gst tax mod 1-5 Flashcards
ARTICLE 246A
is a special provision that grants the power to make laws on goods and services tax (GST) to both the central and state governments.
However, the Parliament of India is given the exclusive power to make laws with respect to inter-state supplies. The IGST Act deals with inter-state supplies. the power to make laws under the IGST Act will rest exclusively with the Parliament. Further, the article excludes
the following products from the scope of GST until a date recommended by the GST Council:
Petroleum Crude
High-Speed Diesel
Motor Spirit
Natural Gas
Aviation Turbine Fuel
Article 269A:
the manner of distribution of revenue from interstate supplies
between the Centre and the State is covered in Article 269A.
This gives the Central Government the power to
levy IGST on import transactions. Import of goods was
subject to Countervailing Duty (CVD) in the earlier scheme of taxation. IGST levy helps a taxpayer to avail the credit of IGST paid on import along the supply chain, which was not possible before.
Article 279A: GST Council
This Article gives power to the President to constitute a joint forum of the Centre and States called the GST Council. The GST Council is an apex member committee to modify, reconcile or to procure any law or regulation based on the context of Goods and Services Tax in India. Some points with respected to GST Council:
Members
Quorum= 1/3
Weightage= central govt 1/3 of votes weigtage and state gets 2/3 of votes
CONSTITUION AND GST
- Article 270 has been amended to provide for
distribution of goods and services tax collected by the Union between the Union and the States. - Article 271 has been amended which restricts power of the Parliament to levy surcharge under GST. In effect, surcharge cannot be imposed on goods and services which are subject to tax under Article 246A.
- Article 279A has been inserted to provide for the
constitution and mandate of GST Council. - Article 366 has been amended to exclude alcoholic liquor for human consumption from the ambit of GST, and services have been defined.
historical tax
b4 gst the most important sources of
indirect tax revenue for the Union were customs duty (entry 83 of Union List), central excise duty (entry 84 of Union List), and service tax (entry 97 of Union List).
force. Union also levied tax called Central Sales Tax (CST) on inter-State sale and purchase of goods
and on inter-State consignments of goods by virtue of entry 92A and 92B respectively.
the most important sources of tax
revenue were tax on sale and purchase (entry 54 of the State List), excise duty on alcoholic liquors, opium and narcotics (entry 51 of the State List), Taxes on luxuries,
entertainments, amusements, betting and gambling (entry 62 of the State List), octroi or entry tax (entry 52
of the State List) and electricity tax ((entry 53 of the State List). CST was also an important source of revenue though the same was levied by the Union.
who needs to register for gst and what is the threshold
GST registration is mandatory for:
- Businesses with turnover above the threshold limit (detailed below).
- Inter-state suppliers (selling goods/services between states).
- Casual taxable persons (temporary businesses, e.g., exhibitions).
- E-commerce operators (like Amazon, Flipkart).
- Businesses required under reverse charge mechanism (where the recipient pays GST).
- Non-resident taxable persons (foreign businesses providing taxable supplies in India).
Threshold limits
GOODS:
normal state- 40L, Special state 20L annual turnover
SERVICES:
normal state- 20L, Special= 10L annual turnover
other business below threshold can also voluntarily register and these benefits will include Input Tax Credit (ITC)
GST framework
2000- concept of gst was introduced and a council was set up to design a gst model for the country
2003- central govt created a taskforce on Fiscal Responsibility and Budget
Management, which in 2004 recommended GST to
replace the existing tax regime to replace cetral and state level VAT
- Kelkar task force on fiscal responsibility and budget management.
- ## 2006-2007= Union Finance minister announced the GST would come into force by 2010
SECTION 7 OF CGST ACT, 2017- supply definition
- The various things included in the word supply are: In exchange for **CONSIDERATION- **
Sale, Transfer, Barter, Exchange, License, Rental, Lease, Disposal in course or furtherance of business - Import of services of a service whether or not in the course or furtherance of business
- activities under schedule 1 without consideration
what is composition scheme
The Composition Scheme is a simplified GST payment method designed for small businesses to reduce compliance burdens and paperwork.
businesses under this scheme pay a fixed percentage of their turnover as tax and file fewer returns.
WHO can OPT for composition scheme?
- small business with turnover up to 1.5Cr in financial year, 75L for special states
- Service providers- turnover upto 50L per year
- traders, manufacturers= 1% gst (equal split between cgst and sgst)
- Restaurants not serving alcohol= 5% (2.5% cgst, 2.5% sgst)
- Service providers= 6% (3% CGST + 3% SGST)
Cannot claim Input Tax Credit (ITC).
🚫 Cannot charge GST on invoices (must issue a “Bill of Supply” instead).?
Builders Association of India v. Union of India:
Builders Association of India v. Union of India (1989) 2 SCC 645
Facts:
The case challenged the constitutional validity of the 46th Amendment to the Constitution, which was enacted to expand the taxation powers of states by allowing them to levy sales tax on works contracts (composite contracts involving both goods and services). Before this amendment, works contracts were not considered “sales” under Article 366(29A) of the Constitution, limiting states’ ability to impose sales tax on them.
Issue:
The Builders Association of India argued that the amendment violated the fundamental structure of the Constitution and that states could not impose sales tax on works contracts.
Final Decision:
The Supreme Court upheld the constitutional validity of the 46th Amendment, ruling that states had the power to levy sales tax on the goods component of works contracts. However, it clarified that the tax could only be imposed on the value of goods involved in the contract and not on the entire contract, as that would amount to taxing services, which is beyond state jurisdiction.
This case reaffirmed the division of taxation powers between the Centre and states and clarified how works contracts should be taxed.
State of UP v. Union of India (2003) 3 SCC 239
State of UP v. Union of India (2003) 3 SCC 239
“sale” under the expanded definition provided by the 46th Amendment.
Issue:
The key question was when the transfer of the right to use goods is deemed to be completed—whether at the execution of the contract or at the actual delivery of the goods.
Final Decision:
The Supreme Court held that the transfer of the right to use goods is completed when the contract itself is completed, regardless of whether physical possession of the goods has been transferred. This clarified that states could levy sales tax on such transactions as soon as the contractual obligations for leasing were fulfilled.
This ruling reinforced that sales tax applies to the transfer of the right to use goods, not just physical sales, expanding the taxation scope for states.
defining transfer in income tax act
transfer in relation to capital asset includes:
1. sale, exchange, relinquishment of asset
2. extinguishmnet of any rights
3. compulsory acquisition
4. asset when converted by owner or is treated as stock in trade of a business carried on by him
TRANSACTIONS NOT QUALIFYING AS
SUPPLIES
Schedule 3
TRANSACTIONS NOT QUALIFYING AS
SUPPLIES
- Services by an employee to the employer
- Services by any Court or Tribunals
- Functions of MPs, MLAs, etc
- Constitutional Duties
- Duties performed by persons on statutory bodies
- Services related to funeral
- Sale of Land
- Actionable claims : Section 3 of TPA
SCHEDULE 1
Schedule I lists transactions that are treated as “supply” even if no consideration (payment) is involved.
1️⃣Permanent Transfer or Disposal of Business Assets
✅ If a business transfers or disposes of assets permanently, and ITC (Input Tax Credit) was availed on those assets, GST is applicable.
2️⃣ Supply Between Related Persons or Between Distinct Persons
Example: A company’s branch in Mumbai supplies goods to its branch in Delhi—GST applies even if no money is exchanged.
🔹 Who are Related Persons? (As per GST rules)
- Directors, partners, employer-employee.
- Holding-subsidiary companies.
- Entities controlled by the same third party.
Exceptions:
🚫 Gifts up to ₹50,000 per year to employees are exempt.
3️⃣ Supply of Goods by a Principal to an Agent & Vice Versa
4️⃣ Import of Services from a Related Person or Business Establishment Outside India- GST is applicable under Reverse Charge Mechanism (RCM).
POWERS OF CENTRAL AND STATE
GOVERNMENT under s.7 (3)
POWERS OF CENTRAL AND STATE
GOVERNMENT
Section 7 (3) has given certain powers to issue
notification with respect to:
Determine whether a transactions is a supply of
goods
Determine whether a transaction is a supply of
service
Declare whether a particular transaction is neither a
Determine whether a transactions is a supply of
goods
Determine whether a transaction is a supply of
service
Declare whether a particular transaction is neither a
supply of goods nor a supply of services
supply of goods nor a supply of services
m, “supply” has been inclusively defined in the Act
transaction as supply:
1. Supply of goods or services. Supply of anything other
than goods or services does not attract GST
2. Supply should be made for a consideration
3. Supply should be made in the course or furtherance
of business
4. Supply should be made by a taxable person
5. Supply should be a taxable supply
6. Supply should be made within the taxable territory
SUPPLY BY TAXABLE PERSONS registrations in states
should be noted that GST in India is State-centric. Hence, a person making supplies from different States needs to take separate registration in each State. Further, the person may take more than one registration within a State if the person has multiple business verticals. A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union
territory shall, in respect of each such registration, be treated as distinct persons for the purposes of GST. Hence, a supply between these entities constitutes supply under GST
Inter/Intra State Supply
Inter/Intra State Supply
The location of the supplier and the place of supply determines whether a supply is treated as an Intra State supply or an Inter State supply. Determination of the nature of supply is
essential to ascertain whether integrated tax is to be paid or Central plus State tax are to be paid. Inter- State supply of goods means a supply of goods where the location of the supplier and place of supply are in different States or Union
*Imports, Supplies from
and to SEZs are treated as deemed Inter-State supplies. *
Composite/Mixed Supply
A composite supply means a supply made by a taxable person to a recipient comprising
- two or more supplies of goods or services 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
e, a travel ticket from Mumbai to Delhi may include
service of food being served on board, free insurance, and the use of airport lounge. In this case, the transport of passenger, constitutes the pre-dominant element of the composite
supply, and is treated as the principal supply and all other supplies are ancillary.
the gst rate of the principal supply will apply on the entire supply
The GST Law lays down the tax liability on a composite or
mixed supply in the following manner.
The GST Law lays down the tax liability on a composite or
mixed supply in the following manner.
1. Composite Supply comprising two or more supplies one of which, is a principal supply, shall be treated as supply of such principal supply.
2. Mixed Supply comprising two or more supplies, shall be treated as supply of that particular supply which attracts the highest rate of tax.
bundled supply meaning
if it is naturally bundled= composite supply
not naturally bundled= mixed supply
Various ways to identify (or) determine a supply is
naturally bundled:
1If buyers mostly expect such services to be provided as a package, then the package will be treated as naturally bundled.
Ex: Most business conventions look for combination of hotel accommodation, auditorium and food.
2.if most of the service providers in the industry provide a package of services then it can be considered as naturally bundled.
Ex: Air transport and food on board is a bundle offered by most airlines.
Mixed supply interpretation and rate of tax
Section 8 defines “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”.
Interpretation of Mixed Supply:
A mixed supply comprising of:
Two or more supplies, not naturally bundled
Shall be treated as a supply of that particular supply
Which attracts highest rate of tax
A Diwali gift box consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drink and fruit juices supplied for a single price is a mixed supply. All are also sold separately.
Tax Implication:
Since aerated drinks have the highest GST rate of 28%, hence 28% will apply on the entire gift box.
what is reverse charge mechanism
“The reverse charge means the liability to pay tax by the recipient of supply goods /services/both instead of supplier of
goods/services/both under a few sections”
Generally, the supplier of goods or services is liable to pay GST.
However, in specified cases like imports and other notified
supplies, the liability may be cast on the recipient under the reverse charge mechanism.
2 scenarios of reverse charge=
1. First is dependent on the nature of supply and/or nature of supplier.
2. Second scenario is where taxable supplies by any unregistered person to a registered person is covered.
WHEN RCM IS APPLIED
A. Supply from an Unregistered dealer to a Registered dealer
If a vendor who is not registered under GST, supplies goods to a person
who is registered under GST, then Reverse Charge would apply . This means that the GST will have to be paid directly by the receiver to
the Government instead of the supplier.
For Inter-state purchases the buyer has to pay IGST. For Intra-state purchased CGST and SGST has to be paid under RCM by the
purchaser.
B. Services thorugh e commerce operator
If an e-commerce operator supplies services then reverse charge will be applicable to the e-commerce operator. He will be liable to pay
GST. For example, urbanClap provides services of plumbers, electricians,
teachers, beauticians etc. UrbanClap is liable to pay GST and collect it from the customers instead of the registered service providers.
C. Supply of certain goods and services specified by CBEC
Schedule 2
ACTIVITIES 1
[OR TRANSACTIONS] TO BE TREATED AS SUPPLY OF GOODS OR SUPPLY OF
SERVICES
- Transfer - transfer of title of goods
- any agreement regarding transfer of title of goods under an agreement which stipulates that title of goods shall pass at future date upon payment of full consideration per agreement - is supply of goods - land and building - any lease tenancy license- supply of services
- treament or process- done to another persons goods= supply of service
- business assets - whether or not for consideration, the usage of business assets being made available to another person is a supply of service
- supply of services includes renting of immovable property and construction of immovable property (so a builder is a supplier of service)
what is RCM
RCM is when the recipient has to pay gst instead of the supplier paying gst.
- If a vendor who is not registered under GST,
- Service through e-commerce operator
- supply of certain goods specified by CBEC
supply from vendor not registered
If a vendor who is not registered under GST, supplies goods to a person
who is registered under GST, then Reverse Charge would apply. This
means that the GST will have to be paid directly by the receiver to
the Government instead of the supplier.
The registered dealer who has to pay GST under reverse charge has to
do self-invoicing for the purchases made.
For Inter-state purchases the buyer has to pay IGST. For Intra-state
purchased CGST and SGST has to be paid under RCM by the
purchaser.
B. Services through an e-commerce operator
an e-commerce operator supplies services then reverse charge will
be applicable to the e-commerce operator. He will be liable to pay
GST.
urbanClap provides services of plumbers, electricians,
teachers, beauticians etc. UrbanClap is liable to pay GST and collect
it from the customers instead of the registered service providers.
If the e-commerce operator does not have a physical presence in the
taxable territory, then a person representing such electronic
commerce operator for any purpose will be liable to pay tax. If there
is no representative, the operator will appoint a representative who
will be held liable to pay GST.
MODE OF PAYMENT UNDER RCM
?
As per section 49(4),the amount available in the electronic credit
ledger may be used for making payment towards output tax under
CGST/IGST.
Section 2(82) of CGST Act specifically excluded tx payable on
reverse charge basis in “Output tax”.
Therefore, when section 49(4) is read with section 2(82),it becomes
clear that the GST under reverse charge cannot be paid by utilizing
input tax credit i.e the electronic credit ledger cannot be utilized for
it.
Hence ,when gst is payable under reverse charge, it should be paid
by cash only. It means it will be paid through electronic cash ledger
only.
tell me about section 9(3), 9(4), 9(5) of cgst and
and these are the same as section 5(3), 5(4), 5(5) of IGST act just for interstate
9(3) Reverse Charge on specific goods/services Recipient (Buyer) as specified by govt such as tobacco or legal services, purchase of raw cotton from agriculturalist
9(4) Reverse Charge on purchases from unregistered suppliers Registered recipient (if notified)
9(5)The Government can specify certain services where GST must be paid not by the service provider but by the e-commerce operator (ECO).
The ECO is treated as the supplier for tax purposes and must comply with GST rules
Mohit Minerals Pvt. Ltd. v. Union of India (2022):
Mohit Minerals Pvt. Ltd. v. Union of India (2022): The case dealt
with the constitutionality of RCM on ocean freight services.
Judgment: The Supreme Court held that imposing RCM on ocean
freight is unconstitutional as it amounts to double taxation.
Kandla Export Corporation v. Union of India (2020):
Kandla Export Corporation v. Union of India (2020): Validity of RCM on GTA services.
Judgment: The Gujarat High Court upheld the validity of RCM on GTA services, emphasizing its necessity for compliance.
RCM applies to GTA services only if a consignment note is issued.
Reverse Charge Mechanism (RCM) Applicability
Services
- Procurement of goods or services from an unregistered person – GST at applicable rate.
- Import of services – GST at applicable rate.
- Insurance agent services – GST at 18%.
- Goods Transport Agency (GTA) services (if opting for RCM) – GST at 5%
- Arbitral tribunal services – GST at 18%.
- Legal services (Advocates & Senior Advocates) – GST at 18%
- Accommodation services (hotels, inns, etc.) via E-Commerce Operator – GST at 18% (paid by E-Commerce Operator).
- Restaurant services via E-Commerce Operator
- Procurement of goods or services by real estate builders from unregistered persons – GST at 28% on cement and 18% on other goods/services.
- Transfer of Development Rights (TDR) or Floor Space Index (FSI) for construction projects – GST at 18%.
- Long-term lease of land (30+ years) for construction projects – GST at 18%
Goods Under RCM
Goods Under Reverse Charge Mechanism (RCM)
- Imported goods (from outside India)
- Cashew nuts (not shelled or peeled) from an agriculturist
- Bidi wrapper leaves (tendu) from an agriculturist
- Tobacco leaves from an agriculturist
- Certain essential oils (e.g., peppermint, spearmint, water mint, etc.) from unregistered persons
- Silk yarn from a manufacturer of silk yarn
- Raw cotton from an agriculturist
- Lottery supply by State Government/Union Territory/local authority to distributors or selling agents
- Used vehicles, seized/confiscated goods, scrap, and old goods sold by Government/local authority to registered persons
- Priority Sector Lending Certificates (PSLCs) traded between registered persons
This is the refined RCM goods list without GST rates. Let me know if you need any more modifications! 🚀
what is composition scheme
and who can opt Section 10
- Opting for the Composition Scheme means a business pays a fixed percentage of turnover as GST, rather than charging GST at normal rates.-
threshold is if a business is below 1.5Cr per notification aggregate turnover in previous year.
then the percentage tax to be paid will be:
1. for turnover in state or union territory for manufaturer = 1%
2. 5% of turnover – Restaurants (not serving alcohol).
2. suppliers= 1%
3. Services=6%
Special Composition Scheme for Service Providers (Sub-section 2A)
If a registered person is not eligible under sub-section (1) but has a turnover up to ₹50 lakh, they can opt for a special 3% GST composition (total 6% ig) scheme.
A reigstered person opting for composition for GOODS is allowed to supply services (apart from restaraunt service) but service cannot exceed 10% of turnover or ₹5 lakh, whichever is higher.
Interest/discount income from loans/deposits is excluded from turnover calculations.
Who CANNOT Opt for the Composition Scheme?
section 10
Who CANNOT Opt for the Composition Scheme?
❌ The following categories are not eligible:
- Businesses that sell goods inter-state.
- Businesses that sell through e-commerce platforms (like Amazon, Flipkart).
- Manufacturers of notified goods (such as tobacco, ice cream, pan masala).
- Casual taxable persons and non-resident taxable persons.
- If a person has multiple GST registrations under the same PAN, all must opt for the scheme together.
Turnover limits for composition levy for GOODS and service and conditions
special category states except assam, Himachal and JK,= 75 Lakh
Remaining states= 1.5 Crore
SERVICES:
50 Lakh in Preceding FY
CONDITIONS:
- cannot be a casual taxable person or non resident taxable person
- shall pay tax under section 9(3), 9(4) on Inward supply
- shall mention the words “composition taxable persons , not eligible to collect tax on supplies” on top of the bill
- has to mention ‘composition taxable person’ on every notice or signboard displayed prominently at their place of business.
- cannot claim input tax credit
LEGAL SERVICES exempt
Definition and Scope of Legal Services: Legal services refer to any service
provided by an advocate, law firm, or arbitral tribunal in relation to legal
proceedings or legal consultation. These services include litigation,
advisory, and representational activities.
legal services are exempt from gst including:
1. An individual advocate (including a senior advocate)
2. A firm of advocates
3. An arbitral tribunal
however RCM of 18% WILL APPLY if a senior advocate provides services to:
1. to a business entity that is registered under GST, GST will be charged.
2. When a Senior Advocate provides services to an unregistered business entity with an annual turnover exceeding ₹20 lakh (₹10 lakh in special category states)
WHY?
Rationale for GST Exemption on Legal Services
- To ensure access to justice by reducing the cost burden on litigants
- To support independent professionals like advocates who serve the
public interest - To uphold constitutional mandates, such as the right to legal
representation
Government Services and GST Exemptions
Definition and Scope of Government Services: Government services
cover a broad range of functions provided by Central, State, and Local
governments that are essential for governance and public welfare
Example:
1. Issuance of birth and death certificates by municipal corporations
2. Law and order maintenance services by police
Usually service gst will NOT be levied UNLESS:
1. The recipient is a business entity; w turnover of 20L/10L
The service is in the nature of renting immovable property,
advertisement, life insurance, speed post, also in relation to aircraft or vessels etc.
Health Care Services and GST Exemptions
Exemptions:
1. Health care services provided by a clinical establishment
2. Services by an authorized medical practitioner
3. Ambulance services
