Paper 18: Indirect Tax Laws and Practice PDF

FINAL : PAPER - 18 6 01 -2 US AB LL SY INDIRECT TAX LAWS & PRACTICE FINAL STUDY NOTES The Institute of Cost Accountants of India CMA Bhawan,12, Sudder Street, Kolkata - 700 016 First Edition : January 2018 Revised...

FINAL : PAPER - 18 6 01 -2 US AB LL SY INDIRECT TAX LAWS & PRACTICE FINAL STUDY NOTES The Institute of Cost Accountants of India CMA Bhawan,12, Sudder Street, Kolkata - 700 016 First Edition : January 2018 Revised Edition : January 2019 Revised Edition : March, 2019 Edition : August, 2019 Revised Edition : January 2020 Revised Edition : January 2021 Reprint : April 2021 Published by : Directorate of Studies The Institute of Cost Accountants of India (ICAI) CMA Bhawan, 12, Sudder Street, Kolkata - 700 016 www.icmai.in Printed at : M/s. Aravali Printers & Publishers (P) Ltd. W-30, Okhla Industrial Area, Phase - II New Delhi - 110 020 Copyright of these Study Notes is reserved by the Institute of Cost Accountants of India and prior permission from the Institute is necessary for reproduction of the whole or any part thereof.  Syllabus Paper 18: INDIRECT TAX LAWS AND PRACTICE Syllabus Structure A Advanced Indirect Tax and Practice 80% B Tax Practice and Procedures 20% B A 20% 80% ASSESSMENT STRATEGY There will be examination of three hours. OBJECTIVES To gain expert knowledge about the indirect tax laws in force and the relevant rules and principles emerging from leading cases, to provide an insight into practical aspects and apply the provisions of laws to various situations and to understand the various external auditing requirements under tax laws. Learning Aims The syllabus aims to test the student’s ability to: Tax planning and management under Indirect Taxes Explain case laws governing core provisions of the relevant Acts Explain foreign trade policy related issues Explain powers of various assessing authorities Skill Set Required Level C: Requiring skill levels of knowledge, comprehension, application, analysis, synthesis and evaluation. Syllabus Structure Paper 18: Indirect Tax Laws and Practice Section A : Advanced Indirect Tax and Practice 1. Goods and Services Tax Act & Rules 50% 2. Customs law 20% 3. Foreign Trade Policy 10% Section B : Tax Practice and Procedures 4. Case Study Analysis 20% SECTION A: ADVANCED INDIRECT TAX AND PRACTICE 1. Goods and Services Tax Act & Rules 1.1 Introduction What is GST Need for GST in India ► Cascading effect of tax ► Non-integration of VAT and Service Tax causes double taxation ► No CENVAT Credit after manufacturing stage to a dealer: ► Cascading of taxes on account of levy of CST Inter-State purchases: ► The existing Indirect Tax frame work in India suffer from various duties and taxes at Central as well as at State level: ► Non Availment of Seamless ITC ► Tedious Process of Issuance and collection of CST Forms and losses suffered due to them ► Sharing of Data between Centre and States and various Boards One Nation-One Tax Dual GST Model ► Central Goods and Services Tax Act, 2017 (CGST) ► State Goods and Services Tax Act, 2017 (SGST)/ ► Union Territory Goods and Services Tax Act, 2017 (UTGST) ► Integrated Goods and Services Tax Act, 2017 (IGST) Methodology of Flow of Revenue between Centre and States Goods and Services Tax Network (GSTN) ► The functions of the GSTN (i.e. Role assigned to GSTN) ► Constitution (101st Amendment) Act, 2016 GST Council ► Guiding principle of the GST Council ► Functions of the GST Council ► Body of GST Law Definitions under CGST Laws 1.2 Levy and Collection of Tax Scope of supply (Section 7 of CGST Act, 2017) Section 7(1)(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; Section 7(1)(b) of CGST Act, 2017, import of services for a consideration whether or not in the course or furtherance of business Section 7(1)(c) of the CGST Act, 2017 the activities specified in Schedule I, made or agreed to be made without a consideration ► Permanent transfer/disposal of business assets ► Supply between related persons or distinct persons ► Supply to agents or by agents ► Importation of Services Section 7(1)(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II ► Un-divided share in goods ► Job work ► Transfer of business assets ► Renting of Immovable Property ► Construction Service ► Information Technology software ► Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act ► Transfer of the right to use any goods for any purpose ► Composite supply ► Supply of goods, by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration. Non-taxable Supplies under CGST Act, 2017 ► Section 7(2) (a) activities or transactions specified in Schedule III; ► Section 7(2)(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, Section 7(3) 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. Composite and Mixed Supplies (Section 8 of CGST Act, 2017) ► Meaning of Composite and Mixed Supplies ► Composite Supply ► Mixed supply, Levy and Collection, Composition Levy, Exemption from tax, Person liable to pay tax Forward Charge Reverse Charge  Person who are required to pay tax under section 9(5) of CGST (i.e. Electronic Commerce Operator) Exempt Supply, Non Taxable Supply and Non-GST Supply Rates of GST 1.3 Classification of Goods and Services under GST – Reading the Rate Schedule 1.4 Time of Supply under GST Time of Supply in case of Goods Time of Supply in case of Services Time of Supply in case of change in Rate of Tax 1.5 Value of Supply under GST 1.6 Place of Supply under GST Need for determination of Place of Supply Place of Supply in case of Goods Place of Supply in case of Services Place of Supply in case of Online Information Database Access and Retrieval (OIDAR) Services 1.7 Input Tax Credit Eligibility for taking Input Tax Credit (ITC) Blocked Credits Method of Reversal of Credits Input Tax credit in special circumstances Input Tax Credit in respect of goods sent for Job-Work Distribution of credit by Input Service Distributor (ISD) Recovery of Input Tax Credit 1.8 Registration under GST Law Persons not liable for registration Compulsory registration Concept of Distinct Persons under GST Procedure for registration Deemed registration Casual taxable person Non-resident taxable person Cancellation vs. Revocation of registration 1.9 Tax Invoice, Credit and Debit Notes and other documents under GST 1.10 Accounts, Other Records under GST 1.11 Payment of Tax Computation of Tax liability and payment of tax Interest on delay payment of tax 1.12 TDS & TCS under GST TDS (Tax Deducted at Source) TCS (Tax Collected at Source) 1.13 Returns Sample of Proposed New Returns under GST GSTR 1 GSTR 3B 1.14 Matching Concept under GST What is matching? GSTR 2A 1.15 Exports, Imports and Refunds under GST Export of Goods and Services Import of Goods and Services Zero Rated Supply Deemed Export Refunds in case of Exports Refunds in case of Inverted Duty Structure Cash Ledger Refunds 1.16 Assessments, Inspection, Search & Seizure 1.17 Audit under GST Audit by Revenue Authorities Audit by Professionals 1.18 The Goods and Services Tax (Compensation to States) Act, 2017 1.19 Advance concepts under GST Introduction Demand and recovery Offence and Penalties Appeals and Revision Advance Ruling Miscellaneous Provisions  1.20 Job Work Under GST Definitions Procedure of Job Work 1.21 E _Waybills under GST 1.22 Transitional Provisions 1.23 Anti-profiteering 1.24 Replying to Department Notices under GST – Sample Cases 1.25 Operation of GST Portal – A Walkthrough 2. Customs Law 2.1 Basic Concepts Introduction Definitions Circumstances of Levy Circumstance under which no duty will be levied Tax Planning v Tax Management Remission/ Abatement of Duty – Pilfered Goods, Damaged or Deteriorated Goods, Lost or Destroyed Goods Derelict, Flotsam etc., Denatured or Mutilated Goods, Re- imported Goods 2.2 Classification under Customs Customs Tariff Act, 1975 General Rules for the Interpretation of Import Tariff 2.3 Types of Duties Introduction Types of Duties When can provisional measures are imposed Refund on anti-dumping duty Project Imports and Eligible Projects 2.4 Valuation under Customs Introduction Valuation of Imported Goods : Transaction Value, Related Persons, Valuation in Case Goods are Sold to Related Persons Adjustments for Costs and Services for Valuation of Imported Goods Meaning of Identical Goods, Similar Goods, Transaction Value of Identical Goods and Similar Goods Deductive Value, Computed Value and Residual Method of Valuation Valuation of Export Goods 2.5 Import and Export Procedure Import Procedure Export Procedures Deemed Exports Stores Transit and Transhipment of Goods High Seas Sales 2.6 Warehousing Licensing of Public Warehouses, Private Warehouses and Special Warehouses Warehousing Bond, Warehousing Period, Control Over Warehouse Goods Owner’s Right to Deal with Warehoused Goods, Manufacture in Warehouse Removal of Goods from Warehouse Improper Removal of Goods from Warehouse 2.7 Duty Drawback Duty Drawback Allowable on Re- Export of Duty Paid Goods Re- Export of Imported Goods (Drawback of Customs Duties) Rules, 1995 Duty Drawback on Imported Materials used in the Manufacture of Goods which are Exported Customs and Central Excise Duties Drawback Rules, 2017 Interest on Drawback and Prohibition or Regulation of Duty Drawback Certification 2.8 Baggage & Postal Articles Introduction Baggage Postal Articles Import of Samples Baggage Rules, 2016 2.9 Administrative and other Aspects Introduction Appointment of officers of customs Appointment of customs ports, airports, etc. First & Second Appraisement System Self-assessment of Customs Duty Refund of Customs Duty Risk Management System Penalties under Customs Offences and Prosecutions under Customs Integrated Declaration under Indian Customs Single Window Project  2.10 Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 2.11 Search, Seizure, Confiscation, and Miscellaneous Provisions Search of Persons, Premises and Conveyances Seizure of Goods, Documents and Things Confiscation of Goods, Conveyances and Penalty on Improper Importation and Exportation Burden of Proof and Redemption Fine Other Miscellaneous Provisions 2.12 Comprehensive Issues under Customs (including Case Studies) Introduction Adjudicating Authority Offences Appeals under Customs Authority for Advance Ruling 3. Foreign Trade Policy (FTP) 2015-2020 Basic Concepts of Foreign Trade Policy FTP – Objectives, Administration and Legal Framework FTP – Certain Definitions General Provisions Regarding Imports and Exports Export Promotion Schemes: ► Merchandise Exports From India Scheme (MEIS) ► Service Exports From India Scheme (SEIS) ► Advance Authorization Scheme ► Duty Free Import Authorization (DFIA) Scheme ► Export Promotion Capital Goods Scheme (EPCG) ► EOU, EHTP, STP & BTP Schemes ► Deemed Exports Special Economic Zone Scheme (With Amended SEZ Rules) SECTION – B : TAX PRACTICE AND PROCEDURES Case Study Analysis  Contents GOODS & SERVICES TAX (GST) Study Note 1 : Introduction 1.1 Fundamentals of GST 1 1.2 Constitution [101st Amendment] Act, 2016 2 1.3 What is GST 3 1.4 Advantages of GST 3 1.5 Need for GST in India 3 1.6 One Nation - One Tax 6 1.7 Dual GST Model 6 1.8 Inter-state Vs. Intra-state Stock Transfers 9 1.9 Goods and Services Tax Network [GSTN] 15 1.10 GST Council 16 1.11 Body of GST Law 17 1.12 Important Definitions under CGST Law 17 Study Note 2 : Levy and Collection of Tax 2.1 Supply 21 2.2 Scope of Supply 22 2.3 Composite and Mixed Supplies 50 2.4 Levy and Collection 56 2.5 Composition Levy 58 2.6 Exemptions 78 2.7 Person Liable to pay GST 185 2.8 Supply of Goods or Services or both to or by Special Economic Zone 210 2.9 Exempt Supply, Non-Taxable Supply and Non-GST Supply 210 2.10 Rates of GST 211 Study Note 3 : Classification of Goods and Services under GST - Reading the Rate Schedule 3.1 Introduction 213 3.2 General Rule of Interpretation 215 3.3 Classificaton of Goods as per Notification 220 3.4 Classification of Services as per Notification 226 Study Note 4 : Time of Supply under GST 4.1 Time of Supply 233 4.2 Change in Rate of Tax in respect of Supply of Goods or Services 245 Study Note 5 : Value of Supply under GST 5.1 Value of Supply 247  Study Note 6 : Place of Supply under GST 6.1 Need for Determination of Place of Supply 281 6.2 Place of Supply in Case of Goods 282 6.3 Place of Supply in Case of Services 289 6.4 Place of Supply in Case of Online Information Database Access and Retrieval (OIDAR) Services 311 Study Note 7 : Input Tax Credit (ITC) 7.1 Introduction 327 7.2 Eligibility for taking Input Tax Credit (ITC) 329 7.3 Blocked Credit 341 7.4 Method of Reversal of Credit 379 7.5 Input Tax Credit in Special Circumstances 382 7.6 Input Tax Credit in respect of Goods Sent for Job-work 389 7.7 Distribution of Credit by Input Service Distributor (ISD) 393 7.8 Recovery of Input Tax Credit 394 Study Note 8 : Registration under GST 8.1 Introduction 397 8.2 Persons not liable for Registration 401 8.3 Compulsory Registration in Certain Cases 401 8.4 Procedure for Registration 412 8.5 Concept of Distinct Person under GST 413 8.6 Deemed Registration 414 8.7 Cancellation of Registration 417 8.8 Revocation of Registration 420 Study Note 9 : Tax Invoice, Credit and Debit Notes and Other Document under GST 9.1 Tax Invoice 423 9.2 Credit and Debit Notes 441 Study Note 10 : Accounts and Records under GST 10.1 Accounts and Records 445 10.2 Compulsorily Audit 448 10.3 Period for Retention of Accounts 449  Study Note 11 : Payment of Tax 11.1 Computation of Tax Liability and Payment of Tax 451 11.2 Interest on Delayed Payment of Tax 460 11.3 Refund of Tax 465 Study Note 12 : TDS & TCS under GST 12.1 Tax Deduction at Source (TDS) 467 12.2 Collection of Tax at Source (TCS) 473 Study Note 13 : Returns under GST 13.1 Furnishing of Returns 479 13.2 First Return 487 13.3 Revision of Returns 488 13.4 Penalty / Late Fee 489 13.5 Highlights of Proposed New Returns 490 Study Note 14 : Matching Concept under GST 14.1 Matching Reversal and Reclaim of Input Tax Credit 493 14.2 Matching Reversal and Reclaim of Reduction in Output Tax Liability 498 Study Note 15 : Exports, Imports and Refund under GST 15.1 Export of Goods and Services 503 15.2 Import of Goods and Services 504 15.3 Zero - Rated Supply 505 15.4 Deemed Exports 507 15.5 Refund 508 Study Note 16 : Assessment, Inspection, Search & Seizure 16.1 Self - Assessment 536 16.2 Final Assessment 536 16.3 Re-Assessment 536 16.4 Provisional Assessment 536 16.5 Best Judgement Assessment 539 16.6 Meaning of Inspection, Search and Seizure 540  Study Note 17 : Audit under GST 17.1 Meaning 547 17.2 Types of Audit 547 Study Note 18 : Goods and Services Tax (Compensation to State) Act, 2017 18.1 GST Compensation Cess 553 18.2 Need of GST Compensation Cess 553 18.3 Goods Covered under GST Compensation Cess 553 18.4 Rate of GST Compensation Cess 554 18.5 How to Calculate GST Compensation Cess 554 Study Note 19 : Advance Concepts under GST 19.1 Offences and Penalties 555 19.2 Arrest, Prosecution and Compounding of Offence 556 19.3 Demand and Adjudication 559 19.4 Recovery of Tax 566 19.5 Appeals and Revisions 578 19.6 Advance Ruling 587 19.7 GST Practitioner 594 Study Note 20 : Job Work under GST 20.1 Job Work Meaning 601 20.2 Provisions Relating to Job Work under CGST Act, 2017 601 20.3 Accompanying Documents 601 20.4 Form GST ITC - 04 603 Study Note 21 : E-way Bills under GST 21.1 E - way Bill 607 Study Note 22 : Transitional Provisions 22.1 Input Tax Credit 615 Study Note 23 : Anti - Profiteering 23.1 Anti-profiteering 625 23.2 Anti-profiteering Committee-Section 171(2) 626  Study Note 24 : Replying to Department Notices under GST - Sample Cases 24.1 Show Cause Notice 637 24.2 Replying to Department Notices under GST - Sample Cases 638 Study Note 25 : Operation of GST Portal - A walk-through 25.1 GST Portal 643 25.2 Walk-through 644 CUSTOMS LAW Study Note 1 : Customs Law - Basic Concepts 1.1 Introduction 651 1.2 Definitions 652 1.3 Circumstances of Levy 657 1.4 Circumstances under which no Duty will be Levied 665 1.5 Tax Planning vs Tax Management 674 Study Note 2 : Classification under Customs 2.1 Customs Tariff Act, 1975 675 2.2 General Rules for the Interpretation of Import Tariff 678 Study Note 3 : Types of Duties 3.1 Introduction 691 3.2 Types of Duties 691 3.3 When can Provisional Measures Imposed 709 3.4 Refund of Anti-Dumping Duty 709 3.5 Deferred Payment of Import Duty Rules, 2016 710 3.6 Imports and Input Tax Credit (ITC) 711 3.7 Project Imports and Eligible Projects 712 Study Note 4 : Valuation under Customs 4.1 Introduction 713 4.2 Transaction Value 713 4.3 Valuation for Export Goods 714 4.4 Valuation of Imported Goods 716  Study Note 5 : Import and Export Procedure 5.1 Introduction 743 5.2 Import Procedure 743 5.3 Export Procedure 748 5.4 Deemed Exports 750 5.5 Customs Brokers 751 5.6 Inland Container Depot (ICD) and Container Freight Station (CFS) 751 5.7 Stores 753 5.8 Coastal Goods 755 5.9 Imports/Procurement by SEZs 756 5.10 High Seas Sales 756 Study Note 6 : Warehousing 6.1 Warehousing 759 Study Note 7 : Duty Drawback 7.1 Duty Drawback 773 7.2 Special Brand Rate of Duty Drawback 773 7.3 Duty Drawback on Re-Export 775 7.4 Negative List of Duty Drawback 783 7.5 Duty Deferment 793 7.6 Export Incentives in Lieu of Duty Drawback 794 Study Note 8 : Baggage and Postal Articles 8.1 Introduction 805 8.2 Baggage 805 8.3 Postal Articles 811 8.4 Import of Samples 812 Study Note 9 : Administrative and Other Aspects 9.1 Introduction 819 9.2 Classes of Officers 820 9.3 Appointment of Officers of Customs 820 9.4 Powers of Officers of Customs 820 9.5 Importance of Central Excise Department 820 9.6 Appointment of Customs Ports, Airports etc. 821 9.7 Customs Port 821 9.8 Customs Airport 821 9.9 Customs Area 821 9.10 Customs Station 822 9.11 Land Customs Station 822 9.12 Container Freight Stations 822 9.13 Entry 822 9.14 First Appraisement System 822 9.15 Second Appraisement System 822 9.16 Refund of Customs Duty 823 9.17 Claim for Refund of Duty 824 9.18 Amendments to Documents 826 9.19 Import General Manifest 826 9.20 Provisional Assessment of Duty 826 9.21 Interest on Delayed Refunds 829 9.22 Self-assessment of Customs Duty 829 9.23 Duty under Protest 830 9.24 Importer Exporter Code (IEC Number) 831 9.25 Risk Management System 831 9.26 Detention Certificate 832 9.27 Boat Note 833 9.28 Prohibition Relating to Import or Export of Goods 833 9.29 Penalties under Customs 833 9.30 Whether Custom Authorities are Authorized to Auction the Confiscated Goods during the Period of Pendency of Appeal 833 9.31 Offences and Prosecutions under Customs 833 9.32 Compounding of Offences 843 9.33 First Charge on Property of Assessee 844 9.34 Integrated Declaration under Indian Customs Single Window Project 844 Study Note 10 : Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 10.1 Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 853 Study Note 11 : Search, Seizure, Confiscation and Miscellaneous Provisions 11.1 Search of Persons, Premises and Conveyances 857 11.2 Seizure of Goods, Documents and Things 861 11.3 Confiscation of Goods, Conveyances and Penalty on Improper Importation and Exportation 862 11.4 Burden of Proof and Redemption Fine 868 11.5 Offences under Customs 870  Study Note 12 : Comprehensive Issues under Customs 12.1 Introduction 873 12.2 Adjudicating Authority 873 12.3 Offences 879 12.4 Protective Demand 881 12.5 Recovery of Duties in Certain Cases 881 12.6 Appeals under Customs 883 12.7 Authority for Advance Ruling 899 Foreign Trade Policy 2015 - 2020 Study Note 1 : Foreign Trade Policy 2015 - 2020 1.1 Introduction 903 1.2 Definitions 904 1.3 Administration of Foreign Trade Policy 907 1.4 Features of Foreign Trade Policy 907 1.5 Guiding Principles of FTP 2015-2020 908 1.6 Scope of FTP 908 1.7 Authorization 908 1.8 Merchant Exporter 909 1.9 Third Party Exports 909 1.10 Letter of Credit 909 1.11 Indian Trade Classification (Harmonized System) [ITC (HS)] 910 1.12 Board of Trade (BOT) 910 1.13 Import of Gifts 911 1.14 Export of Gifts 911 1.15 Import of Samples 911 1.16 Export of Samples 911 1.17 Export of Items Reserved for MSME Sector 911 1.18 Duty Exemption Schemes 912 1.19 Duty Remission Scheme 915 1.20 Reward Schemes (i.e. Duty Credit Schemes) 917 1.21 Status Holders 923 1.22 Export Promotion Capital Goods (EPCG) Scheme 926 1.23 EOU, EHTP, STP & BTP 929 1.24 Deemed Exports 931 1.25 Special Economic Zone 932 1.26 FTP and GST 933 1.27 GSTIN or PAN in Place of Importer Exporter Code (IEC) 933 1.28 Penalties 933 GOODS & SERVICES TAX (GST) Introduction Study Note - 1 INTRODUCTION This Study Note includes 1.1 Fundamentals of GST 1.2 Constitution [101st Amendment] Act, 2016 1.3 What is GST 1.4 Advantages of GST 1.5 Need for GST in India 1.6 One Nation - One Tax 1.7 Dual GST Model 1.8 Inter-state Vs Intra-state Stock Transfers 1.9 Goods and Services Tax Network [GSTN] 1.10 GST Council 1.11 Body of GST Law 1.12 Important Definitions under CGST Law 1.1 FUNDAMENTALS OF GST Difference between Direct Taxes and Indirect Taxes – illustrative list: Direct Taxes Indirect Taxes 1. Payer o tax and sufferer of tax one and same 1. Payer of tax not sufferer of tax whereas sufferer of tax is (i.e. impact and incidence on the same not paying directly to the Government (i.e. impact on person) one head and incidence on other head) 2. Income based taxes 2. Supply based taxes 3. Rate of taxes are different from person to person 3. Rate of duties are not differ from person to person 4. Entire revenue goes to Central Government of 4. Revenue source to Central Government of India as well India as State Governments (i.e. CGST and SGST) 5. Previous year income assessed in the 5. There is no previous year and assessment year concept assessment year 6. Central Board of Direct Taxes (CBDT) is an 6. Central Board of Excise and Customs (CBEC) is an important part of Department of Revenue. important part of Department of Revenue. w.e.f. 1-2-2019, The Central Board of Excise & Customs is being renamed as the Central Board of Indirect Taxes & Customs (CBIC). (i.e. CBEC renamed as CBIC). 7. Progressive nature. 7. Regressive nature. The Institute of Cost Accountants of India 1  Indirect Tax Laws & Practice 1.2 CONSTITUTION [101ST AMENDMENT] ACT, 2016 Constitution (122nd Amendment) Bill, 2014 received the assent of the President of India on 8th September, 2016 and became Constitution (101st Amendment) Act, 2016, which paved the way for introduction of GST in India. Constitution (101st Amendment) Act, 2016 was enacted on 8th September, 2016, with following significant amendments: (a) Concurrent powers on Parliament and State Legislatures to make laws governing goods and services. It means there will be dual control of State and Central authorities for all assessees. (b) As per Article 246A, the power to levy GST has been given to the Parliament as well as to Legislature of every State. a. CGST – enacted by Central Government of India. b. IGST – enacted by Central Government of India. c. SGST – enacted by respective State Governments d. UTGST – enacted by Central Government of India (c) IGST will be apportioned between Centre and the States in the manner provided by Parliament by Law as per the recommendation of the GST Council. (d) GST will be levied on all supply of goods and services except alcoholic liquor for human consumption. (e) The explanation to Article 269A of Constitution of India provides that the import of goods or services will be deemed as supply of goods or services or both in the course of inter-State trade or commerce. In case of import of goods IGST will be levied along with the Basic Customs duty. It means IGST is levied in replacement of CVD + Spl. CVD. In case of import of services only IGST will be levied. (f) Principles for determining the place of supply and when a supply takes place in the course of inter-state trade or commerce shall be decided by the Parliament. (g) The power to levy Central Excise duty on goods manufactured or produced in India is available in respect of the following products: a. Petroleum crude; b. High speed diesel; c. Motor spirit (commonly known as petrol); d. Natural gas; e. Aviation turbine fuel; and f. Tobacco and tobacco products. However, once GST is imposed there will be no duty on manufacture of these goods. (h) The power to impose tax on sale of the following products is still provided to the State Governments: a. Petroleum crude; b. High speed diesel; c. Motor spirit (commonly known as petrol); d. Natural gas; e. Aviation turbine fuel; and f. Alcoholic liquor for human consumption. However, once GST Council is recommend the date from which GST is imposed on these products (except alcoholic liquor for human consumption), and no sales tax will be imposed on these products. As per definition given in article 366(12A), GST covers all the goods except alcoholic liquor for human consumption. It means no GST can be levied on Alcoholic liquor for human consumption. Present system of State Excise duty and sales tax on Alcoholic liquor for human consumption will continue. 2 The Institute of Cost Accountants of India Introduction As a result, the following bills became an Act on 12th April 2017: Central Goods and Services Tax Bill, 2017 Integrated Goods and Services Tax Bill, 2017 Union Territory Goods and Services Tax Bill, 2017 Goods and Services Tax (Compensation to States) Bill, 2017 The Central Government notified 1st July, 2017 as the date from which the much awaited indirect tax reform in India, i.e., Goods and Services Tax (GST) will be implemented. Accordingly, Goods and Services Tax (GST) has been implemented in India w.e.f. 1st July, 2017. 1.3 WHAT IS GST Goods and services tax means a tax on supply of goods or services, or both, except taxes on supply of alcoholic liquor for human consumption (Article 366 (12A) of Constitution of India). GST is a value added tax levy on sale or service or both. GST is a destination-based consumption tax. GST offers comprehensive and continuous chain of tax credit. GST where burden borne by final consumer. GST eliminate cascading effect of tax. GST brings uniform tax structure all over India. 1.4 ADVANTAGES OF GST (a) One Nation One Tax. (b) Removal of bundled indirect taxes such as VAT, CST, Service tax, CAD, SAD, and Excise. (c) Removal of cascading effect of taxes i.e. removes tax on tax. (d) Increased ease of doing business; (e) Lower cost of production, increases demand will lead to increase supply. Hence, this will ultimately lead to rise in the production of goods. Resultantly boost to make in India initiative. (f) It will boost export and manufacturing activity, generate more employment and thus increase GDP with gainful employment leading to substantive economic growth; 1.5 NEED FOR GST IN INDIA The following deficiencies in the existing Indirect Tax Laws cause need to bring GST in India as a cure for ills of existing Indirect Tax regime. GST is a Cure for ills of existing Indirect Tax: The given statement is true. Cascading affect of tax is one of the vital cause-to-cause ill of existing Indirect Tax. It means,a tax that is levied on a good at each stage of the production process up to the point of being sold to the final consumer. It is also known as tax on tax. One of the fundamental features of GST is the seamless flow of input credit across the chain (from the manufacture of goods till it is consumed) and across the country. The Institute of Cost Accountants of India 3  Indirect Tax Laws & Practice Let us understand it in the following cases: (1) Non-integration of VAT and Service Tax causes double taxation: In the present regime, restaurant services provider is liable to pay VAT on sale of food and service tax on supply of services. There is no set-off. It means VAT is not allowed as input tax credit against service tax and vice versa. Example 1: Service Tax and VAT on Restaurant Bill: Particulars Amount (`) Total Food Bill 1,000 Service charges @ 10% 100 Total 1,100 VAT @ 14.5% on ` 1,100 159.50 Total Bill (before Service Tax) 1,259.50 Service Tax @ 14% on ` 440 (i.e., 1,100 × 40%) 61.60 Add: Swachh Bharat Cess 0.5% on ` 440 2.20 Add: Krishi Kalyan Cess 0.5% on ` 440 2.20 Total Bill payable by customer 1,325.50 Rounded off 1,326.00 Case Law : 1 Whether section 66E(i) of the Finance Act, 1994 which levies service tax on the service portion of activity whether in goods being food or any other article for human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of activity, is ultra vires the Article 366(29A)(f) of the Constitution? Hotel East Park v. UOI 2014 (35) STR 433 (Chhatisgarh) Decision: The quantum of services to be taxed is explained under rule 2C of the Service Tax (Determination of Value) Rules, 2006. The High court held that section 66E (i) of the Finance Act, 1994 is intra vires (i.e. within the legal power) the Article 366(29A)(f) of the Constitution of India. Further, the High Court held that no VAT can be charged over the amount meant for service and that the amount over which service tax has been charged should not be subject to VAT. The High Court directed the State Government to frame such rules and issue clarifications to this effect to ensure that the customers are not double taxed over the same amount. The rules may be in conformity with the bifurcation as provided under the Finance Act, 1994 or ensure that the Commercial Tax authorities do not charge VAT on that part of the value of the food and drink on which service tax is being assessed. (2) No CENVAT Credit after manufacturing stage to a dealer: In the present regime, a manufacturer of dutiable goods charge excise duty and value added tax on intra-state sale of goods or CST on inter-state sale of goods. VAT or CST is levied inclusive of excise duty. Example 2: Invoice of a manufacturer cum seller: Particulars Value in (`) Value of Goods 1,00,000 Add: Excise duty 12.5% 12,500 4 The Institute of Cost Accountants of India Introduction Taxable Turnover 1,12,500 Add: VAT 14.5% 16,313 Invoice Price 1,28,813 (3) Cascading of taxes on account of levy of CST Inter-state purchases: Example 3: Mr. C of Calicut being a dealer purchased goods from Mr. H of Hyderabad by paying central sales tax of ` 2,000. Since, CST is not allowed as Input Tax Credit against VAT payable on local sales, VAT is calculated inclusive of CST causing cascading of tax. CST not allowed as ITC in case of Intra State purchases VAT Payable ` 2,500 Less: CST Not allowed as ITC Net VAT Liability ` 2,500 Goods Purchased from Mr. H (Hyd.) by paying CST of ` 2,000 Mr. C Mr. E Local sales VAT Calicut payable is ` 2,500 Ernakulum (4) The existing Indirect Tax frame work in India suffer from various duties and taxes at Central as well as at State level: Central Indirect taxes State Indirect Taxes Central Excise duty State Value Added Tax Excise duty levied under Medicinal and Toilet preparations (Excise duty) Act, 1955 Entertainment tax Service Tax Central Sales Tax CVD on import Entry tax Spl. CVD on import Purchase tax Central surcharge Luxury tax Central Cesses Betting and Gambling tax State surcharges State Cesses In the GST regime, all the above taxes have been subsumed in the ambit of GST. (5) Non Availment of Seamless ITC – VAT dealers were not able to take credit of excise duty charged by manufacturers. Duties paid under excise law were subsumed into cost beyond the manufacturing level. Like excise duty, VAT dealers were not able to take credit of service tax charged by the service providers on various input services. Since GST is a destination based consumption tax, revenue of SGST ordinarily accrues to the consuming States. The inter-state supplier in the exporting State is allowed to set off the available credit of IGST,CGST and SGST/ UTGST against the IGST payable on inter-state supply made by him. The Institute of Cost Accountants of India 5  Indirect Tax Laws & Practice (6) Tedious Process of issuance and collection of CST Forms and losses suffered due to them To avoid cascading effects of CST and to avail concessions or exemptions, various forms, like ‘C Form’, ‘F Form’, ‘H Form’, etc. had been prescribed which were issued / utilized by adhering to certain procedures. The forms prescribed under central sales tax rules 1957, include form C for making interstate purchase at lower rate, form F used to transfer goods from one branch to other in different state. The industry faced a lot of problems regarding the collection of forms and other procedural aspects. Therefore, they had to suffer losses due to the same. These are now done away with the introduction of GST in India. (7) Sharing of Data between Centre and States and various Boards The division of assesses between Centre and State is decided by the Centre and State Governments. GSTN got an application developed using which Central and State tax authorities have uploaded the data on allocation of migrated taxpayers in the GST System database. In order to ensure single interface for assesses under GST, the State Level Committees comprising of Chief Commissioner/Commissioner of Central Tax and Commissioner of State tax have assigned the taxpayers to be under either the Central Tax or State Tax administration based on the turnover of the assesses on a proportionate basis. The assesses having turnover above ` 1.5 crores are to be assigned in the ratio of 50:50 between the Centre and the respective State while those having turnover less than ` 1.5 Crores have to be assigned in the ratio of 10:90 between the Centre and the respective State. No choice has been given to assesses to opt for a particular tax administration i.e. Centre and State. 1.6 ONE NATION - ONE TAX GST will extend to whole of India including the State of Jammu and Kashmir. On 7th July, 2017, the Jammu and Kashmir Goods and Services Tax Bill, 2017 was passed by the State Legislature, empowering the State to levy State GST on intra-state supplies with effect from 8th July, 2017. Concomitantly, the President of India has promulgated two ordinances, namely, the Central Goods and Services Tax (Extension to Jammu and Kashmir) Ordinance, 2017 and the Integrated Goods and Services Tax (Extension to Jammu and Kashmir) Ordinance, 2017 extending the domain of Central GST Act and the Integrated GST Act to the State of Jammu and Kashmir, with effect from 8th July, 2017. With this, the State of Jammu and Kashmir has become part of the GST regime, making GST truly a “ one nation, one tax” regime. 1.7 DUAL GST MODEL India adopted a dual GST where tax imposed concurrently by the Central and States. Dual GST model SGST State GST Collected by the State Government CGST Central GST Collected by the Central Government IGST Integrated GST Collected by the Central Government on inter-state supply of Goods and Services Central Goods and Services Tax Act, 2017 (CGST): CGST levied and collected by Central Government. It is a revenue source to the Central Government of India, on intra-state supplies of taxable goods or services or both. State Goods and Services Tax Act, 2017 (SGST): SGST levied and collected by State Governments/Union Territories with State Legislatures (namely Delhi and Pondicherry) on intra-state supplies of taxable goods or services or both. It is a revenue source of the respective State Government. 6 The Institute of Cost Accountants of India Introduction Union Territory Goods and Services Tax (UTGST): UTGST levied and collected by Union Territories without State Legislatures, on intra-state supplies of taxable goods or services or both. Note: India is a Union of States. The territory of India comprises of the territories of the States and the Union territories. Currently, there are 28 States and 8 Union territories; of which, three (Delhi, Pondicherry and Jammu & Kashmir) are having Legislature. Methodology of Flow of Revenue between Centre and States Under GST, the tax levied on consumption of goods or rendering of service is split 50:50 between the Centre and the state (where the goods are consumed). GST, being a consumption-based tax, the state where the goods are consumed (i.e., recipient State) will receive the GST amount and the state from where goods are sold (i.e., supplier State) should not get any taxes. Let us try to understand the revenue sharing methodology between the Centre and State with the help of an example. Suppose that goods worth ` 10,000 are sold by manufacturer A from Maharashtra to Dealer B in Maharashtra. Dealer B resells them to Trader C in Rajasthan for ` 17,500. Suppose the applicable tax rates for the goods sold are CGST= 9%, SGST=9%, and IGST=9+9=18%. Since A is selling this to B in Maharashtra itself, it is an intra-state sale and so, CGST@9% and SGST@9% will apply. Dealer B (Maharashtra) is selling to Trader C (Rajasthan). Hence, this is an interstate sale, with IGST@18%. Trader C (Rajasthan) is selling to end user D also in Rajasthan. Once again, it is an intra-state sale and hence, CGST@9% and SGST@9% will apply. GST being a consumption-based tax the state where the goods were consumed(Rajasthan) will receive GST. By that logic, Maharashtra (where goods were sold) should not get any taxes. State Rajasthan and Central Government should have got (30,000*9%) = 2,700 each. Thus, Maharashtra (exporting state) will have to transfer credit of SGST of ` 900 (used in payment of IGST) to the Centre. [Any IGST credit will first be applied to set off in this order: First set off against IGST liability, then CGST and the balance credit will be used to set off SGST] In turn, Central Government will transfer to state Rajasthan (importing state) ` 450 IGST. Amount Received as Tax by Step Sale Price Maharashtra Rajasthan Central I A to B 10,000 10,000*9%=900 ------ 10,000*9%=900 II 17,500 ----- ------- 17,500*IGST@18% 3,150 B to C (-) CGST Credit 900 (-) SGST Credit 900 Net 1,350 III C to D 30,000 ----- 30,000*SGST@9% 2,700 30,000*CGST@9% 2,700 (-) IGST Credit 450 (-) IGST Credti *** 2,700 balance (3150-2700) Net 2,250 Net 0 Total 900 2,250 2,250 Receipt IV Adjustment (-) 900 (+) 450 (+) 450 Going to Centre Coming from Centre Final 0 2,700 2,700 The Institute of Cost Accountants of India 7  Indirect Tax Laws & Practice GST – in Union Territories without Legislature: Supplies within such Union territory, Central GST will apply to whole of India and hence, it would be applicable to all Union Territories, with or without Legislature. To replicate the law similar to State GST to Union Territories without Legislature, the Parliament has the powers under Article 246(4) to make such laws. Alternatively, the President of India may use his general powers to formulate such laws. Hence, law same as similar to State GST can be formulated for Union Territory without Legislature, by the Parliament. The following are Union Territories without Legislature: 1. Lakshadweep 2. Daman and Diu and Dadra and Nagar Haveli 3. Andaman and Nicobar Islands 4. Ladakh 5. Chandigarh Definition of Union Territory has been amended w.e.f. 30.6.2020 (Section 2(114) of CGST Act, 2017): Union Territory of Dadra Nagar Haveli and Union Territory of Daman and Diu have been merged in one single Union Territory w.e.f. 26-1-2020. Ladakh has been made Union Territory w.e.f. 31.10.2019. Integrated Goods and Services Tax Act, 2017 (IGST): IGST is a mechanism to monitor the inter-state trade of goods and services and ensure that the SGST component accrues to the Consumer State. It would maintain the integrity of ITC chain in inter-state supplies. The IGST rate would broadly be equal to CGST rate plus SGST rate. IGST would be levied and collected by the Central Government on all inter-State transactions of taxable goods or services. The revenue of inter-state sales will not accrue to the exporting state and the exporting state will be required to transfer to the Centre the credit of SGST/UTGST used in payment of IGST. How to Decide IGST or CGST + SGST while raising invoices: Location of Supplier and Place of Supply In same In different state states Intra State Transaction Inter State Transaction CGST + SGST IGST 8 The Institute of Cost Accountants of India Introduction 1.8 INTER-STATE VS INTRA-STATE STOCK TRANSFERS Intra-state stock transfer is taxable only when entity has more than one registration in one state. For example, Factory located in Tamil Nadu and warehouse is also located in the same state (i.e. Tamil Nadu) however, registered separately under GST, transfers between them treated as supply. Hence, CGST plus SGST will be levied. Inter-State stock transfer is taxable. It means IGST will be levied. Example 4: Ganesh Trading has head office in Telangana and two branches (i.e. Branch office -I in Telangana and Branch office -II in Andhra Pradesh). Stock transfers between Head office and Branch office within the same state where no separate registrations, GST is not levied. Whereas stock transfers between Head office and Branch office at inter state level, IGST will be levied. GST Inter / Intra State Branch Transfers BRANCH-1 Intra state branch transfers no GST Head Office Inter-state branch transfers attract IGST TELANGANA ANDHRA PRADESH BRANCH-2 Conclusion: From the above it is evident that revenue of inter-State sale will not accrue to the exporting State and the exporting State will be required to transfer to the Centre the credit of SGST/UTGST used in payment of IGST. The Centre will transfer to the importing State the credit of IGST used in payment of SGST/UTGST. The inter-state adjustment will be made by central clearing agency, hence assessees will not be concerned with such adjustment at all. Intra-state supply of goods or services or both: Example 5: Mr. C of Chennai supplied goods/services for ` 20,000 to Mr. M of Madurai. SGST and CGST rate on supply of goods and services is 9% each. IGST rate is 18%. Find the following: (a) Total price charged by Mr. C. (b) Who is liable to pay GST? The Institute of Cost Accountants of India 9  Indirect Tax Laws & Practice Answer: Particulars Value in (`) Supply of goods/services 20,000 Add: CGST 9% 1,800 Add: SGST 9% 1,800 (a) Total price charged by Mr. C from Mr. M for local supply of goods or services. 23,600 (b) Mr. C is liable to pay GST. Note: (1) Location of supplier and place of supply both within the same State of Tamil Nadu. Therefore, CGST & SGST applicable. (2) The CGST & SGST charged on Mr. M for supply of goods/services will be remitted by Mr. C to the appropriate account of the Central and State Government respectively. Example 6: Mr. M of Madurai supplied goods/services for ` 24,000 to Mr. S of Selam. Mr. M purchased goods/services for ` 23,600 (inclusive of CGST 9% and SGST 9%) from Mr. C of Chennai. Find the following: (a) Total price charged by Mr. M for supply of goods/services and (b) Who is liable to pay GST. (c) Net laibility of GST. Answer: Particualrs Value in (`) Value charged for supply of goods/services 24,000 Add: CGST 9% 2,160 Add: SGST 9% 2,160 (a) Total price charged by Mr. M from Mr. S for local supply of goods/services. 28,320 (b) Mr. M is liable to pay GST. Particualrs CGST (`) SGST (`) Output tax 2,160 2,160 Less: Input Tax Credit (ITC) (1,800) (1,800) (c) Net tax liability of Mr. M 360 360 Note: (1) By giving input tax credit, Government is not looser of revenue. Particualrs Revenue to Central Revenue to State Government (`) Government (`) Supply of goods/services by Mr. C to Mr. M 1,800 1,800 Add: supply of goods/services by Mr. M to Mr. S 360 360 Total 2,160 2,160 Inter-state supply of goods or services or both: Example 7: Mr. C of Chennai purchased goods at intra state as well as at inter state level by paying SGST ` 6,000, CGST ` 6,000 and IGST `12,000. Subsequently Mr. C sold these goods to Mr. H of Hyderabad (Trader) for ` 2,00,000 (IGST applicable @18%). Thereafter Mr. H of Hyderabad sold these goods to Mr. S of Secunderabad (Consumer) for ` 3,00,000 (CGST & SGST @18%). Find the Net GST liability of Mr. C and Mr. H. Also find net revenue to the State and Central Government. 10 The Institute of Cost Accountants of India Introduction Answer: Goods sold = ` 2,00,000 IGST 18% = ` 36,000 Mr. C of Chennai Input Tax Credit (ITC) Mr. S Mr. H SGST = ` 6,000 Secunderabad Hyderabad CGST = ` 6,000 (Consumer) (Trader) IGST = ` 12,000 Goods sold = ` 3,00,000 CSGT 9% = ` 27,000 SGST 9% = ` 27,000 Particulars of Mr. C of Chennai Value in (`) ITC ALLOWED Output tax IGST 36,000 Less: Input Tax Credit (ITC) IGST (12,000) 1st IGST CGST (6,000) 2nd CGST SGST (6,000) 3rd SGST Net tax paid to Central Government by Mr. C 12,000 Since, dealer has used SGST of Tamil Nadu to the extent of ` 6,000/- in pyament of IGST, Tamil Nadu State (i.e. exporting State) has to transfer ` 6,000/- to the credit of the Centre. IGST of ` 36,000/- is availed as credit by Telangana buyer (i.e. Mr. H of Hyderabad). Particulars of Mr. H of Hyderabad CGST (`) SGST (`) ITC ALLOWED Output tax 27,000 27,000 Less: Input Tax Credit (ITC) W.e.f. 1-4-2019 section 49A of CGST Act, 2017 read with Rule (27,000) (9,000) 88A of CGST Rules, 2017: IGST credit can be adjusted equally between CGST and SGST or any other proportion at the option of the assessee. Net tax paid to State Government by Mr. H Nil 18,000 Since, dealer has used IGST of ` 9,000/- to pay the SGST of Telangana State, the Centre has to transfer ` 9,000/- to the Telanaga State (i.e importing State). Revenue to the Centre = ` 36,000 – 9,000 = ` 27,000 (i.e. 9%) Revenue to the State = ` 18,000 + 9,000 = ` 27,000 (i.e. 9%) Total Revenue to the Government = 18% (One Nation-One Tax) The Institute of Cost Accountants of India 11  Indirect Tax Laws & Practice Example 8: Mr. A registered person under GST located in Tamil Nadu, sold goods worth ` 10,000 after manufacture to Mr. C of Chennai. Subsequently, Mr. C sold these goods to Mr. H of Hyderabad for ` 17,500. Mr. H being a trader finally sold these goods to customer Mr. S of Secunderabad for ` 30,000. Applicable rates of CGST= 9%, SGST=9% and IGST=18%. Find the net tax liability of each supplier of goods and revenue to the government. Answer: Since, Mr. A supplied goods to Mr. C in Tamil Nadu itself, it is an intra-state sale and both CGST @ 9% and SGST @ 9% will apply. Mr. C of Chennai supplied goods to Mr. H of Hyderabad. Since, it is an interstate sale, IGST@18% will apply. Mr. H of Hyderabad (Telangana) supplied goods to Mr. S of Secunderabad (Telangana). Once again it is an intra- state sale and both CGST @ 9% and SGST @ 9% will apply. Statement showing Net tax liability of Mr. A and revenue to Government: Particulars Value in CGST in (`) SGST in (`) IGST in (`) Remarks (`) Mr. A to Mr. C 10,000 900 900 Nil Value addition ` 10,000 Less: ITC Nil Nil Nil Nil Net liability of Mr. A 900 900 Nil Revenue to Centre Revenue to Tamil ` 900 Nadu ` 900 Statement showing net tax liability of Mr. C and revenue to the Government Particulars Value in (`) CGST in (`) SGST in (`) IGST in (`) Remarks Mr. C to Mr. H 17,500 Nil Nil 3,150 Less: ITC (900) (900) (1,800) 1st CGST [2nd SGST] Net liability of Mr. C Nil Nil 1,350 Value added ` 7,500 x 18% Since, Mr. C a dealer has used SGST of Tamil Nadu to the extent of ` 900/- in payment of IGST, Tamil Nadu State (i.e. exporting State) has to transfer ` 900/- to the credit of the Centre. Tamil Nadu (exporting state) revenue = ` 0 (i.e. 900 -900) Total revenue to the Centre = ` 3,150 (i.e. ` 1,350 + 900 received from Tamilnadu + 900 CGST already collected from Mr. A in 1st intra-state suppply) Statement showing net tax liability of Mr. H and revenue to the Government Particulars Value in (`) CGST in (`) SGST in (`) IGST in (`) Remarks Mr. H to Mr. S 30,000 2,700 2,700 Nil Less: ITC (2,700) (450) (3,150) W.e.f. 1-4-2019 section 49A of CGST Act, 2017 read with Rule 88A of CGST Rules, 2017: IGST credit can be adjusted equally between CGST and SGST or any other proportion at the option of the assessee after payment of IGST. Net liability of Mr. H Nil 2,250 Nil 12 The Institute of Cost Accountants of India Introduction Since, Mr. H a dealer has used IGST of ` 450/- to pay the SGST of Telangana State, the Centre has to transfer ` 450/- to the Telanaga State (i.e., importing State). Net revenue to the Telanaga State = ` 2,700 (i.e. 2,250 + 450) Net Revenue to the Centre = ` 2,700 (i.e. 3,125 – 450) Total revenue to the Government = ` 5,400 (i.e. 30,000 x 18%) This is called as one nation one tax. Example 9: Mr. C of Tamil Nadu supplied goods/services for ` 20,000 to Mr. M of Maharashtra. SGST and CGST rate on supply of goods and services is 9% each. IGST rate is 18%. Find the following: (a) Total price charged by Mr. C. (b) Who is liable to pay GST? Answer: Particulars Value in (`) Supply of goods/services 20,000 Add: IGST 18% 3,600 (a) Total price charged by Mr. C from Mr. M for inter-state supply of goods or services. 23,600 (b) Mr. C is liable to pay GST. Note: (1) Location of supplier and place of supply are in different States. Therefore, IGST is applicable. (2) The IGST charged on Mr. M for supply of goods/services will be remitted by Mr. C to the account of the Central Government. Example 10: Mr. M of Maharashtra supplied goods/services for ` 35,000 to Mr. P of Pune. Mr. M purchased goods/services for ` 23,600 (inclusive of IGST 18%) from Mr. C of Tamil Nadu. SGST and CGST rate on supply of goods and services is 9% each. Find the following: (a) Total price charged by Mr. M for supply of goods/services and (b) Who is liable to pay GST. (c) Net laibility of GST. Answer: Particualrs Value in (`) Value charged for supply of goods/services 35,000 Add: CGST 9% 3,150 Add: SGST 9% 3,150 (a) Total price charged by Mr. M from Mr. P for local supply of goods/services. 41,300 (b) Mr. M is liable to pay GST. The Institute of Cost Accountants of India 13  Indirect Tax Laws & Practice Particualrs CGST (`) SGST (`) Output tax 3,150 3,150 W.e.f. 1-4-2019 section 49A of CGST Act, Less: Input Tax Credit (ITC) (3,150) (450) 2017 read with Rule 88A of CGST Rules, 2017: IGST IGST credit can be adjusted equally between CGST and SGST or any other proportion at the option of the assessee. (c) Net tax liability of Mr. M Nil 2,700 Note: (1) By giving input tax credit Government is not looser of revenue. Revenue Revenue to Tamil Nadu Revenue to to Central State Government (`) Maharashtra State Particualrs Government (`) (Exporting State) Government (`) (Importing State) Supply of goods/services by Mr. C to Mr. M 3,600 - - Add: supply of goods/services by Mr. M to Mr. P Nil - 2,700 Add: Transfer by Centre to Maharashtra State (450) - 450 Total 3,150 - 3,150 Example 11: Mr. Mr. Raman, a supplier of goods, pays GST under regular scheme. The amount of input tax credit (ITC) available and output tax liability under different tax heads is as under: Head Output tax liability (`) ITC (`) IGST 2,000 4,000 CGST 800 2,000 SGST/UTGST 2,500 500 Compute the minimum GST payable in cash by Mr. Raman. Make suitable assumptions as required. Answer: Particualrs IGST CGST SGST/UTGST Remark (`) (`) (`) Output tax 2,000 800 2,500 W.e.f. 1-4-2019 section 49A of Less: Input Tax Credit (ITC) (2,000) Nil (2,000) CGST Act, 2017 read with Rule IGST 88A of CGST Rules, 2017: IGST credit can be adjusted equally between CGST and SGST or any other proportion at the option of the assessee. Less: Input Tax Credit (ITC) CGST Nil (2,000) NA Less: Input Tax Credit (ITC) SGST Nil NA (5,00) Net cash payable by Mr. Raman Nil Nil Nil Excess ITC c/f Nil (1,200) Nil 14 The Institute of Cost Accountants of India Introduction 1.9 GOODS AND SERVICES TAX NETWORK (GSTN) Goods and Services Tax Network (GSTN) is a [Section 8 of the Companies Act, 2013, (i.e. not for profit companies)], non-Government, private limited company. Technology backbone for GST in India. GST being a destination based tax, the inter- state trade of goods and services (IGST) would need a robust settlement mechanism amongst the States and the Centre. This is possible only when there is a strong IT Infrastructure and Service back bone which enables capture, processing and exchange of information amongst the stakeholders (including tax payers, States and Central Governments, Accounting Offices, Banks and RBI). As a result Goods and Services Tax Network (GSTN) has been set up. GST Network is a 100% govt-owned company: Cabinet consider converting GSTN to government entity on September 26, 2018. Goods and Services Tax Network (GSTN): Intra-state transaction - Tax payment and credit flow Functions of the GSTN (i.e. Role assigned to GSTN): Creation of common and shared IT infrastructure for functions facing taxpayers has been assigned to GSTN and these are: filing of registration application, filing of return, creation of challan for tax payment, settlement of IGST payment (like a clearing house), generation of business intelligence and analytics etc. All statutory functions to be performed by tax officials under GST like approval of registration, assessment, audit, appeal, enforcement etc. will remain with the respective tax departments. The Institute of Cost Accountants of India 15  Indirect Tax Laws & Practice 1.10 GST COUNCIL As per Article 279A of the Constitution of India, the President of India is empowered to constitute Goods and Services Tax Council. The President of India constituted the GST Council on 15th September, 2016. The GST Council shall consist of Union Finance Minster as a Chairperson, Union Minister of State in charge of Finance as a member, the State Finance Minister or State Revenue Minister or any other Minister nominated by each State as a member of the Council. The GST Council shall select one of them as Vice Chairperson of Council. Guiding principle of the GST Council: The mechanism of GST Council would ensure harmonization on different aspects of GST between the Centre and the States as well as among States. It has been provided in the Constitution (101st Amendment) Act, 2016 that the GST Council, in its discharge of various functions, shall be guided by the need for a harmonized structure of GST and for the development of a harmonized national market for goods and services. Functions of the GST Council: GST Council is to make recommendations to the Central Government and the State Governments on tax rates, exemptions, threshold limits, dispute resolution, GST legislations including rules and notifications etc. 16 The Institute of Cost Accountants of India Introduction 1.11 BODY OF GST LAW 1. Acts GOODS AND SERVICES TAX (COMPENSATION TO STATES) ACT, 2017 UNION TERRITORY GOODS AND SERVICES TAX ACT, 2017 INTEGRATED GOODS AND SERVICES TAX ACT, 2017 CENTRAL GOODS AND SERVICES TAX ACT, 2017 2. Rules Goods and services Tax Settlement of funds Rules, 2017. Integrated Goods and Services Tax Rules, 2017 Goods and Services Tax Compensation Cess Rules, 2017 Central Goods and Services Tax Rules, 2017 Union territory Goods and Services Rules, 2017. State goods and Service Tax Rules, 2017 (for 29 States and 2 Union territories deemed to be States) 3. Notifications IGST Notifications IGST (Rate) Notifications CGST Notifications CGST (Rate) Notifications UT GST Notifications UT GST (Rate) Notifications Cess Notifications Cess (Rate) Notifications 4. Circulars CGST IGST UTGST SGST GST COMPENSATION CESS 1.12 IMPORTANT DEFINITIONS UNDER CGST LAW (1) Sec 2(6), “aggregate turnover” means: The aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess; (2) Sec 2(17), “business” includes: (a) any trade, commerce, manufacture, profession, vocation, adventure, wager (i.e. bet, gamble) 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; The Institute of Cost Accountants of India 17  Indirect Tax Laws & Practice (h) services provided by a race club by way of totalisator (i.e. computer that registers bets and divides the total amount bet among those who won) or a licence to book maker in such club; w.e.f. 1-2-2019, 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”; 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; Note: Book maker means: a person whose job is to take bets (especially on horse races), calculate odds, and pay out winnings; the manager of a betting shop. As per CSGT (Amendment) Act, 2018, “business” includes – (h) activities of a race club including by way of totalisator or a license to book maker or activities of a licensed book maker in such club; Changes are being made to ensure that all activities related to a race club are included. It may be noted that (vide Notification No 3/2018 Central Tax dated 23rd January, 2018,) the Government had notified that the value of supply of actionable claim in the form of chance to win in betting , gambling or horse racing in a race club is amended to 100% of the face value of the bet or the amount paid into the totalisator. (3) Sec 2(18), “business vertical” means: A distinguishable component of an enterprise that is engaged in the supply of individual goods or services or a group of related goods or services which is subject to risks and returns that are different from those of the other business verticals. Explanation. – For the purposes of this clause, factors that should be considered in determining whether goods or services are related include–– (a) the nature of the goods or services; (b) the nature of the production processes; (c) the type or class of customers for the goods or services; (d) the methods used to distribute the goods or supply of services; and (e) the nature of regulatory environment (wherever applicable), including banking, insurance, or public utilities; The said definition, however, has been omitted vide the CGST (Amendment) Act, 2018. (4) Sec 2(20), “casual taxable person” means: A person who occasionally undertakes transactions involving supply of goods or services or both in the course or furtherance of business, whether as principal, agent or in any other capacity, in a State or a Union territory where he has no fixed place of business; (5) Sec 2(30), “composite supply” means: A supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply; Illustration — 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; (6) Sec 2(31), “consideration” in relation to the supply of goods or services or both includes–– (a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; (b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government: 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. 18 The Institute of Cost Accountants of India Introduction (7) Sec 2(32), “Continuous supply of goods” means: A supply of goods which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, whether or not by means of a wire, cable, pipeline or other conduit, and for which the supplier invoices the recipient on a regular or periodic basis and includes supply of such goods as the Government may, subject to such conditions, as it may, by notification, specify; (8) Sec 2(33), “Continuous supply of services” means: A supply of services which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, for a period exceeding three months with periodic payment obligations and includes supply of such services as the Government may, subject to such conditions, as it may, by notification, specify; (9) Sec 2(45), Electronic Commerce Operator means: Any person, who owns, operates or manages digital or electronic facility or platform for electronic commerce. (10) Sec 2(50), “Fixed establishment” means: A place (other than the registered place of business) which is characterised by a sufficient degree of permanence and suitable structure in terms of human and technical resources to supply services, or to receive and use services for its own needs; (11) Sec 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 served before supply or under a contract of supply. (12) Section 2(56), “India” means: The territory of India as referred to in Article 1 of the Constitution, its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, and the air space above its territory and territorial waters; (13) Sec 2(62), “input tax” in relation to: A registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes — (a) the integrated goods and services tax charged on import of goods; (b) the tax payable under the provisions of sub-sections (3) and (4) of section 9; (c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act; (d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or (e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act, but does not include the tax paid under the composition levy; (14) 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; Example 11: (1) Alcoholic Liquor for human consumption is Non-taxable Supply. (2) Sale of Land etc. (15) Sec 2(84), “person” includes— (a) an individual; (b) a Hindu Undivided Family; (c) a company; (d) a firm; The Institute of Cost Accountants of India 19  Indirect Tax Laws & Practice (e) a Limited Liability Partnership; (f) an association of persons or a body of individuals, whether incorporated or not, in India or outside India; (g) any corporation established by or under any Central Act, State Act or Provincial Act or a Government company as defined in clause (45) of section 2 of the Companies Act, 2013; (h) any body corporate incorporated by or under the laws of a country outside India; (i) a co-operative society registered under any law relating to co-operative societies; (j) a local authority; (k) Central Government or a State Government; (l) society as defined under the Societies Registration Act, 1860; (m) trust; and (n) every artificial juridical person, not falling within any of the above; (16) Sec. 2(90), “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; (17) Sec. 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; (18) Section 2(98), “reverse charge” means: The liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub- section (4) of section 5 of the Integrated Goods and Services Tax Act; (19) 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; w.e.f. 1-2-2019: Explanation [inserted vide the CGST (Amendment) Act, 2018] – For the removal of doubts, it is hereby clarified that the expression “services” includes facilitating or arranging transactions in securities. Example - Some service charges or service fees or documentation fees or broking charges or such like fees or charges are charged in relation to transactions in securities. (20) 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; (21) Section 2(107), “taxable person” means: A person who is registered or liable to be registered under section 22 (i.e. registration required if turnover exceed threshold limit and so on) or section 24 (i.e. Compulsory registration under GST). (22) Section 2 (108), “taxable supply” means: A supply of goods or ser