Module 5

Goods and Services Act

5.1 Introduction to GST Act

5.2 Definitions
5.3 GST Structure in India
5.4 Supply under GST
5.5 Registration
5.6 HSN
5.7 Goods and Services exempt from GST
5.8 GSTN
5.9 Time and Value of Supply
5.10 Charge and Levy of tax
5.11 Input Tax Credit
5.12 Filing of Returns.

Learning Objectives:
 To understand the indirect tax concept
 To know how GST act and GST council
 To know treatment of different kinds of GST
 To understand reverse charge and input tax credit
5.1 Introduction to GST Act
GST is the spiral procedure of 17 indirect taxes and 22 types of cesses into one single
tax. GST is a simple tax but its implementation has been complex as it has a five layered
taxation slab for various commodities. Luxury goods become costlier; items of mass
consumption are cheaper. It is nothing new most of the countries in the world are already
implementing GST to make their goods internationally competitive. Expect that at the highest
layer of 28% on luxury goods. 28% tax is the highest percentage of tax in the world when
compared to the highest 17% of tax. There are many areas, which have to be addressed as a
part of transition to GST. GST is a second major surgical strike on tax evaders, brings most
of the traders in to the tax net.
GST is a tax on goods and services with comprehensive and continuous chain of set-off
benefits up to the retailer level. It is essentially a tax only on value addition at each stage, and
a supplier at each stage is permitted to set-off, through a tax credit mechanism, the GST paid
on the purchase of goods and services. Ultimately, the burden of GST is borne by the end-user
(i.e. final consumer) of the commodity/service.

5.2 Definitions
 Supply : supply includes all forms of supply of goods and/or services such as sale,
transfer, barter, exchange, licence, rental and lease made or agreed to be made for a
consideration by a person in the course or furtherance of business and importation of service,
for a consideration whether or not in the course or furtherance of business.
 Goods: goods means every kind of movable property other than money and
securities but including actionable claim, growing crops, grass and things attached to or
forming part of the land which are agreed to be severed before supply or under the contract of
supply;
Actionable Claim of only Lottery, Gambling or betting shall be treated as Supply
Intangible Assets like DEPB License to be treated as “Goods”
 Services: Services” means anything other than goods, money and securities.
 Aggregate Turnover: - Aggregate Turnover’ refers to the aggregate value of all
taxable supplies (excluding the value of inward supplies on which tax as payable by a person
on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State
supplies of persons having the same Permanent Account Number, shall contain data at all
India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.
 Business- Business includes the following –
1, General Activities – the following general activities are covered in business –
a, any trade, commerce, manufacture, profession, vocation, adventure, wager or any other
similar activity, whether or not it is for a pecuniary benefit and
b. any activity or transaction in connection with or incidental or ancillary above activities.
2, Specific activities – the following specific activities are also covered in the definitions
of business-
a. Supply or acquisition of goods including capital goods and services in connection with
commencement or closure of business.
b. Provision by the club, association, society, or any such body.
c. Admission, for a consideration, of persons to any premises.
 d. Services supplied by a person as the holder of an office which has been accepted by
him in the course or furtherance of his trade, profession or vocation.
e. Activities of a race club including by way of totalizer or license to book maker or
activities of a licensed bookmaker in such club and
f. Any activity or transaction undertaken by the central government, a state government
or any local authority in which they are engaged as public authorities.
 Exempt supply : Exempt supply” means the supply of any goods or services or both
which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or
under section 6 of the Integrated Goods and Services Tax Act, and includes the non-taxable
supply.
 Job Work : “Job work” means any treatment or process undertaken by a person on
goods belonging to another registered person and the expression “job worker”.
 Supplier: “Supplier” in relation to any goods or services or both, shall mean the
person supplying the said goods or services or both and shall include an agent acting as such on
behalf of such supplier in relation to the goods or services or both supplied.

5.3 GST Structure in India

 Accordingly, the current GST structure comprises of the following components:

1. Central GST (CGST)

CGST is levied by the Central Government of India on the intra-state supply of goods and
services. The transaction value is defined as the price actually paid or payable for the said
supply of goods or services.
2. State GST (SGST)
GST imposed by specific State governments on the intra-State trade and services or trade
within the state is called SGST(State-GST). Here the revenues are earned by the State govt.
due to SGST as the transaction occurred within the state.
3. Union Territory GST (UGST)
In case of Union territories such as Chandigarh, instead of State govt. the GST is collected by
the Central administration and is referred to as UGST
4. Integrated GST (IGST)
IGST would be collected by the central government on the inter-state transactions of goods and
services. Centre would levy IGST (CGST plus SGST) on all inter-state transactions of taxable
goods and services.
With dual GST, it is naturally a matter of concern which component of GST is applicable
to whom and when.
To determine this, it is first important to ascertain the location of the supplier of the
goods/ services and the consumer. Location defines whether a combination of SGST and
CGST will be applicable or only IGST.
Let us say there is an auto component manufacturer in Pune, and he wants to send the
goods to Mumbai. Since both Pune and Mumbai are located in Maharashtra, both SGST and
CGST will be applicable. It will be equally distributed between the central government and the
state government.
Now take another example. Let’s say this same auto component manufacturer from Pune wants
to dispatch goods to Ahmedabad. Since Pune is in Maharashtra and Ahmedabad is in Gujarat,
this is an interstate transaction, and only the IGST component of the GST will be applicable. It
is pertinent to note here that it does not create any difference for the consumer as the combined
rate of SGST and CGST is always equal to the IGST rate. In other words, GST ensures smooth
flow of taxes between the state and the centre without complicating the tax rates for the parties
involved.
 5.4 Supply Under GST:
In the GST system, a taxable event is called a Supply. For an event to be considered as a
supply by the government, it should have the following characteristics.
 Supply should be of goods or services.
 Supply should be taxable.
 Supply should be made by a taxable person.
 Supply should be made within a taxable territory.
 Supply should be made in exchange for cash or reward (consideration).
 Supply should be made in the course of business or in the interest of growing a
business.

Three components of supply under GST

A supply under GST has three attributes that are used to calculate the tax owed for that
transaction: place, value, and time.
 Place of Supply - This component determines whether a transaction is an intra-state
supply, an inter-state supply, or an external trade, which determines the type of GST that will
be associated with it.
 Value of Supply - This component decides the taxable value of supply made, and thus
the amount of tax that needs to be paid for it.
 Time of Supply - This component determines when the associated taxes and GST
returns are due.

Types of supply under GST

Under the GST, supply of goods and/or services can be classified into two major
categories - Taxable supplies and Non-taxable supplies. These are further classified into
different types based on the nature of supply made.

 Taxable Supplies - These refer to supply of goods and/or services that are taxable
under GST.
o Regular taxable supplies - Whenever you supply an item or service which attract a
GST rate greater than 0% within India, it becomes a regular taxable supply.
o Nil-rated supplies - Whenever you supply goods which attract 0% GST by default,
such supplies are known as nil rated supplies.
 o Zero-rated supplies - Whenever you make exports, supplies to a SEZ unit or deemed
exports, the GST associated with the items or services involved becomes 0 even though the
same would attract a GST rate greater than 0% when sold within India. Such supplies are
deemed as zero rated supplies
 Non Taxable Supplies
o Exempt Supplies - The supply of exempt goods or services do not attract GST even
though they are within the purview of GST. That said, the registered taxpayer cannot claim
ITC on inputs used for making such supplies.
o Non-GST supplies - This refers to supply of items which are outside the purview of
the GST law.

Supplies where there are more than one goods and/or services involved

Any supply of goods and/or services made under GST will be classified as either wholly
goods or wholly services depending on the primary item or service supplied according to
Schedule II of the GST law. This also applies to those cases where the supply made involves
both goods and services.While goods and services can be supplied individually, one can also
supply them as a bundle or a set using one of the following methods of supply:

 If the goods and services supplied together are a natural bundle (wherever it makes
more sense to provide them together than to sell them individually), then it is known as a
composite supply.

 If the goods and services supplied together are not naturally bundled together (they
are not interdependent and can also be sold separately), then such a supply is known as mixed
supply.

5.5 Registration:
GST registration is a process by which a taxpayer gets himself registered under GST.
Once a business is successfully registered, a unique registration number is assigned to them
known as the Goods and Services Tax Identification Number (GSTIN). This is a 15-digit
number assigned by the central government after the taxpayers obtain registration. If you are
operating from more than one state, then you will have to take separate registration for each
state you are operating from.
 All the businesses supplying goods whose turnover exceeds INR 40 lakh in a financial
year are required to register as a normal taxable person. However, the threshold limit is INR 10
lakh if you have a business in the north-eastern states, J&K, Himachal Pradesh, and
Uttarakhand.
The turnover limit is INR 20 lakh, and in the case of special category states, INR 10 lakh,
for the service providers.

5.6 HSN
HSN is the abbreviation for Harmonized System of Nomenclature. HSN Code or the
Harmonized Commodity Description and Coding System provide codes to classify each
internationally-traded item.
The HSN code is a globally standardised tariff nomenclature for goods, issued by the
World Customs Organization (WCO). Unique to each traded product, an HSN code is
organised by economic activity or component material.
Under the Goods and Services Tax (GST) regime in India, all goods and services are
classified under the Services and Accounting Code, better known as the SAC codes. Based on
the HSN codes, SAC codes classify goods and services for clearer recognition, measurement
and taxation under the GST.
HSN codes are now being used under a three-tiered system. This can be defined as:
 Businesses having a turnover of less than Rs. 1.5 crore do not need to use the HSN
system.
 Businesses having a turnover ranging from Rs. 1.5 crore to Rs. 5 crore must use 2-
digit HSN codes.
 Businesses with a turnover of more than Rs. 5 crore are entitled to use 4-digit HSN
codes.
 The 8-digit HSN code is meant for businesses that deal in the import and export of
commodities.
 5.7 Goods and Services exempt from GST
Understanding the taxability also involves knowing whether the item is exempt or not
under GST. Due to the scope of taxable supplies being widened under GST, exemptions under
GST have clearly been defined.

Exempted goods under GST

In the following section, you will find a list of the GST exempted goods in India:

 Fresh and dry vegetables like potatoes, onions, and other leguminous vegetables.

 Non-GST goods include fish, egg, fresh milk, etc.

 Grapes, melons, ginger, garlic, unroasted coffee beans, green tea leaves that are not
processed, and more.

 Food items that are not put into branded containers like rice, hulled cereal grains,
wheat, corn, etc.

 Components like human blood.

 Unspun jute fibres, raw silk, khadi fibre, etc.

 Hearing aid manufacturing parts, chalks, slates, handloom, etc.

Note: Certain non-GST items, once processed, will attract a GST.

 Exempted services under GST

A number of services qualify for GST exemption. Here is a GST exemption list of
services for your reference:

 Agricultural services, including harvesting, packaging, warehouse, cultivation,

supply, leasing of machinery, are essentially GST exempt services. An exception to these
exempted services includes the rearing of horses.

 Public transportation services, auto-rickshaws, metered cabs, metro, etc.

 Transportation of agricultural products and goods outside of India.

 Labour supply for farms.

 Goods transportation where the charges are less than Rs.1500.

 Services like retail packing, pre-conditioning, waxing, etc.

 Foreign diplomatic and government services.

 Healthcare and educational services like mid-day meal catering, VET clinics,
paramedics, etc. Ambulance and charity services also qualify for exemption under GST.

 Services offered by RBI, IRDAI, Central and State Government, NPS and more.

 Banking services like Basic Saving Bank Deposit (BSBD) account operable under the
Pradhan Mantri Jan-Dhan Yojana (PMJDY).

In addition to this, services related to religious ceremonies, sports organisation, tour

guides, and libraries are exempted under GST.

5.8 GSTN

GSTN stands for Goods and Service Tax Network, is a non-profit non-government
company.

It provides shared IT infrastructure and service to both central and state governments
including taxpayers and other stakeholders. The registration Front end services, Returns, and
payments to all taxpayers will be provided by GSTN. In a nutshell, it will act as the interface
between the government and the taxpayers.
 The GST Network makes GST implementation, regulation, and administration easier and
more efficient by utilizing cutting-edge information technology and infrastructure. The GST
Network is in charge of maintaining the single GST portal.

Structure of GSTN:

The uniqueness of the Goods and Services Tax Network lies in its endeavor to act as a
uniform interface for the taxpayers and governments along with a shared, common technology
infrastructure between the central and the state governments.

 Structurally, 51% of GSTN’s stake is held by private entities, and the government
owns the remaining 49%.
 GSTN’s authorized share capital is Rs. 10 Crores, 49% of which is equally distributed
between the Central and various state governments, with the remaining 51% distributed
between private banks.
 Further, a non-recurring grant of Rs. 315 Crores was sanctioned for its sophisticated
backend development by Infosys Technologies Ltd

Functions of GST Network:

 Analysis of Taxpayer’s Profile: When a taxpayer wants to register on GSTN, all
his/her details are thoroughly verified and passed on to the central and the respective state
government for approval.
 Registration: Once the Taxpayer’s profile is verified and approved, he/she is allotted a
GSTIN and notifies the respective tax authorities about it. Once the registration has been
confirmed, GSTN issues the GST Identification Number to the appropriate taxpayer and
uploads the information with the appropriate tax authorities.
 Tallying Invoice: This is a key function performed by the GSTN to cull out any
discrepancies between the purchase invoices and sales invoices and resolve them so that the
Taxpayer can avail of the Input Tax Credit (ITC) benefits.
 Filing Returns: GSTN has a unified, hassle-free return filing method for any GST, be
it State GST (SGST), IGST, or Central GST (CGST), without burdening the Taxpayer. Once
filed, the GSTN processes and forwards the returns to the central government and state
governments.
 5.9 TIME AND VALUE OF SUPPLY

Time of Supply:

Time of supply means the point in time when goods/services are considered supplied’.

When the seller knows the ‘time’, it helps him identify due date for payment of taxes.

CGST/SGST or IGST must be paid at the time of supply. Goods and services have a

separate basis to identify their time of supply

Time of supply of goods is earliest of:

1. Date of issue of invoice

2. Last date on which invoice should have been issued

3. Date of receipt of advance/ payment.

For Example:

Mr. X sold goods to Mr. Y worth Rs 1,00,000. The invoice was issued on 15th January.
The payment was received on 31st January. The goods were supplied on 20th January.

Note: GST is not applicable to advances under GST. GST in Advance is payable at the
time of issue of the invoice.

Time of supply is earliest of –

 Date of issue of invoice – 15th January

 Last date on which invoice should have been issued – 20th January.

Thus the time of supply is 15th January.

What will happen if, in the same example an advance of Rs 50,000 is received by Mr. X
on 1st January?
 The time of supply for the advance of Rs 50,000 will be 1st January (since the date of
receipt of advance is before the invoice is issued). For the balance Rs 50,000, the time of
supply will be 15th January.
 Time of Supply for Services

Time of supply of services is earliest of:

Date of issue of invoice

Date of receipt of advance/ payment.

Date of provision of services (if invoice is not issued within prescribed period)

Let us understand this using an example:

Mr. A provides services worth Rs 20000 to Mr. B on 1st January. The invoice was issued
on 20th January and the payment for the same was received on 1st February.

In the present case, we need to 1st check if the invoice was issued within the prescribed
time. The prescribed time is 30 days from the date of supply i.e. 31st January. The invoice was
issued on 20th January. This means that the invoice was issued within a prescribed time limit.

The time of supply will be earliest of –

Date of issue of invoice – 20th January

Date of payment = 1st February

This means that the time of supply of services will be 20th January.
 Value of Supply:
Value of supply means the money that a seller would want to collect the goods and
services supplied.
The amount collected by the seller from the buyer is the value of supply.
But where parties are related and a reasonable value may not be charged, or transaction
may take place as a barter or exchange; the GST law prescribes that the value on which GST is
charged must be its ‘transactional value’. This is the value at which unrelated parties would
transact in the normal course of business. It makes sure GST is charged and collected properly,
even though the full value may not have been paid.
5.10 Charge and Levy of tax

Different A few examples How to show GST in tax invoice if value

types of of taxable supply in examples given in
supply column 2 is Rs.100000 and GST rate is
12%
Interstate supply  Supply from Punjab to Taxable value of supply 1,00,000
(i.e, supply from Maharashtra Add: GST – IGST 12,000
one state/union  Supply from Lakshadweep (@12% of Rs.100000)
territory to another to Karnataka Total amount charged 112000
state/Union  Supply from Lakshadweep
territory) to Chandigarh
Intra State supply Supply from Rajasthan to Taxable value of supply 100000
(I,e, supply within Rajasthan (I,e supply from a Add: GST
the state) supplier in Rajasthan to CGST (@6% OF Rs100000) 6000
another person in Rajasthan SGST (Rajasthan) (@6% of Rs.
100000) 6000
Total amount charged 1,12,000
Intra state supply ( Supply from Chandigarh to Taxable value of supply 100000
supply within a chandigarh ( supply from a Add: GST
union territory) supplier in chandigarh to CGST (@6% OF Rs. 100000) 6000
another person in chandigarh) UTGST (@6% OF Rs 100000) 6000
Total amount charged 112000
 5.11 Input Tax Credit

ITC is core provision of GST

Input Tax Credit (ITC) is the core concept of GST as GST is destination-based tax. ITC avoids
cascading effect of taxes and ensures that tax is collected in the State in which goods or services or
both are consumed.

"Input tax credit" means credit of 'input tax'- section 2(56) of CGST Act.

Burden of proof on taxable person availing input tax credit - Where any person claims that he is
eligible for input tax credit under this Act, the burden of proving such claim shall lie on such person -
section 155 of CGST Act.

Flow of Input Tax Credit

 Eligibility for claiming ITC under GST
(i) A registered person is entitled to claim input tax credit charged on inward supply of
goods and/or services if such goods/services are used or intended to be used in course or
furtherance of businesses u/s 16(1).
(ii) Where goods and/or services are used partly for non-business purpose and partly for
business purpose, ITC attributable only to business purpose can be taken by the registered
person. [u/s 17(1)]. e.g.-A registered person purchased 5 computer but 1 computer is being
used for personal purpose and others for business. ITC will not be available for the computer
used for personal purpose.
 (iii) Where goods and/or services are partly used for making exempt supplies for taxable
supplies, ITC attributable to taxable supplies and zero-rated supplies can be taken by the
registered person.
e.g.- A registered person purchased 20 containe for the purpose of business, out of which
6 containers tire used for goods which are exempted and 2 containers are used for zero rated
supply. Hence credit is available for 14 containers.

Important definitions
(a) Input: Input means any goods other than capital goods used or intended to be used by
a supplier in the course or furtherance of business [u/s 2(59) of CGST Act]
(b) Capital goods: capital goods mean goods, the value of which is capitalised in the
books of accounts of the person claiming input tax credit and which are used or intended to be
used in course or furtherance of business [u/s 2(19) of CGST Act].
(c) Input Services : Input services means any service used or intended to be used by a
supplier in the course or furtherance of business [u/s 2(60) of GST Act]
(d) Exempt Supply : Exempt supply means supply of any goods or services or both
which attracts nil rate of tax or which may be wholly exempt from tax and includes non-
taxable supply [u/s 2 (47) of GST Act]
(e) Zero-Rated Supply : Zero-Rated Supply means any of the following supplies of goods
or services or both namely (i) Export of goods/services or both (ii) Supply of goods or services
or both

Condition for availing ITC u/s 16(2)

(1) Input tax credit can be availed on the basis of possession of tax paying document.
(invoice, Debit note, Bill of entry etc.)

(2) The person taking credit of taxes paid on procurement of goods and/or services must
have received the goods and /or services. It is not necessary that goods have been received
actually in the premises of recipient. It includes delivery to others person on the direction of the
registered person.

(3) In order to claim credit, the supplier should have paid the said amount of tax to
appropriate government in cash or by way of utilisation of input tax credit as admissible.
 (4) The registered person taking input tax credit must have submitted the details of his
inward supplies in GSTR-2 by 15th of following month in which the supplies were received.
176

(5) A registered person is required to pay the value of goods and/or services to the
supplier along with the applicable taxes within 180 days from the date of issue of invoice.

(6) The time limit for availment of credit shall be earlier of following two dates

(a) Due date of filing return for the month of September of the succeeding financial year
(or)

(b) Date of filing of the relevant annual return.

Blocked Credit

Generally, input tax credit is available on almost every input and input service used for
supply of taxable goods or services. However, there is a small list of items provided U/S 17(5)
of CGST Act on which input tax credit is not admissible.

(a) Inward supplies on which tax has been paid under the composition scheme.

(b) Inward supplies received by non-resident taxable person.

(c) Goods/Services used for personal consumption

(d) Goods which are lost, stolen, destroyed, gifted or distributed as free sample.

(e) Motor vehicles and conveyance [with some exceptions].

(f) Travel benefits to employees on vacation such as LTC or home travel concession.

Procurement within State and supply within State

Illustration :

Q-1) Janak Traders supplied goods @ ₹11,500. Janak Traders received goods valued at
₹10,000. The supplier has charged GST in his invoice. State Tax (SGST) and Central Tax
(CGST) rate on supply of goods is 9% each. Calculate the tax payable by Janak Traders.
 SOLUTION:

State Tax Central Tax

(SGST)
Details (CGST)
(A) Tax payable on supply of goods by Janak
Traders on ₹11,500 @ 9% ₹1,035 ₹1,035
(B) Input tax credit of taxes paid by supplier on input
goods of ₹10,000 @ 9% available in
Electronic Credit Ledger of Janak Traders ₹900 ₹900
(A-B) Net tax payable by cash by Janak Traders in
Electronic Cash Ledger ₹135 ₹135
Note that 'value added' by Janak Traders is ₹1,500. Thus, effectively, he is paying tax @ 9%
on his value addition.

Q-2) Deepak Manufacturers are manufacturers of drugs. State Tax (SGST) and Central Tax
(CGST) rate on supply of goods is 2.5% each. They sold the goods @ ₹10,000. They purchased
inputs @6,500. The State Tax (SGST) and Central Tax (CGST) rate on inputs is 6% each. All
these inputs were used in manufacture of final products. There was no opening or closing stock of
inputs or final products. Calculate the tax payable.
SOLUTION:
Details State Tax(SGST) Central Tax
(CGST
(A) Tax payable on supply of goods by Deepak Rs. 250 Rs. 250
Manufacturers on ₹10,000 @ 2.5%
(B) Input tax credit of taxes paid by supplier on input Rs. 390 Rs. 390
goods of ₹6,500 @ 6% available in Electronic Credit
Ledger of Deepak Manufacturers
(A-B) Net tax payable by cash by Deepak nil nil
Manufacturers in Electronic Cash Ledger
(B-A) Excess Credit carried forward in Rs.140 Rs.140
Electronic Credit Ledger of Deepak Manufacturers
which he can claim as refund
 This excess credit is due to inverted tax structure i.e., tax on inputs is more than tax payable
on outputs. In that case, Deepak Manufacturers can claim refund of this excess Input Tax Credit.
Receipt of goods and services within State but supply of goods and
services outside the State

Q-3) Value of supply of goods of a trader in inter-State is ₹1,200. IGST rate on supply of
goods is 18%. Value of receipt of goods and services within State is ₹1,000. SGST and CGST rate
on receipts is 9% each. Calculate tax payable.

SOLUTION:

Integrated
State Tax Central Tax Tax
Details (SGST) (CGST) (IGST
(A) Tax payable on intra-State
supply of goods and services of
₹1,200 @ 18% Nil Nil ₹216

(B) Input tax credit of taxes

paid on input goods and services @
9% of ₹1,000 available in Electronic
₹90 ₹90
Credit

Ledger
(A-B) Net tax payable by cash
by the trader in Electronic Cash ₹36
Ledger

The entire input tax credit of SGST and CGST can be utilized for payment of IGST on
supply of goods.

SGST credit can be utilized for payment of IGST but not for payment of CGST.

Since the consumption of goods is outside the State, the State is not entitled to get any tax
out of this transaction, Hence, the SGST utilized for payment of IGST will be debited by
Central Clearing Agency to that State (the reason is that entire IGST quantum should be
received by Centre).
 Q-4) Value of supply of goods and services of manufacturer in inter-State is ₹ 600. Value
of supply of goods and services within State is ₹600. IGST rate on supply of goods and
services is 12%. CGST and SGST rate is 6% each. Value of receipt of goods and services
within State is
₹1,000. SGST and CGST rate on receipts is 6% each. Calculate tax liability.

SOLUTION:

State Tax Central Integrated

Details Tax Tax (IGST)
(SGST)
(CGST)

(A1) Tax payable on inter-State supply of goods

and
₹ 72
services of ₹ 600 @ 12%
(A2) Tax payable on intra-State supply of goods
and
₹ 36 ₹ 36
services of ₹ 600 @ 6%
(B1) Input tax credit of taxes paid on input goods
and services of 1,000 @ 6% available in Electronic
Credit Ledger.
₹ 60 ₹ 60
(B2) Excess Credit available in Electronic Credit
Ledger (B1-A2) ₹ 24 ₹ 24
Net tax payable by cash by the manufacturer in
Electronic Cash Ledger Nil Nil ₹ 24

The excess credit of SGST and CGST can be utilized for payment of IGST.

Receipt of goods and services inter-State but supply of goods and services within the
State
 Q5 Value of supply of goods and services of a trader within State is
₹1,200. SGST and IGST rate on supply of goods and services is 9% each.
Value of receipt of goods and services inter- State is ₹1,000. IGST rate on
receipts is 18%. Calculate tax payable.

SOLUTION:

Integrated
State Central Tax
Details Tax Tax (IGST)
(SGST) (CGST)
(A) Tax payable on intra-State supply ---
of 108 108
goods and services of ₹1,200 @ 9%
(B) Input tax credit of taxes paid on ---- ----
input goods and services @ 18% of ₹1,000 180
available in Electronic Credit Ledger

(B1) Utilization of credit of IGST 72 108

Net tax payable by cash by the trader

in 36 Nil Nil
Electronic Cash Ledger (A - B1)

IGST credit should be utilized in sequence of IGST, CGST and SGST.

Out of IGST credit of ₹180, ₹108 can be utilized for payment of CGST by
the taxable person. The balance credit of ₹72 can be utilized for payment of
SGST. Balance State tax (SGST) payable by cash is ₹36.

Meaning of reverse charge

Normally, GST is payable by 'taxable person' who is supplying goods and services.

Taxable person means a person who is registered or liable to be registered under section 22 or 24 of
CGST Act - section 2(107) of CGST Act.

Sections 22 and 24 of CGST Act requires every supplier of goods or services or both to register.

Section 9(1) of CGST Act and section 5(1) of IGST Act provides that GST is payable by 'taxable
person'.
However, in some cases, GST is payable by person who is recipient of the goods or services or both.
This is termed as 'reverse charge'.

"Reverse charge" means the liability to pay tax by the person receiving goods or services or both
instead of the supplier of such goods and/or services under section 9(3) or 9(4) of CGST Act or
section 5(3) or 5(4) of IGST Act - section 2(98) of CGST Act.

Composition scheme for small and medium size taxable persons

GST requires heavy compliance cost due to detailed accounting and paper work involved.

Small taxable persons do not have sufficient knowledge and expertise to the requirements relating to
records and accounts.

Hence, for them, a simplified composition scheme has been provided, vide section 10 of CGST Act.

Changes in composition scheme from 1-4-2019 in GST-The charges in composition scheme

w.e.f. 1-4-2019 are as follows [Notification No. 14/2019-CT dated 7-3-2019] -

Traders in specified goods having turnover upto Rs. 1.50 crores per annum can opt for composition
scheme of payment of tax @ 1% (CGST - 0.5% plus SGST/UTGST-0.5%) [The limit upto 31-3-
2019 was Rs. one crore].

The turnover limit for Composition Levy for CGST and SGST purposes shall be Rs.75 lakh in
previous financial year, in respect of the following States- (1) Arunachal Pradesh

(2) Manipur (3) Meghalaya (4) Mizoram (5) Nagaland (6) Mare Sikkim (7) Tripura, and Himachal
Pradesh.

Manufacturers of Ice Cream, Pan Masala and Tobacco products are not eligible for the composition
scheme.

No composition scheme for manufacturer of aerated water w.e.f. 1-10-2019 - Composition scheme is
not available to manufacturer of aerated water w.e.f. 1-10-2019. Who is eligible for the composition
scheme?

The limit of composition scheme can be extended upto Rs.1.50 crores by issuing notification, on
recommendation of GST Council - first proviso to section 10(1) of CGST Act.

The scheme is available to those whose aggregate turnover of supply of goods in the previous
financial year did not exceed 150 lakhs. The limit applies w.e.f. 1-4-2019[The limit was 100 lakhs
upto 31-3-2019]- Notification No. 14/2019-CT dated 7-3-2019.
The turnover limit for Composition Levy for CGST and SGST purposes shall be Rs.75 lakh in
previous financial year, in respect of the following States - (1) Arunachal Pradesh (2) Manipur (3)
Meghalaya (4) Mizoram (5) Nagaland (6) Sikkim (7) Tripura and (8).

Uttarakhand- proviso to Notification No. 14/2019-CT dated 7-3-2019 effective from 1-4- 2019.

Provision upto 31-3-2019 in respect of specified States- The turnover limit for Composition Levy
for CGST and SGST purposes shall be Rs.75 lakh in previous financial year, in respect of the
following States - (1) Arunachal Pradesh (2) Assam (3) Manipur (4) Meghalaya (5) Mizoram (6)
Nagaland (7) Sikkim (8) Tripura, and (9) Himachal Pradesh - Notification No. 8/2017-CT dated 27-
6-2017 existing upto 31-3-2019.

The scheme is optional.

Option lapses when turnover exceeds specified limit in current financial year-
The option to pay tax under composition scheme under section 10(1) or 10(2A) of CGST
Act lapses on the day the aggregate turnover exceeds the specified limit section 10(1) or
10(2A) of CGST Act - section 10(3) of CGST Act, as amended vide Finance (No. 2) Act,
2019 with effect from 1-1-2020.

All registered taxable persons having same PAN number should opt for the
composition scheme.

Composition scheme if person supplying services in addition to supply of goods-

The composition scheme is not available to supplier of services, except supply of food
for human consumption [This has been defined as 'service' in para 6(b) of Schedule II of
CGST Act] - section 10(2)(a) of CGST Act.

However, there are many small taxable persons who provide some services in
addition to supply of good e.g., repairs, fitting and commissioning etc. in addition to
supply of goods.

Hence, following clause has been added to section 10(1) of CGST Act which reads
as follows:

Provided further that a person who opts to pay tax under clause (a) or clause (b)
or clause
(c) may supply services (other than those referred to in clause (b) of para graph 6 of
Schedule II), of value not exceeding ten per cent, of turnover in a State or Union territory
in the preceding financial year or five lakh rupees, whichever is higher second proviso to
section 10(1) of CGST Act vide CGST (Amendment) Act, 2018 w.e.f. 1-2-2019.
 (d) Effect of this proviso is that a taxable person under composition scheme can
supply services upto 10% of his turnover in preceding financial year or upto Rs. five lakhs
whichever is higher.

(e)For the purposes of second proviso, the value of exempt supply of services provided
by way of extending deposits, loans or advances in so far as the consideration is represented by
way of interest or discount shall not be taken into account for determining the value of turnover
in a State or Union territory- explanation to second proviso to section 10(1) of CGST Act vide
Finance (No. 2) Act, 2019 with effect from 1-1-2020.

(f) Effect of explanation to second proviso to section 10(1) of CGST Act vide Finance
(No. 2) Act, 2019 inserted with effect from 1-1-2020 is that interest or discount will not be
considered as 'exempt supply'. Hence, it will not be considered for calculating 'turnover in a
State or Union Territory' for calculating limit of 10% of turnover in a State.

Rates under composition scheme

The taxable person opting for composition scheme will have to pay a fixed percentage of
gross turnover as tax.

The CGST rates of composition scheme are as follows w.e.f. 1-1-2018 [section 10(1) of
CGST Act and rule 7 of CGST Rules, 2017]-

Tax payable by manufacturer, other than manufacturers as may be notified by

Government- (a) 0.5% CGST plus 0.5% SGST/UTGST (total 1%) of turnover in State or Union
territory in case of a manufacturer [The rate was 1% plus 1% upto 31-12 2017. It is 0.5% plus 0.5%
w.e.f. 1-1-2018]. [The words 'other than manufacturers as may be notified by Government' have
been inserted w.e.f. 1-4-2020].

Tax on food in restaurant - 2.5% CGST plus 2.5% of SGST/UTGST (total 5%) of turnover
in State or Union territory in case of persons engaged in making supplies referred to in para 6(b) of
Schedule II of CGST Act [service of supply of food for human consumption].

The suppliers of food will be eligible for composition scheme even if they supply exempted
service of extending deposits or loans and receiving interest on such de posits or loans- Removal of
Difficulties Order No. 1/2019-CT dated 1-2-2019 [earlier Removal of Difficulties Order No.
1/2017-CT dated 13-10-2017]. Thus, the composition scheme is available even if the taxable person
receives interest, which is an exempted service.
 Now this scheme has become redundant as general rate on supply of food itself in 5% (2.5%
CGST plus 2.5% SGST) without input tax credit.

Tax payable by traders supplying services upto 10% of turnover - 0.5% CGST plus 0.5%
SGST/UTGST (total 1%) of turnover of taxable supplies of goods and services in State or Union
Territory in case of other suppliers [i.e., traders] [The words and services have been inserted w.e.f.
1-2-2019] (The traders can supply services upto 10% of turnover or Rs five lakhs in year whichever
is higher and still are eligible for composition scheme w.e.f. 1-2- 2019).

As per Removal of Difficulties Order No. 1/2019-CT dated 1-2-2019, interest on discount on
loans, deposits etc. received by the trader will not be considered for (i) determining the eligibility
for composition scheme under second proviso to section 10(1) of CGST Act [which allows for
provision of services upto 10% of turnover] and (ii) in computing aggregate turnover in order to
determine eligibility for composition scheme.

Tax rate 6% under composition scheme for services w.e.f. 1-4-2020 - Tax rate is 6% (3%
CGST and 3% SGST/UTGST) of turnover under composition scheme services w.e.f. 1-4-2020.

Tax of 1% (in case of trader) is on 'turnover of taxable supplies' w.e.f. 1-1-2018 - In case
of traders, tax @ 0.5% is payable on 'turnover of taxable supplies' w.e.f. 1-1-2018 [Till 31-12-2017,
the traders were liable to pay tax on 'turnover within the State' which included exempted goods
also].

Tax of 1% (in case of manufacturer), 5% (in case of restaurant) and 6% (in case of
suppliers of services) is payable even on exempted goods and services also - The tax is payable
on 'turnover in a State or Union Territory'. Thus, tax is payable even on goods and services which
are otherwise exempt from GST. This should be kept in mind [Provisions in respect of services
added w.e.f. 1-4-2020]

If a taxable person is supplying both taxable and exempt goods, it may be

advisable to deal in exempted goods under a separate partnership firm. If a
person is making non-taxable supply (petrol, diesel, alcoholic liquor), he is not
eligible for composition scheme at all and hence issue of GST on such supplies
does not arise.
 Who is 'manufacturer'?

"Manufacture" means processing of raw material or inputs in any manner

that results in emergence of a new product having a distinct name, character and
use and the term "manufacturer" shall be construed accordingly-section 2(72) of
CGST Act.

Thus, simple activities like packing, re-packing, labelling, testing, repairs,

mixing etc. will not qualify as 'manufacture’.
Relief to very small taxable persons

It is normal to provide threshold limit for imposition of any tax, so that

very small taxable persons are out of tax net.
Very small taxable persons whose total turnover is less than Rs. 20 lakhs
are not required to register under GST (The limit is Rs. 10 lakhs in case of North
Eastern States, Himachal Pradesh and Uttarakhand).
This exemption (of 20/10 lakhs) is not available to person who makes
inter-state supply of goods. However, this exemption is available to a person
making inter-state supply of services
- Notification No. 10/2017-IT dated 13-10-2017.
The exemption is not available to a person liable to pay tax under reverse
charge as required under section 9(3) of CGST Act or section 5(3) of IGST Act.
Persons having turnover above this limit are required to be registered and
pay tax even if their turnover is below 20/10 lakhs.

Person liable to be registered

As per section 22(1) of CGST Act, every supplier shall be liable to be

registered in the State or Union Territory (other than special category States)
from where he makes supply of goods or services or both, if his aggregate
turnover in a financial year exceeds Rs. 20 lakhs.

In case of 'special category states', registration is required if his aggregate

turnover in a financial year exceeds Rs. 10 lakhs - proviso to section 22(1) of
CGST Act.
 Special Category States means States as specified in Article 279A(4)(g) Constitution of
India
- Explanation (iii) to section 22 of CGST Act.

These are - States of Arunachal Pradesh, Assam, Jammu and Kashmir,

Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh
and Uttarakhand.

Aggregate turnover - For purpose of section 22 of CGST Act, the

expression "aggregate turnover" shall include all supplies made by the taxable
person, whether on his own account or made on behalf of all his principals -
Explanation (1) to section 22 of CGST Act.

The term 'principal' [defined in section 2(88) of CGST Act] applies to

clearances made by C&F Agent on behalf of Principal. It does not apply to
clearances made by job worker.

In case of job work, value of material will be included in aggregate

turnover of principal and not of job worker - The supply of goods, after
completion of job-work, by a registered job worker shall be treated as the
supply of goods by the principal referred to in section 143, and the value of such
goods shall not be included in the aggregate turnover of the registered job
worker - Explanation (ii) to section 22 of CGST Act.

Persons requiring registration without threshold limit of 20/10 lakhs

The following categories of persons shall be required to be registered under this Act
(except those exempted under section 23 of CGST Act), even if their aggregate turnover is
below specified exemption limit and are exempt from registration under section 22(1) -
section 24(1) of CGST and SGST Act.
(i) persons making any inter-State taxable supply of goods [In case of supply of
services, person making inter-state supply of services is not required to register if his
aggregate turnover is less than Rs. 20/10 lakhs] - Notification No. 10/2017-IT dated 13-
12017.

(ii) casual taxable persons making taxable supply.

(iii) persons who are required to pay tax under reverse charge.
 (iv) persons who are required to pay tax under section 9(5) [electronic commerce
operators]

(v) non-resident taxable persons making taxable supply.

(vi) persons who are required to deduct tax under section 51 (TDS), whether or
not separately registered under the CGST/SGST Act [Thus, separate registration is required
for TDS purposes]

(vii) persons who supply goods or services or both on behalf of other taxable
persons whether as an agent or otherwise. (viii) input service distributor whether or not
separately registered under the CGST/SGST Act [Thus, separate registration is required for
ISD purposes]

(ix) persons who supply goods or services or both, other than supplies specified
under section 9(5), through such electronic commerce operator who is required to collect tax
under section 52 [Under section 9(5) of CGST Act, Government can notify e-commerce
operators who will be liable to pay entire GST]

(x)every electronic commerce operator.

(xi) every person supplying online information and database access or retrieval
services (OIDAR) from a place outside India to a person in India, other than a registered
taxable person [Thus, if a person is already registered under GST, separate registration is not
required] and

(xii) Such other person or class of persons as may be notified by the Central
Government or a State Government on the recommendations of the GST Council.

5.12 Filling of Returns

(i) U/s 44 of CGST Act, all taxpayers filing regular returns [u/s 39] are required
to file an annual return.
(ii) Form: GSTR-9 (Regular tax payer)
GSTR-9A (composition Tax payer)
(iii) Time limit: 31st December of next financial year.
 Steps in furnishing of Returns
Step 1 : Filing of GSTR-1
The tax payer will upload the final GSTR-1 by 10th day of the month succeeding
the month during which the supplies have been made. Modification in GSTR-1
would be allowed from 15th day to 17th day of the month on the basis of details
uploaded by the respective purchaser in GSTR-2.
Step 2 : Auto-Population of GSTR-2A
GST common portal will auto populate GSTR-2A of tax payer based on invoice
details reported by the supplier. While every taxpayer will be able to see the invoices
uploaded by the respective supplier, they can finalise their GSTR-2 only after the last
date of filing GSTR-1.
Step 3 : Filling of GSTR-2
The invoice auto-populated in GSTR-2A will be accepted/ rejected/ modified by the
purchaser in the GSTR-2. He will also be able to add additional invoice details.

Payment of Taxes
Electronic Cash Ledger
Electronic cash ledger, maintained on GST common portal is a statement which reflects deposits made
in cash by a tax payer along with details of TDS/ TCS deposited on his account. The amounts recorded in
Electronic cash ledger can be used for making any payment towards tax, interest, penalty, fees or any
other amount on account of GST.

Two modes have been prescribed for payment of Tax:

Mode A: (i) Internet Banking
(ii) Use of credit card/ Debit card without any restriction on the amount
Mode B: Over the counter (Maximum amount of Rs. 10,000 per challan per tax period)
Electronic Credit Ledger
Electronic credit ledger, maintained on GST common portal, is a statement which
reflects the details of ITC (input tax credit) as self assessed by a dealer in his returns.
The amount recorded in Electronic Credit Ledger can be used only to make payment
of output taxes. Other amount such as interest, penalty, fees can’t paid through
utilising ITC. Further, where a registered person is liable to pay tax under Reverse
Charge Mechanism, such tax need to be discharged in cash only and ITC can’t be utilised.
Electronic Liability Register
Electronic Liability Register, maintained on GST common portal is a statement
which reflects the total tax liability of a taxpayer for a particular period.
Interest on delayed payment of Tax: Section 50 of CGST Act requires a person
to pay interest in the following situations.
(a) Tax paid after the expiry of prescribed period (i.e. delay in payment of tax)

Rate of interest
For Situation (a) : 18% p.a [as notified]
For situation (b) & (c) : 24% p.a [as notified]
Time period
Starting from the date following the due date of payment to the actual date of
payment of tax.

Illustration1:
M/S Romit Pvt. Ltd. supplied goods worth Rs. 10,00,000 to M/S Gita Ltd. in the
month of September, 2017 plus GST @ 12%. M/S Romit Pvt. Ld. Paid GST on 5th
December 2018. The amount of tax credit is 70,000, available in the books Find the
interest payment u/s 50.

Solution :
Tax [GST] Rs. 1,20,000
Less: Input tax Credit Rs. 70,000
Tax payable Rs. 50,000
(i) Due date of payment of tax for the month of Sept. 2017 is 20th October,
2017.
(ii) Date of actual payment is 5th December 2018.
(iii) Delay in payment 411 days [21st Oct. 2017 to 5th December, 2018]
(iv) Rate of interest = 18% p.a
(v) Interest u/s 50 = [Rs. 50,000 × 18% ×411/365]
= 10,134/-
Terminal Questions:

Section A (5 Marks)
1. Explain the Structure of GST in India.
2. List any 5 goods exempted from GST.
3. Describe the steps involved in furnishing return under GST.
4. Explain briefly about Electronic cash ledger and Electronic credit ledger.
5. Determine the time of supply of goods in each of the following independent cases in accordance
with provisions of section 12 of the GST act, 2017 in case of supply movement of goods.

Sl.No Date of Invoice Date of goods Date of Payment

delivered
1. 02-07-2022 03-07-2022 15-07-2022
2. 01-08-2022 04-08-2022 28-09-2022
3. 04-09-2022 06-09-2022 01-08-2022

7. Determine the transaction value and total amount of GST payable to this product.

Particulars Amount
Cost price of the machine (inclusive of GST 28%) 2,56,000
Design and development charges 15,000
Warranty charges 12,000
Cost of durable and returnable packaging 10,000
GST rate to this product 18%

Section B (9 Marks)
1. Describe the mechanism of input tax credit under GST.
2. Explain the concept of Supply under GST.
4. Arun Manufacturers are manufacturers of steel. State Tax (SGST) and Central Tax (CGST) rate
on supply of goods is 2.5% each. They sold the goods @ ₹20,000. They purchased inputs @7,500.
The State Tax (SGST) and Central Tax (CGST) rate on inputs is 6% each. All these inputs were
used in manufacture of final products. There was no opening or closing stock of inputs or final
products. Calculate the tax payable.
5. M/s X Ltd. being a registered person supplying taxable goods in the following
manner:

(i) Rate of CGST, SGST and IGST to be 9%, 9% and 18% respectively.
(ii) Inward and outward supplies are exclusive of taxes.
All the conditions necessary for availing the input tax credit have been fulfilled.
Compute the net GST payable by M/s X Ltd. during the tax period. Make suitable
assumptions.
6. Compute the total tax liability of M/S. Darshan and sons ltd of Mysore under the GST act 2017
for the month of May 2023 from the following particulars:

Particulars Amount
Purchase of materials within the state at 5% GST 1,80,000
Goods purchased from Maharastra at 5% GST 5,00,000
Goods purchased from a registered dealer covered by composition 2,50,000
scheme
Materials purchased from Andhra Pradesh at 12%GST 80,000
Finished goods sold
within the state at 12% GST 3,50,000
out of the state at 12% GST 8,00,000
Special Economic Zone which is exempted 1,50,000

7. Having a regard to the provisions of CGST and SGST Act, 2017, compute the transaction value of
goods from the following information and GST payable.

Particulars Rs
Listed selling price (including IGST of Rs.5,000) 35,000
Following transactions are not included in the above price
Normal secondary packing cost 2,000
Cost of special packing 1,000
Freight charges paid by supplier charged separately 800
Insurance of freight paid by supplier charged separately 200
Trade discount 2,000

Rate of GST 12%

Section C (12 Marks)
1. X, a registered supplier of goods, pays GST under regular scheme and

provides the following information for the month of August 2022–

Rs.
Inter-State taxable supply Of
goods
10,00,000
Intra-State taxable supply Of
Goods 2,00,000
Intra-State purchase of taxable
Goods 5,00,000

He has the following input tax credit at the beginning of August 2022-CGST: Rs. 20,000, SGST: Rs.

30,000, IGST: Rs. 25,000. Rate of CGST, SGST and IGST is 9 per cent, 9 per cent and 18 per cent

respectively. Both inward and outward supplies are exclusive of taxes wherever applicable. All the

conditions necessary for availing the input tax credit have been fulfilled. Compute the net GST

payable by X for the month of August 2022.

2. Y Ltd. is operating in two states West Bengal and Bihar. The tax liability for the
month of September 2022 is as follows—

Calculate the tax payable for the month of September 2022.

3. A dealer in Bangalore agreed to supply 3 computer systems to a dealer in Mysore in the month of
august 2022 on following terms;

Particulars Rs.

Price of the each CPU supplied (inclusive of GST at 18%) 23,600

Price of the each desktops supplied (exclusive of GST at 28%) 6,000

Packing for transportation 4,000

Transport charges to recipient place charged separately in invoice 6,000

The dealer supplied following essential items along with the CPU:

i. 3 Key pads supplied along with the laptops costing Rs.300 each and rate of GST applicable is 12%

ii. 3 mousse supplied along with the laptop costing Rs. 350 each and rate of GST applicable is 12%

iii. Cost of operating software’s sullied for all the systems Rs.50,000 rate tax applicable to software’s
5%

iv. Special discount of Rs. 5000 for is given, if advance of Rs.5,00,000 is paid with order. The buyer
has paid the advance with the order.

Find the transaction value and the GST payable for month of august 2022

References :
1. Datey, V. S. : Goods and Services Tax, Taxmann.
2. Acharjee, M. : Goods and Service Tax.
3. Singhania & Singhania, : Student Guide to Income Tax including GST, Taxmann.
4. Chatterjee T. B. and Sony V. : Goods and Services Tax, Book Corporation.
5. Banger and Banger : Goods and Services Tax, Aadhya Prakashani.