input
tax credit availed are accurate and in line with GST regulations. The audit also assesses whether
the taxable person has complied with the provisions of GST. Overall, the audit process helps
ensure transparency and accountability in the GST system.
Audit under GST law is a process of reviewing the records maintained by a taxable person to
ensure the accuracy of information provided, taxes paid, refund claims, and input tax credit
taken.
It helps analyze the taxpayer's compliance with the provisions of the GST Act.
The definition of audit is provided in section 2(13) of the Central Goods and Services Tax Act,
2017.

Types of Audit under GST There are three types of audits prescribed under GST:
• Audit by Chartered Accountant (mandatory if turnover exceeds Rs. 2 Crores)
• Normal Audit by the Commissioner (Tax Authority)
• Special Audit by Chartered Accountant (directed by the GST Officer)

Circumstances Requiring GST Audit

GST audit is required under the following three circumstances:
• Audit by Chartered Accountant (mandatory if turnover exceeds Rs. 2 Crores)
• Normal Audit by the Commissioner (Tax Authority)
• Special Audit by Chartered Accountant (directed by the GST Officer)

Audit Limit under GST for a Financial Year

• The audit limit for GST is Rs. 2 Crores.
• Every registered person whose turnover exceeds this limit must get their accounts
audited by a Chartered Accountant (CA) or a Cost Accountant.
• They must furnish a copy of the audited annual accounts and reconciliation statement,
certified in Form GSTR 9C.

Documents to be Maintained under GST

• Section 35 of the CGST Act 2017 specifies the documents that a registered person must
maintain.
• The registered person must keep and maintain accurate accounts of the following at
their principal place of business
o Production or manufacture of goods
o Inward and outward supply of goods or services
o Stock of goods
o Input tax credit availed.
o Output tax payable and paid.
• These records can be maintained electronically.
• If supplies are made from different business places, each place must maintain its
accounting records.

Records for Warehouse, Godown, and Transporter

 • Owners or operators of warehouses, godowns, or any other places used for storing
goods, as well as transporters, must maintain records of consigners, consignees, and
relevant details of the goods in the prescribed manner.

Consequences of Not Maintaining Accounting Records

• If accounting records are not maintained as specified or if the registered person fails to
account for goods or services in accordance with the provisions, the proper officer can
determine the amount of tax payable on the unaccounted goods or services.
• The provisions of section 73 or section 74, as applicable, will be applied to determine
the tax.

Duration for Maintaining Accounting Records under GST

• Every registered person must keep accounting books for up to 72 months from the due
date of filing the annual return for a particular year.
• For example, for the financial year 2017-18, accounting records must be kept until
December 2024.
• In case of disputes, appeals, revisions, or ongoing investigations, the records must be
retained for one year after the final disposal of such proceedings or for the period
specified above, whichever is later.

Maintenance of Records for Multiple Places of Business

• If a registered person has multiple places of business specified in the certificate of
registration, they must maintain accounts and records separately for each place of
business.

Audit of Accounts by Chartered Accountant

• A registered person whose turnover exceeds the prescribed "GST audit turnover limit"
(currently Rs. 2 Crores) must get their accounts audited by a Chartered Accountant
(CA) or a Cost and Management Accountant (CMA).
• They must submit the audited annual accounts, reconciliation statement, and the Annual
Return (Form GSTR-9C) electronically.
• The audit report should cover all necessary information to determine the tax compliance
of the registered taxable person.
• The auditor must review all inward and outward supplies, taxable or not, and explain
the treatment of input tax paid.

Audit by Tax Authorities

• The Commissioner or an authorized officer can undertake an audit of any registered
person for a prescribed period, frequency, and manner.
• The audit can be conducted at the place of business or in the office of the registered
person.
• The registered person must be given at least fifteen working days' notice before the
audit.
• The audit must be completed within three months from the start date, with a possible
extension of up to six months if necessary.
• During the audit, the authorized officer may request necessary facilities, verification of
books of accounts, and submission of required information to ensure timely completion.

Findings and Report of Audit by Tax Authorities

 • After the audit, the proper officer must inform the registered person within 30 days
about the findings, their rights, obligations, and reasons for such findings in Form ADT-
02.
• The officer and their team will verify various aspects such as documents, turnover
correctness, exemptions, deductions claimed, tax rates applied, input tax credit, and
refund claims.

Special Audit
• If an officer believes that the declared value or credit availed is incorrect, they may
direct a registered person to get their records, including books of account, examined
and audited by a Chartered Accountant or Cost Accountant nominated by the
Commissioner.
• The nominated auditor must submit a report within 90 days (extendable by another 90
days).
• The special audit can be conducted even if the registered person's accounts have been
audited under other provisions.
• The expenses of the special audit, including the auditor's remuneration, will be
determined and paid by the Commissioner.
 OFFENCES AND PENALTIES

An offence under GST refers to breaking the rules and laws outlined in the GST Act. There are
21 different offences categorized as follows:

Fake or wrong invoices:

• Supplying goods/services without an invoice or issuing a false invoice.
• Issuing invoices without actually supplying goods/services or violating GST
provisions.
• Using someone else's identification number to issue invoices.

Fraud:
• Submitting fake financial records/documents or filing fake returns to evade tax.
• Providing false information or not providing information during proceedings.

Tax evasion:
• Collecting GST but not submitting it to the government within three months.
• Failing to deposit collected GST to the government within three months, contrary to
provisions.
• Obtaining a fraudulent refund of CGST/SGST.
• Taking or utilizing input tax credit without actually receiving goods/services.
• Deliberately suppressing sales to evade tax.

Supply/transport of goods:
• Transporting goods without proper documents.
• Supplying or transporting goods that are known to be confiscated.
• Destroying or tampering with seized goods.

Others:
• Failing to register under GST when required by law.
• Not deducting or deducting a lesser amount of TDS where applicable.
• Not collecting or collecting a lesser amount of TCS where applicable.
• Violating rules as an Input Service Distributor while taking or distributing input tax
credit.
• For fraud cases, the penalty is 100% of the tax due or a minimum of Rs. 10,000. For
cases under fake invoicing and other heads, the penalty is equal to the tax evaded or the
input tax credit availed or passed on.

Penalties for different offences under GST include:

• Delay in filing GSTR: Late fee of Rs. 200 per day (Rs. 100 each under CGST and
SGST) with a maximum of Rs. 5,000 (no late fee for IGST).
• Not filing GSTR: Penalty of 10% of the tax due or Rs. 10,000, whichever is higher.
• Committing fraud: Penalty of 100% of the tax due or Rs. 10,000, whichever is higher
(high-value fraud cases may also involve jail term).
• Assisting in committing fraud: Penalty up to Rs. 25,000.
• Opting for composition scheme when ineligible: Demand and recovery provisions
apply.
• Wrongfully charging higher GST rate: Penalty of 100% of the tax due or Rs. 10,000,
whichever is higher (if additional GST collected is not submitted).
• Not issuing an invoice: Penalty of 100% of the tax due or Rs. 10,000, whichever is
higher.
• Not registering under GST: Penalty of 100% of the tax due or Rs. 10,000, whichever is
higher.
• Incorrect invoicing: Penalty of Rs. 25,000.
• For minor breaches (where the tax amount is less than Rs. 5,000), penalties are reduced,
and warnings may be issued by the tax authority.
 APPEALS AND REVISION
• An appeal is when someone asks a higher court to review and change a decision made
by a lower court. Appeals happen when there are disagreements or disputes regarding
the interpretation or application of laws.
• Disputes occur when there are obligations imposed by tax laws or any other laws. These
obligations can be related to taxes or procedures. Tax officers review taxpayers'
compliance with these obligations through processes like audits and examinations. If
there is a difference in views between the taxpayer and the tax officer, it leads to a
dispute. The dispute is resolved through a quasi-judicial process where a departmental
officer issues an initial order, such as an assessment order or an order-in-original.
Examples of such orders include the cancellation of registration, best judgment
assessment, refund claim decisions, or imposition of penalties.
• Under the GST Act, there are different levels of appeals for resolving disputes. The
appeal starts with the Adjudicating Authority and can go up to the Supreme Court if
necessary. The sections of the GST Act that govern these appeals are Section 107 to
Section 118.
• Not every appeal needs to be made to both the Central GST (CGST) and State GST
(SGST) authorities. According to the GST Act, if an order is passed by a CGST officer,
the appeal against that order will lie with the CGST officers. The same applies to SGST
orders, where the appeal will be with the SGST officers.
• To file an appeal under GST, one needs to follow the prescribed procedure and file it
within three months from the date of receiving the disputed order. The Appellate
Authority may allow a one-month condonation of delay if there is a valid reason.
Appeals must be made in the prescribed forms and accompanied by the required fees.
• An authorized representative can appear on behalf of a person before the GST Officer,
First Appellate Authority, or Appellate Tribunal. The authorized representative can be
a relative, a regular employee, a practicing lawyer, a chartered accountant, a cost
accountant, a company secretary, a retired officer of the Tax Department, or a tax return
preparer.
• There are certain decisions for which appeals cannot be made, such as orders for
transferring proceedings, seizing or retaining books of account, sanctioning
prosecution, or allowing payment of tax in installments.
• The GST Council has introduced a provision for the withdrawal of a filed GST appeal.
An applicant can withdraw an appeal before the show cause notice or order is issued.
The withdrawal can be made using the prescribed form, and the appellate authority must
make a decision on the withdrawal application within seven days.
GST has resolved the double taxation dichotomy under previous indirect tax laws.
Explain with examples the concepts of destination based tax and dual GST model

• Cascading tax effect, which is also called "tax on tax," happens when a product is taxed
at every step of its production.
• The tax continues to be added until the product is sold to the customer.
• This means that each time the product is transferred, the tax is included along with the
previous taxes.
• As a result, the final consumer has to pay for all the taxes imposed at each stage of
production.
• This leads to higher prices for the consumer, causing inflation.
• Before the introduction of GST (Goods and Services Tax), India's indirect tax structure
suffered from the problem of "tax on tax."

Indirect Tax structure before GST

• Under the old indirect tax system, different levels of government in India had the
authority to impose different types of taxes.
• The Central Government created laws for matters listed in the Union List.
• State Legislatures made rules for matters mentioned in the State List.
• Both the Central and State Governments developed laws for matters mentioned in the
Concurrent List.

Sources of Revenue for the Centre

Under the old indirect tax system, the Central government collected various types of taxes.
• Central Excise Duty: This tax was charged on goods produced within India. The
manufacturer paid the tax, and then it was passed on to the consumer.
• Custom Duty: This tax was imposed on imported goods when they entered the country.
In some cases, there was also a tax on goods being exported from India.
• Service Tax: This tax was collected by the Central Government on services provided
by service providers. The service providers added the tax to the service charges and
paid it to the Central government.
• Central Sales Tax: This tax was imposed by the Central Government on the sale and
purchase of goods between different states. Although it was collected by the Central
Government, it was later given to the respective states where the sale originated.

Sources of Revenue for the State

The State government collected different types of taxes under the old indirect tax system.
• Value Added Tax (VAT): It was charged on the value added to goods and services at
each stage of production or distribution. The tax was added to the goods or services
until they reached the final consumer.
• Other Taxes: There were various other taxes imposed and collected by state
governments. These included:
o Excise duty on alcoholic liquors, narcotics, and drugs.
o Taxes on luxuries, entertainment, amusement parks, and betting.
o Octroi or entry tax, which was charged when goods entered a particular area.
o Electricity tax, which was imposed on the consumption of electricity.

Previous indirect tax system

X Ltd sold cars to a dealer in Maharashtra, and under the previous indirect tax system, they had
to deal with multiple taxes and compliance. Here's a breakdown of how taxes were paid:
• Central Excise Duty: The Central Government charged this tax on the manufacture of
cars.
• VAT/CST: The State Government of Maharashtra levied this tax on the sale of cars.
• Octroi: The State Government of Maharashtra imposed this tax on the entry of goods
into the state.

Let's see how the taxes affected the supply chain:

1. X Ltd Sold Cars to the Car Dealer:
• Car cost: Rs. 5,00,000
• Excise Duty (10%): Rs. 50,000
• VAT (12%): Rs. 66,000
• Dealer Invoice: Rs. 6,16,000 X Ltd collected both excise duty and VAT from the
car dealer and deposited them with the respective government authorities.
2. Car Dealer Sells to End Consumer:
• Car cost (including Excise Duty): Rs. 5,50,000
• Dealer's Margin (10%): Rs. 55,000
• VAT (12%): Rs. 72,000
• Invoice: Rs. 6,77,600 When the car dealer sells the car to the end consumer, they
consider the car cost plus the excise duty as the total cost. They add their margin to
this total cost and apply VAT to calculate the final invoice price for the consumer.
In this scenario, the car dealer charges tax on tax. The total cost (including excise duty) plus
the margin is used to determine the sales price. VAT is then added to this sales price, resulting
in the end consumer paying tax on tax. This is known as the cascading tax effect. Including the
excise duty in the total cost and adding it to the margin and VAT further increases the price for
the end consumer.

Challenges Under the Previous Indirect Tax Regime

There were several challenges faced by stakeholders in the supply chain under the previous
indirect tax system:
• The car dealer couldn't claim input credit for the excise duty paid on car purchases.
• There was no cross-utilization between goods and services. This means that taxes paid
on input goods couldn't be used to offset taxes payable on output services.
• The car dealer couldn't use the excise duty paid on inputs to offset the VAT payable on
output. As a result, the previous indirect tax system imposed multiple taxes on
manufacturers and dealers in the supply chain and led to a tax on tax situation for the
end consumer.

Indirect Tax under GST

X Ltd, the car manufacturer, sells cars to the car dealer.
1. X Ltd Sells Cars to the Car Dealer:
• Car cost: Rs. 5,00,000
• Central GST (11%): Rs. 55,000
• State GST (11%): Rs. 55,000
• Dealer Invoice: Rs. 6,10,000 Under GST, the car manufacturer charges GST only
on the sale of cars to the car dealer. They collect the tax from the dealer and deposit
it with the respective government. The tax amount collected is divided between
 Central Goods and Services Tax (CGST) and State Goods and Services Tax
(SGST).
2. Car Dealer Sells Cars to the End Consumer:
• Dealer cost: Rs. 5,00,000
• Dealer's Margin (10%): Rs. 50,000
• Sales Price: Rs. 5,50,000
• CGST (11%): Rs. 60,500
• SGST (11%): Rs. 60,500
• Invoice: Rs. 6,71,000 Under GST, the end consumer is required to pay Rs. 6,71,000
(sales price plus GST) to the car dealer.

In the previous regime, all stakeholders in the supply chain suffered. However, under GST,
only the end consumer bears the burden of tax.

Benefits of GST:
• Manufacturer: The manufacturer doesn't need to collect and charge multiple taxes like
excise duty and VAT.
• Dealer: Under the previous regime, the dealer paid a total tax of Rs. 1,16,000. Under
GST, they can utilize input tax credit to offset the tax payable on the output. The
effective GST paid is Rs. 11,000.
• End User: The price paid under the previous indirect tax structure was Rs. 6,77,600.
Under GST, the price paid is reduced to Rs. 6,71,000, resulting in a difference of Rs.
6,600.
These are the benefits of GST, as it simplifies the tax structure and reduces the burden on
stakeholders, except for the end consumer who bears the final tax.

Explain Blocked Credits under GST.

• Section 17(5) of the CGST Act is a special rule under GST that restricts taxpayers from
claiming certain types of Input Tax Credit (ITC).
• It lists 11 specific cases where ITC cannot be claimed while paying the output tax.
• These cases override the general availability of ITC under Section 16(1) and the special
cases mentioned in Section 18(1) of the CGST Act.

Here are the items on which credit is not allowed under GST:
• When goods or services are used for both business and non-business purposes, only the
portion attributable to business purposes can claim input tax credit.
• When goods or services are used for both taxable supplies and exempt supplies, input
tax credit can only be claimed for the portion attributable to taxable supplies.
• Exempt supplies include transactions like reverse charge basis, securities, sale of land,
and sale of buildings (except as specified in Schedule III).
• Banking companies and financial institutions can either comply with restrictions on
input tax credit or avail of 50% credit on eligible inputs, capital goods, and input
services. This option cannot be withdrawn during the financial year.
• Input tax credit is not available for motor vehicles used for transportation of persons
(up to 13 people) unless they are used for further supply, transportation of passengers,
or driver training. The same applies to vessels, aircraft, and their related services.
• Input tax credit is not available for services such as food and beverages, outdoor
catering, beauty treatment, health services, life insurance, health insurance,
 membership of clubs, health and fitness centers, and travel benefits for employees'
vacations.
• Input tax credit is not available for works contract services related to the construction
of immovable property (except for input services for further supply of works contract
service).
• Goods or services used for personal consumption do not qualify for input tax credit.
• Input tax credit is not available for goods lost, stolen, destroyed, written off, disposed
of as gifts, or provided as free samples.
• Input tax credit is not available for taxes paid under specific provisions like sections 74,
129, and 130.
• The government may prescribe the manner in which input tax credit can be attributed
to different supplies.
• The term "plant and machinery" refers to equipment and machinery fixed to the ground
used for making outward supplies, excluding land, buildings, civil structures,
telecommunication towers, and pipelines laid outside the factory premises.

Recipient under GST

Section 2(93) of the CGST Act 2017 defines the term 'Recipient of Supply of Goods or Services
or both' as follows:
• When you have to pay for goods or services, the 'recipient' refers to the person who is
responsible for making that payment.
• When no payment is required for the goods, the 'recipient' refers to the person who
receives or has access to the goods, or who possesses or uses the goods.
• When no payment is required for a service, the 'recipient' refers to the person who
receives the service.
Additionally, any mention of a person receiving a supply also includes an agent who acts on
behalf of the recipient in relation to the supplied goods or services.
Comment on the liability to pay GST on following type of transactions
• Services provided by an arbitral tribunal to any business entity.
• Sponsorship services provided by a company to an individual
• Renting of immovable property service provided by the Central Govt. to a

Services provided by an arbitral tribunal to any business entity.

According to the notification, if an "Arbitral tribunal" provides services to a business entity in
a taxable area, the GST (Goods and Services Tax) on the service will be paid by the business
entity using the reverse charge mechanism. An arbitral tribunal is a private tribunal that is set
up by the parties involved in a dispute to resolve any future disagreements between them.

Sponsorship services provided by a company to an individual

According to the mentioned notification, if a person provides sponsorship services to a body
corporate or a partnership firm in a taxable area, the tax should be paid by the body corporate
or partnership firm using the reverse charge mechanism. However, if the sponsorship service
is provided to an individual, there won't be any reverse charge, and the service will be subject
to normal charges.

Renting of immovable property service provided by the Central Govt.

According to the notification, if the government or local authority rents out a government
property to a registered person under the CGST Act, the registered person will have to pay GST
on the renting of immovable property using the reverse charge mechanism. However, if the
immovable property is being rented to an unregistered person, the government will have to pay
GST under normal charges. In simple terms, when a government property is rented to a
registered person, the GST will always be paid on reverse charge basis.

EXTRA

Supply of services in relation to transportation of goods by road

In relation to the transportation of goods by road, there are certain rules regarding the supply
of services by Goods Transport Agency (GTA). A GTA has two options: either charge 5%
GST without input tax credit or charge 12% GST with input tax credit. When a GTA chooses
to charge 5% GST, they cannot claim input tax credit for the inputs, input services, and capital
goods. However, they can choose to charge 12% GST and claim input tax credit for these items.
Certain items are charged at 0% GST rate to ensure that essential items remain affordable and
their prices are not inflated. Now, let's divide the GTA services into two categories:
• GTA Service to Registered Person: If the GTA has opted for 12% GST, they will
charge the normal GST rate, and the GST will be collected and submitted by the goods
transport agency. In this case, there is no reverse charge applicable. However, if the
GTA has opted for 5% GST without input tax credit, the registered person or notified
person is liable to pay the tax under reverse charge.
• GTA Service to Unregistered Person: If GTA services are provided to an unregistered
person, there will be no GST applicable according to exemption No. 21A. This
exemption applies to services provided by a goods transport agency to an unregistered
person, including an unregistered casual taxable person.

Legal services by advocate

Legal services provided by advocates are subject to GST regulations. According to the
notification, if legal services are provided by individual advocates, firms of advocates, or senior
advocates, directly or indirectly to a business entity located in the taxable territory, then GST
under reverse charge mechanism needs to be paid by the business entity.
Legal services refer to any services provided in relation to advice, consultancy, or assistance
in any area of law, in any manner. This includes representation services before courts, tribunals,
or authorities. However, if legal services are provided by advocates to entities other than
business entities, they may be eligible for exemptions provided by the government. Therefore,
if legal services are provided to a business entity, the business entity is responsible for paying
the applicable GST, while exemptions may apply to services provided to non-business entities.

Services provided by Central/State/UT Govt. or any local authority

Services provided by the Central/State/Union Territory government or any local authority can
be divided into three categories for better understanding:
• Renting of government-owned immovable property:
If the government or local authority rents out their property to a registered person under
the CGST Act, the registered person is responsible for paying GST on the rental under
reverse charge mechanism.
However, if the property is rented to an unregistered person, the government is liable
to pay GST under normal charge.
• Services provided by the government:
Services provided by the government through the Department of Post (such as speed
post, parcel, life insurance) and services related to aircraft or vessel transportation of
goods/passengers are subject to normal GST charges.
The government agencies providing these services charge GST directly and collect it
from the customers.
• Other services provided by the government:
Services supplied by the central government, state government, union territory, or local
authority to a business entity in the taxable territory are subject to reverse charge
mechanism.
In this case, the business entity is responsible for paying GST under reverse charge.

Services supplied by non-executive directors

If a director who is not an employee of a company provides services to that company or any
other business entity, then GST (Goods and Services Tax) needs to be paid under reverse charge
by the company or business entity. However, if the director is a full-time employee of the
company, GST does not apply because their services are considered part of their employment,
which falls outside the scope of GST according to Schedule-III.

Services provided by "Insurance agent"

If an insurance agent provides services to a person who is engaged in insurance business, then
the person responsible for paying GST (Goods and Services Tax) is the one conducting the
insurance business in the taxable area. This applies to entities like GIC (General Insurance
Corporation) and LIC (Life Insurance Corporation).

Services provided by "Recovery agent”

If a recovery agent provides services to a banking company, financial institution, or NBFC
(Non-Banking Financial Company), then the person responsible for paying tax is the banking
company, financial institution, or NBFC located in the taxable area.

Supply of service involving the use of "Copyright"

If a service involves the transfer, use, or enjoyment of a copyright related to original literary,
dramatic, musical, or artistic works, provided by an author, music composer, photographer, or
other artist to a publisher, music company, producer, or similar entity located in the taxable
area, then the person responsible for paying tax under reverse charge is the publisher, music
company, or producer located in the taxable area.

Any service provided from a "Non-taxable territory"

This can be divided into two parts:
• Services provided to a "Non-taxable online recipient": If services are provided to a
non-taxable online recipient, there will be a normal charge, and GST must be paid by
the person providing services from the non-taxable territory. For example, if Netflix
provides services from the USA to India to an unregistered person, GST would be paid
by Netflix under normal charge.
• Services provided to entities other than non-taxable online recipients: If services
are provided from a non-taxable territory to entities other than non-taxable online
recipients, there will be a reverse charge, and the person receiving the services will be
liable to pay GST under reverse charge. "Non-taxable online recipient" refers to any
government, local authority, governmental authority, individual, or any other person
not registered and receiving online information and database access or retrieval services
for purposes other than commerce, industry, business, or profession, located in the
taxable area.