GST IN INDIA

14.07.2018

By Puneet Agrawal
Partner
ALA Legal
 TOPICS COVERED
• Introduction to GST
– Need of GST in India
– Concept of GST
– Benefit of GST
– Constitution of India (Provisions related to GST)
• Concept of Supply & Important Definitions
– Definition of Supply (including Schedule I, II, III and composite & mixed supply)
– Other definitions:
• Business
• Taxable Supply
• Non-taxable supply
• Supplier
• Recipient
• Exempt Supply
• Zero-rated supply
• NIL Rated supply
• Consideration
• Non-monetary Consideration.
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INTRODUCTION TO GST

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 NEED OF GST IN INDIA
• Multiplicity of taxes. Each state had its own tax. Issues:
– Multiple taxation on single transaction
– Cross Credit not available
• Loss of Credit
• Event based taxation:
– Increased volume of litigation regarding scope of levy
– If a transaction does not fall under the such event, no tax leviable
• Illustrations:
– CST
– Entry Tax Story in India

4
 CONCEPT OF GST
• It is a Value Added Tax.
• Tax on supply as opposed to on an event, such as sale, service,
manufacture, entry, etc.
• Destination based consumption tax.
• Common tax for both, goods & services (anything other than
goods).
• Cross credits available.

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 BENEFITS OF GST
• Tax on full value addition.
• Reduction in disputes relating to taxable event.
• Availability of credit.
• Common law throughout the country.

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 BASICS OF ANY TAX
1. Tax is on what?
2. Who has to pay?
3. Rate, and
4. Value

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 LEVY
• Intra State Supply: CGST + SGST
• Inter State Supply: IGST
• Import: BCD + IGST
• Export: IGST but Zero Rated

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 ONE NATION ONE TAX????

IGST Act Parliament

CGST Act Parliament

GST Laws
in India
UTGST Act Parliament

Each state, Delhi

SGST Act & Puducherry (31
Acts)
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 ILLUSTRATIONS
Situation Current Tax Tax under GST
Intra state: CGST+SGST
Manufacturer Excise Duty + VAT
Inter State: IGST
Trader (Intra State) VAT CGST + SGST
CST (2% with Form C, Full Rate without IGST at full rate
Trader (Inter State)
Form C) No concessional rate
Intra state: CGST+SGST
Service provider Service tax throughout the country
Inter State: IGST
Cinema & Fun Parks etc Entertainment Tax GST
Hotel Luxury Tax + Service Tax + VAT (food) GST
Tobacco and Tobacco products Excise Duty + VAT Excise Duty + GST
Liquor for human consumption State Excise duty + VAT/ CST State Excise duty + VAT/ CST

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CONSTITUTIONAL ASPECT
ARTICLE 246A: SPECIAL PROVISION WITH RESPECT TO GOODS
AND SERVICES TAX

• Gives power to the Parliament & State legislatures to make laws on GST imposed
by Union or by such States
• Begins with a non-obstante clause (“notwithstanding anything contained in A. 246
& 254”)
• Such GST to be imposed on supply
• Parliament reserves exclusive right to legislate when supply happens in course of
inter-state state trade or commerce
• Exception: GST in respect of crude petroleum, HSD, MS, Natural gas & ATF, to take effect
from a later date to be recommended by the GST Council

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GST ON SUPPLIES IN COURSE OF INTER-STATE TRADE OR COMMERCE –
ARTICLE 269A
• Supplies in course of inter-state trade or commerce & in course of import into the territory of
India
– levy & collection by Union
– to be apportioned between Union & States
• Method of apportionment between States to provided by Parliament by law based on
recommendations of the GST Council
• Parliament has been given the power to formulate principles for determining
– when a supply takes place in course of inter-state trade or commerce
– place of supply

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 ARTICLE 286
(1) No law of a State shall impose, or authorise the imposition of, a tax on
the supply of goods or services or both, where such supply takes place—
(a) outside the State; or
(b) in the course of the import of the goods or services or both into,
or export of the goods or services or both out of, the territory of
India.
(2) Parliament may by law formulate principles for determining when a
supply of goods or services or both takes place in any of the ways
mentioned in clause (1).
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 TAXING POWERS AS PER THE AMENDED
CONSTITUTION OF INDIA

Centre

Outside the
Inter-state Import Export
State

A. 246A r/w A.
A. 286 r/w A. 286 r/w A. 286 r/w
269A r/w IGST
IGST Act, 2017 IGST Act, 2017 IGST Act, 2017
Act, 2017

A. 246A r/w CGST

Centre & State Intra-State Supply
& SGST Acts.
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 DEFINITIONS CLAUSE – ARTICLE 366

• Clause 12A inserted, to define goods & services tax:

(12A) “goods and services tax” means any tax on supply of goods, or
services or both except taxes on the supply of the alcoholic liquors for
human consumption
• Clause 26A inserted, to define services:
(26A) “services” means anything other than goods.

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 RESIDUARY POWER OF THE PARLIAMENT

• Article 248 i.e. the residuary power of Parliament to legislate has been
made subject to Article 246A

Our comments:
• Parliament therefore, may now make laws on all matters except those covered
under the State List, Concurrent List or Art. 246A
• Entry 97 of List I has not been expressly stated to be subject to Art. 246A
– Though stating so would only be clarificatory (Lists are anyways subject to the
Art. 246)
– Expressly defining the powers would remove ambiguity

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 STAMP DUTIES REMAIN

• Art. 268 which provides for collection of duties by the States (while the levy is by
the Union) amended to exclude excise duties
• In respect of stamp duties, the Article is sustained and there has been no change
• Interestingly, there has also been no change in Entry 91 (List I) & Entry 63 (List II)
on rates of stamp duty
• Wide definition of services proposed in Art. 366(26A) to include transactions in
immovable property
• Therefore, levy of GST as also stamp duty

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 ARTICLE 268A & ENTRY 92C - OMITTED
• Article in respect of levy and Collection of service tax has been omitted
• Entry 92C of List I (though not notified) enumerating levy of taxes on service tax by the
Union, has also been omitted

Our comments:
• Shows clear intention of the Legislature to charge unified GST on services

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 TAXES LEVIED & COLLECTED BY UNION (ASSIGNED TO
STATES) – ARTICLE 269
• Article on taxes on sale or purchase of goods and on consignment of goods (except as
provided u/ Art. 269A), when the same is in course of inter-state trade or commerce has
been sustained
• However, the Article specifically excludes the subject matter in Art. 269A

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 REVENUE DISTRIBUTION BETWEEN THE STATES – ARTICLE
270
• Art. 270(1A) introduced:
• GST levied & collected by the Union
• (except the GST having been apportioned with the States u/A 269A(1))
• Shall be distributed between the States in accordance with Art. 270(2)
Our comments:
Not clear as to whether the entire tax referred in Art. 269A is to be excluded, or only the tax apportioned to the
States is to be excluded

Our understanding:
• IGST comprises of Central Govt’s share + State Govt’s share
I=C+S
• Under Art. 269A(2) S is assigned to States
• Therefore, Art. 270A(2) contemplates apportionment of revenue of Centre alongwith C (above)

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 AMENDMENT IN SCHEDULE VII
(UNION LIST)
Entry 84 substituted for the previous entry, as follows:
84. Duties of excise on the following goods manufactured or produced in India,
namely:
(a) petroleum crude;
(b) high speed diesel;
(c) motor spirit (commonly known as petrol)
(d) natural gas;
(e) aviation turbine fuel;
(f) tobacco and tobacco products
Our comments:
• Excise duty may only be charged in respect of the aforesaid items i.e. by way of a positive
list
• Above products leviable to excise duty even when it is chargeable to GST too

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 CONTD…
Entries omitted:
92 – Taxes on sale or purchase of newspapers and on advertisements
published therein
92C – Taxes on services

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 SCHEDULE VII - UNION LIST
(OUR COMMENTS)

Following entries have NOT been omitted:

89 – Terminal taxes on goods/passenger
90 – Taxes on transactions at stock exchanges
92A – Taxes on sale or purchase of goods (in the course of inter-state trade or
commerce)
92B – Taxes on consignment of goods (in the course of inter-state trade or commerce)

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 SCHEDULE VII
(STATE LIST)

Entry 54 substituted as:

“54. Taxes on the sale of petroleum crude, high speed diesel, motor spirit (commonly
known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human
consumption, but not including sale in the course of inter-State trade or commerce or sale
in the course of international trade or commerce of such goods”

Previous Entry 54:

“Taxes on the sale or purchase of goods other than newspapers, subject to the provisions
of entry 92A of List I”

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 SCHEDULE VII
(STATE LIST)

Entry 62 substituted as:

"62. Taxes on entertainments and amusements to the extent levied and collected by a Panchayat
or a Municipality or a Regional Council or a District Council”

Previous Entry 62:

“62. Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling”

Entries Omitted:
52 – Taxes on entry of goods
55 – Taxes on advertisements

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 SCHEDULE VII
(STATE LIST)
Entries not touched upon:
49 – Taxes on lands & buildings
50 – Taxes on mineral rights
53 – Tax on sale/consumption of electricity
56 – Taxes on goods & passengers by road or
inland waterways
57 – Taxes on vehicles
58 – Taxes on animals & boats
63 – Stamp duty

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 ARTICLE 277: SAVINGS CLAUSE
“Any taxes, duties, cesses or fees which, immediately before the
commencement of this Constitution, were being lawfully levied by the
Government of any State or by any municipality or other local
authority or body for the purposes of the State, municipality, district
or other local area may, notwithstanding that those taxes, duties,
cesses or fees are mentioned in the Union List, continue to be levied
and to be applied to the same purposes until provision to the contrary
is made by Parliament by law.”

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 101ST CONSTITUTIONAL AMENDMENT ACT, 2016
“Section 19: Transitional Provisions: Notwithstanding anything in
this Act, any provision of any law relating to tax on goods or services
or on both in force in any State immediately before the
commencement of this Act, which is inconsistent with the provisions
of the Constitution as amended by this Act shall continue to be in
force until amended or repealed by a competent Legislature or other
competent authority or until expiration of one year from such
commencement, whichever is earlier”

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CONCEPTS & DEFINITIONS

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 GOODS & SERVICES
• Levy of CGST/ SGST/ IGST is on supply of goods and/or services in the course of inter-state and
intrastate trade and commerce. That is the taxable event in GST is ‘supply of goods and/ or
services’.

• Section 2(52): “goods” means every kind of movable property other than money and securities but
includes actionable claim, growing crops, grass and things attached to or forming part of the land
which are agreed to be severed before supply or under a contract of supply;

• Section 2(102): “services” means anything other than goods, money and securities but includes
activities relating to the use of money or its conversion by cash or by any other mode, from one form,
currency or denomination, to another form, currency or denomination for which a separate
consideration is charged;
Explanation-For the removal of doubts, it is hereby clarified that the expression “services” includes
facilitating or arranging transactions in securities. {Proposed addition}
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 SCOPE OF SUPPLY (S. 7 CGST ACT, 2017)
All forms of supply of goods Sale, Transfer Barter,
and/or services , like:
For a consideration
Exchange, Lease, etc.
Supply (Section 7)

Import of services for a Whether or not in the course In the course or

consideration of business furtherance of
business
Made or agreed to be made,
Schedule I even without a consideration
NOT SUPPLY
(S. 7(2))
Activities to be treated as supply
Schedule II of goods or services.
•Activities under
SCHEDULE III
•Activities of CG/ SG/
Government may specify by Transactions to be treated as LA – as notified
notification supply of goods or services.

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 PROPOSED AMENDMENTS
7. (1) For the purposes of this Act, the expression “supply” includes– –
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease
or disposal made or agreed to be made for a consideration by a person in the course or furtherance of
business;
(b) import of services for a consideration whether or not in the course or furtherance of business; and
(c) the activities specified in Schedule I made or agreed to be made without a consideration.; and
(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.
(1A) Certain activities or transactions, when constituting a supply in accordance with the provisions of sub-section (1), shall
be treated either as supply of goods or supply of services as referred to in Schedule II.
(2) Notwithstanding anything contained in sub-section (1),––
a) activities or transactions specified in Schedule III; or
b) such activities or transactions undertaken by the Central Government, a State Government or any local
authority in which they are engaged as public authorities, as may be notified by the Government on the
recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services.
(3) Subject to the provisions of sub-sections (1), (1A) and (2), the Government may, on the recommendations of the
Council, specify, by notification, the transactions that are to be treated as–
(a) a supply of goods and not as a supply of services; or
(b) a supply of services and not as a supply of goods.

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 DEFINITION OF WORDS/PHRASES USED IN
SECTION 7
…MADE OR AGREED TO BE MADE FOR A CONSIDERATION
Consideration is defined under Section 2(21) of the CGST Act, 2017:
“(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to,
or for the inducement of, the supply of goods or services or both, whether by the recipient or by any
other person but shall not include any subsidy given by the Central Government or a State
Government;
(b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement
of, the supply of goods or services or both, whether by the recipient or by any other person but shall
not include any subsidy given by the Central Government or a State Government:
Provided that a deposit given in respect of the supply of goods or services or both shall not be
considered as payment made for such supply unless the supplier applies such deposit as consideration
for the said supply;”
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 CONTD…
IN COURSE OF FURTHERANCE OF BUSINESS
“(17) “business” includes––
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for
a pecuniary benefit;
(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);
(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity
of such transaction;
(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;
(e) provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or
benefits to its members;
(f) admission, for a consideration, of persons to any premises;
(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his
trade, profession or vocation;
(h) services provided by a race club by way of totalisator or a licence to book maker in such club ; and
(i) any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are
engaged as public authorities;”

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 ILLUSTRATIONS
• Association/ Society – charges Re. 1 to non – members for
medicines – Not Business
• Sale of business as a whole.

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 PROPOSED AMENDMENT TO DEFINITION OF BUSINESS

(17) “business” includes––

(h) services provided by activities of a race club including by way of

totalisator or a license to book maker or activities of a licensed book
maker in such club; and

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 IMPORT OF SERVICE

Import of Service – For a Consideration

In the Course or Furtherance of NOT In the Course or Furtherance of

Business Business

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 SUPPLY WITHOUT CONSIDERATION
(SCHEDULE I OF CGST ACT)
1. Permanent transfer/disposal of business assets where ITC has been availed on such assets.
2. Supply between related persons or between distinct persons as specified in Section 25 when made in
the course or furtherance of business.
Provided that gifts upto fifty thousand rupees in value in a financial year by an employer to an
employee shall not be treated as supply of goods or services or both.
3. Supply of goods:-
a. by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal;
or
b. by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.
4. Importation of service by taxable person from a related person or from any of his other establishments
outside India, in the course or furtherance of business. {Proposed amendment omits the word
“taxable”}

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 CONCEPT BEHIND INTER-UNIT TRANSACTIONS
• GST – Consumption based tax.
• Tax moves where the goods/ services move.
• The intent is to attribute the revenue to the state where the goods/
services are consumed.
• GST is leviable on supply of goods or service made for a
consideration. Section 7(1)(a) provides for inclusion of all forms of
supply of goods/ services made for a consideration in the course or
furtherance of business.
• Thus, in order to move the tax with the goods and/or services in inter-
unit transactions (even if made without consideration), Entry 2 of
Schedule-I is inserted.

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LEVY OF GST ON INTER-UNIT TRANSACTION
Supply of Whether incurring of
Goods/ an expenditure can be
Services considered as supply?

Made
Made for a
without a
consideration
consideration

Schedule I –
CGST Act,
2017

Distinct/ Related Persons – In Import of services by a taxable person from

course or furtherance of related person/ any of his establishments
business outside India – in the course of business.
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 TAX TREATMENT
Central Sales Tax Act (Section 6A) - In case of transfer of goods claimed otherwise
Prior than by way of sale
Finance Act, 1994 (Service Tax Law) - No concept of self service.
to GST Central Excise – Taxing event is manufacture and collection is made by central
government.
Regime
Goods, including capital goods, when transferred to distinct/ related person,
In GST even when made without consideration is treated as supply, and is thus
leviable to GST.
Regime Services, when supplied to distinct/ related person, even when made without
consideration is treated as supply, and is thus leviable to GST.

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CASE STUDY OF INTER-UNIT GOODS TRANSFER
Laptops transferred
Mumbai from H.O to B.O.s
Head with loading of
Office additional softwares by
the H.O.

Delhi Chennai
Branch Branch
Office Office Transfer of
Kolkata Laptops
Branch
Office

Non-
Capitalized
Capitalized
Laptops
Laptops

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 CONTD…
• Section 18(6):
“In case of supply of capital goods or plant and machinery, on which input tax credit
has been taken, the registered person shall pay an amount equal to the input tax credit
taken on the said capital goods or plant and machinery reduced by such percentage
points as may be prescribed or the tax on the transaction value of such capital goods
or plant and machinery determined under section 15, whichever is higher:
Provided that where refractory bricks, moulds and dies, jigs and fixtures are
supplied as scrap, the taxable person may pay tax on the transaction value of such
goods determined under section 15.”

• Capital Goods: Section 2(19):

““capital goods” means goods, the value of which is capitalised in the books of
account of the person claiming the input tax credit and which are used or intended to
be used in the course or furtherance of business;”
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 INTER-UNIT SERVICES IN GST
• There could be 3 aspects for discussion of Inter-unit services
amongst the branches of the same company.
– Provision of services by one office of the company to the office of
another state, i.e. between distinct persons,
– Provision of service by the EMPLOYEES of one branch office to
another branch office of the company,
– Common input services received by the Corporate office/ Head Office
or any other regional office.

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 COMMON SERVICES
• Cross-charge can be done only where Head Office provides a
service to another office/branches.
• On the other hand, Credit is to be distributed through ISD where
the Head Office procures certain services which are for common
utilization of all/ some of its branches across the country. The bills
for such expenses would be raised on the Head Office.
• The credit on such invoices is to be distributed amongst the
respective offices through an ISD.

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 TAX TREATMENT OF COMMON SERVICES
• In order to comply with GST Law – apparent option to Cross-charge exists.
• Issues with Cross-charge:
– Valuation
– Charging of other services
• Therefore, distribution of credit of common services through ISD is rather advisable.

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 SUPPLY OF SERVICES
(SCHEDULE II OF CGST ACT)
• Transfer of right to use goods or of undivided share in goods, without the transfer of title
• Lease, tenancy, easement, license to occupy land
• Lease or letting out of building for business of commerce either wholly or partly
• Treatment or process, applied to another’s goods (Job work)
• Goods meant for business purposes put to private use or made available for any use other
than business use whether or not for a consideration
• Renting of immovable property
• Construction of complex, building, civil structure or part thereof intended for sale to buyer,
wholly or partly – except where entire consideration is received after issuance of
completion certificate or before first occupation whichever is earlier – (Works contract –
Composite Supply)

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 CONTD…
• Temporary transfer or permitting to use any Intellectual property rights – Copyright,
trademark and patent
• Development, design, programming, customization, upgradation of information
technology software
• Agreeing to do or refrain, tolerate an act.
• Supply of goods, being food or any other article for human consumption and or any drink
(other than alcoholic liquor for human consumption) as part of service or in any other
manner whatsoever. – (Restaurant)

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 CLASSIFICATION OF GOODS AND SERVICES
• Entry 6 (b) of Schedule II of CGST provides that supply
of foods or article for human consumption or any non
alcoholic drink is a composite supply which shall be
treated as supply of service.
Restaurants • A Restaurants on supply of sweet charging the rate
providing packed applicable on sweet but treats the food supplied in
food restaurant as services.

Principal supply: means the supply of goods or services which constitutes the
predominant element of a composite supply and to which any other supply
forming part of that composite supply is ancillary

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 SUPPLY OF GOODS
(SCHEDULE II OF CGST ACT)
• Transfer of title in goods
• Transfer of title in goods – when it shall pass at a future date upon payment of full consideration as
agreed
• Transfer or disposal of business assets
• Business assets transferred by a person who ceases to be taxable person, except –
– When business transferred as going concern
– When business carried by personal representative who is a deemed taxable person
• Goods supplied by any unincorporated association or body of persons to a member for
consideration.

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 NEITHER SUPPLY OF GOODS NOR SUPPLY OF
SERVICES (SCHEDULE III OF CGST ACT)
• Activities or transactions falling under Schedule III to be treated neither as supply of goods nor a supply of
services:
1. Services rendered by an employee in course of his employment.
2. Services rendered by a Court or Tribunal.
3. (a) the functions performed by the Members of Parliament, Members of State Legislature, Members of
Panchayats, Members of Municipalities and Members of other local authorities;
(b) the duties performed by any person who holds any post in pursuance of the provisions of the
Constitution in that capacity; or
(c) the duties performed by any person as a Chairperson or a Member or a Director in a body
established by the Central Government or a State Government or local authority and who is not
deemed as an employee before the commencement of this clause.
4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased.
5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
6. Actionable claims, other than lottery, betting and gambling.

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 PROPOSED ADDITIONS
7. Supply of goods from a place in the non-taxable territory to another place in the
non-taxable territory without such goods entering into the taxable territory.

8. (a) Supply of warehoused goods to any person before clearance for home
consumption.
(b) Supply of goods by the consignee to any other person, by endorsement of
documents of title to the goods, after the goods have been dispatched from the port
of origin located outside India but before clearance for home consumption.
Explanation.- For the purposes of this clause, the expression “warehoused goods”
shall have the meaning as assigned to it in the Customs Act, 1962 (52 of 1962)

53
 Supply

Intra-state supply Inter-state supply

(S. 8 IGST Act) (S. 7 IGST Act)

Location of Supplier and Location of Supplier and

Place of Supply in the Place of Supply NOT in
same state/ UT the same state/ UT

Of Of Of Of
Goods services Goods services

•Does not include: Includes:

> supply to or by SEZ developer/ unit > Import of Goods/Service
> import until cross custom frontier > If supplier in India, PoS outside India
> supplies to tourist > Supply to/ by SEZ dev/ unit
> Not an intra-state supply

54
 COMPOSITE SUPPLY – DEFINITION – S.2(30)
Supply Made by a taxable person

consisting of two or more taxable supplies – of goods and/or services

Which are naturally bundled and supplied in conjunction with each other in the
ordinary course of business

One of which is a principal supply

Illustrations
• Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and
insurance is a composite supply and supply of goods is a principal supply;
• If a single contract is entered into for supply and erection of machinery.
• If under a single contract, laptop and support for laptop services are provided.

55
 ILLUSTRATIONS
• Hotel with complementary breakfast.
• XYZ orders a book from Amazon and Amazon separately charges
for the delivery of the book. Even though separate consideration for
delivery is charged, the supply of books and delivery of the goods
are naturally bundled and in conjunction with each other. Would
these be considered as composite supply and transport charges
would be exempt? – Supplier and delivery company are separate.

56
 TAX LIABILITY ON COMPOSITE SUPPLY
Section 8 of the CGST Act, 2017. The tax liability on a composite or
a mixed supply shall be determined in the following manner,
namely:—
(a) a composite supply comprising two or more supplies, one of
which is a principal supply, shall be treated as a supply of such
principal supply; and
(b) …

57
 INDICATORS OF BUNDLED SERVICE
(NOT DETERMINATIVE)
Source: www. gst.council.gov.in/e-version fliers
• There is a single price or the customer pays the same amount, no matter how
much package the customers actually receive use
• The elements are normally advertised as a package
• The different elements are not available separately
• The different elements are integral to one overall supply. If one or more is
removed, the nature of the supply would be affected.

58
POINTS FOR CONSIDERATION

How to determine if the supply is naturally

bundled and supplied in conjunction with each
other?

Where the supply is naturally bundled and in

conjunction with each other but separate
consideration is charged for each supply. Would
that amount to Composite supply

How to determine principal supply?

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 MIXED SUPPLY – S. 2(74)
Supply - consisting of two or more individual supplies – of goods and/or
services

Made in conjunction with each other by a taxable person

For a single price

Which is not a composite supply

Illustration
A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when
supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any
other. It shall not be a mixed supply if these items are supplied separately;

60
 TAX LIABILITY ON MIXED SUPPLY
Section 8 of the CGST Act, 2017. The tax liability on a composite or
a mixed supply shall be determined in the following manner,
namely:—
(a) …
(b) a mixed supply comprising two or more supplies shall be treated
as a supply of that particular supply which attracts the highest rate
of tax.

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 EXEMPTION FROM TAX
(SECTION 11)
• The government, on recommendations of the council has the power to exempt GENERALLY
from levy of taxes:
– Wholly or in part
– Absolutely or subject to conditions
• The government, on recommendations of the council has the power to exempt BY SPECIAL
ORDER from levy of taxes, under circumstances of exceptional nature (to be stated in the order).
• In any exemption notification/ order – the government may insert a clarification in form of an
‘explanation’ at any time within 1 year of such exemption notification/ order and such
explanation inserted shall have retrospective effect, as if it has always been a part of that
exemption notification/ order at the first place.
• Where an absolute exemption, for whole or part of duty has been granted for some supply, the
registered person shall not collect tax in excess of the effective rate on such supply.

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 EXEMPT SUPPLY
(SECTION 2(47))
“exempt supply” means supply of any goods or services or both which attracts nil rate of tax or
which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods
and Services Tax Act, and includes non-taxable supply;
Any supply of goods and/or

i.e. Services under Notification

Attracts NIL rate
12/2017-CT(R)
services

i.e. goods under

EXEMPT from tax
Notification 2/2017-CT(R)
Non taxable supply Like Petroleum, alcohol for human
[defined u/s 2(78)] consumption

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 TAXABLE & NON –TAXABLE SUPPLY
• Section 2(108): “taxable supply” means a supply of goods or
services or both which is leviable to tax under this Act;

• Section 2(78): “non-taxable supply” means a supply of goods or

services or both which is not leviable to tax under this Act or
under the Integrated Goods and Services Tax Act;

64
 SUPPLIER & RECIPIENT
• Section 2(105) “supplier” in relation to any goods or services or both, shall mean the person supplying the
said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation
to the goods or services or both supplied;
• Section 2(93) “recipient” of supply of goods or services or both, means—
(a) where a consideration is payable for the supply of goods or services or both, the person who is liable
to pay that consideration;
(b) where no consideration is payable for the supply of goods, the person to whom the goods are
delivered or made available, or to whom possession or use of the goods is given or made available;
and
(c) where no consideration is payable for the supply of a service, the person to whom the service is
rendered,
and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of
the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or
services or both supplied;

65
 ZERO-RATED SUPPLY (S. 16 IGST ACT)
Zero Rated is an internationally accepted terminology which implies special benefits to the specified supplies, which
ultimately results in zero tax liability. It does not imply zero rate of tax.
Section 2(23): “zero-rated supply” shall have the meaning assigned to it in section 16;
Meaning of Zero Rated Supply {Section 16(1)}:
• Zero rated supply means a supply of goods and/or services, namely –
a) export of goods and/or services; or
b) supply of goods and/or services TO a Special Economic Zone developer or an Special Economic Zone unit.

Supplier (India) Customer outside India

Supplier (India) SEZ Unit in India

ITC can be availed of Inputs used in providing Zero-rated

supply except some specified inputs on which no credit is
allowed under GST Law.
66
S. 16 (IGST) R/W S. 54 (CGST) & R. 96, 96A OF
CGST RULES
Registered person making zero rated
supply has the following available
modes

Without payment of
With payment of IGST
IGST

Under a Bond Under a LUT

67
 OPTION OF REFUND (S. 16(2))
• Registered person making zero rated supply shall be eligible to
claim refund in either of the following options:
– Supply Goods/ services under Bond/ LUT, without the payment of IGST
(in the manner prescribed) and claim refund of unutilized ITC
– Supply Goods/ services with the payment of IGST (in the manner
prescribed) and claim refund of such tax.

68
 OPTION 1
Refund of unutilized
Zero Rated Supply Under LUT/ Bond
ITC and IGST
• Attracts Section 54, Rule 96A of the CGST Act, 2017.
• Notification No. 37 /2017 – CT, dtd. 4th October, 2017 extended the facility of LUT to all exporters.
Notification No. 16/2017-CT dtd. 7th July, 2017 specifies the conditions and safeguards for furnishing a LUT
in place of a bond for export without payment of integrated tax.
• Refund of unutilized ITC shall be allowed only when export/ supply to SEZ made without the payment
of IGST.
• Registered person availing the option to supply goods or services for export, without payment of IGST is
required to furnish a bond or a Letter of Undertaking in FORM GST RFD-11 to the jurisdictional
Commissioner, binding himself to pay the tax due along with the interest specified under sub-section (1) of
section 50 within 15 days after expiry of 3 months of the date of invoice, if the invoiced goods are not
exported.

69
 COTND…
• As per formula under Rule 89(4) of the CGST Rules, 2017, for any
relevant period,

Refund Amount = (Tzg + Tzs) x Net ITC ÷Adjusted Total Turnover

Where, Tzg = Turnover of zero-rated supply of goods
Tzs = Turnover of zero-rated supply of services

• If inputs purchased & ITC availed during the period when exports made
– this formula would yield the right refund.
70
 EXAMPLE: REFUND CLAIM UNDER OPTION 1
Option 1:
• In the transaction below Exporter shall furnish a Bond or Letter of Undertaking .
• Supply worth Rs. 10,000
• Charges IGST @ 18%
• ITC on Purchase – 1,800
Purchase
Sale to SEZ • Exporter can claim the
refund of Unutilized ITC out
• Value addition – 4,000 of Rs. 1,800 paid on
• Sale to SEZ Unit – Rs. purchase of inputs for such
14,000 without charging sale to SEZ.
IGST under Bond or LUT
• Can Utilize ITC paid on
purchases for payment of
output tax. Benefit
71
 OPTION 2
Zero Rated Payment of Refund of
Supply IGST IGST
• Attracts Section 54, Rule 96 of the CGST Act, 2017.

• Credit of ITC may be availed, subject to Section 17(5), for making zero rated supply,
notwithstanding that such supply may be an exempt supply. [Section 16(2) IGST Act,
2017]

• The shipping bill filed by exporter of goods shall be deemed to be an application for
refund of IGST paid on the goods exported.

72
 EXAMPLE: REFUND CLAIM UNDER OPTION 2

Option 2:
• Export goods or services on payment of IGST and claim refund of such tax on goods and services supplied.

• Supply worth Rs. 10,000
• Charges IGST @ 18%
• ITC on Purchase – 1,800
Purchase
Sale to SEZ • Exporter Can Claim Refund of
IGST of Rs. 2,520 paid on
supply to SEZ Unit subject to
• Value addition – 4,000
the fulfillment of Conditions.
• Sale to SEZ Unit – Rs. 14,000
• Pay IGST of Rs. 2,520
• Can Utilize ITC paid on
purchases for payment of
output tax.
Benefit

73
 REFUND UNDER SECTION 54(6)

Number of days in which refund shall be allowed

(6) Notwithstanding anything contained in sub-section (5), the proper officer may, in the case of any claim for refund on

account of zero-rated supply of goods or services or both made by registered persons, other than such category of

registered persons as may be notified by the Government on the recommendations of the Council, refund on a provisional

basis, ninety per cent. of the total amount so claimed, excluding the amount of input tax credit provisionally

accepted, in such manner and subject to such conditions, limitations and safeguards as may be prescribed and thereafter

make an order under sub-section (5) for final settlement of the refund claim after due verification of documents furnished by

the applicant.

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THANK YOU

CONTACT US:
PUNEET AGRAWAL
ADVOCATE
+91-9891898911
PUNEET@ALALEGAL.IN
WEBSITE: ALALEGAL.IN
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